14:49:09 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



MKS Instruments Reports Third Quarter 2018 Financial Results

2018-10-23 16:30 ET - News Release

ANDOVER, Mass., Oct. 23, 2018 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2018 financial results.

Quarterly Financial Results
(in millions, except per share data)
 Q3 2018Q2 2018
GAAP Results  
Net revenues$487$573
Gross margin47.6%48.0%
Operating margin24.0%26.4%
Net income$93$123
Diluted EPS$1.70$2.22
Non-GAAP Results  
Gross margin47.6%48.0%
Operating margin26.5%28.3%
Net earnings$103$129
Diluted EPS$1.88$2.33

Third Quarter 2018 Financial Results
Revenue was $487 million, a decrease of 15% from a record of $573 million in the second quarter of 2018 and an increase of $1 million from $486 million in the third quarter of 2017.

Net income was $93 million, or $1.70 per diluted share, compared to net income of $123 million, or $2.22 per diluted share, in the second quarter of 2018, and $76 million, or $1.38 per diluted share, in the third quarter of 2017.

Non-GAAP net earnings, which exclude special charges and credits, were $103 million, or $1.88 per diluted share, compared to $129 million, or $2.33 per diluted share, in the second quarter of 2018, and $86 million, or $1.56 per diluted share, in the third quarter of 2017.

Sales in the Vacuum and Analysis Division were $286 million, a decrease of 7% from the third quarter a year ago, primarily due to moderation in semiconductor capital equipment spending.  Sales in the Light and Motion Division were $201 million, an increase of 13% from the prior year period.

Sales to semiconductor customers were $259 million, a decrease of 8% compared to the third quarter of 2017, and sales to Advanced Markets were $228 million, an increase of 11% compared to the third quarter of 2017.

“Despite the recent moderation in the semiconductor market, we are pleased with our strong financial results for the third quarter, reflecting our ability to manage through these cycles," said Gerald Colella, Chief Executive Officer.  "Although we foresee the semiconductor market will continue to face headwinds in the near term, exiting the third quarter we have seen that our semiconductor business has been more steady and consistent.  We are very optimistic on the long-term growth drivers within the semiconductor market.  Moreover, we have continued to diversify our markets, customers and product portfolio and are on target to grow our Advanced Markets more than two times faster than the overall market.”

“The acquisition of Newport Corporation, which was completed two years ago, coupled with strong organic growth has continued to expand our portion of revenue from Advanced Markets,” said Seth Bagshaw, Chief Financial Officer. “In the past five years, we have grown our Advanced Market revenue from approximately $211 million in 2013 to approaching over $900 million in 2018.  Advanced Markets represented approximately 47% of consolidated revenue in the third quarter and year to date revenue increased almost 20% from the same period a year ago.”

Additional Financial Information
The Company had $620 million in cash and short-term investments and $348 million of Term Loan Debt as of September 30, 2018.  During the third quarter of 2018, the Company repurchased 818 thousand shares for $75 million at an average price of $91.67 per share and paid a dividend of $10.9 million or $0.20 cents per diluted share.

Fourth Quarter 2018 Outlook
Based on current business levels, the Company expects that revenue in the fourth quarter of 2018 could range from $420 to $460 million.

At these volumes, GAAP net income could range from $1.19 to $1.45 per diluted share and Non-GAAP net earnings could range from $1.38 to $1.64 per diluted share.  This financial guidance incorporates assumptions made based upon the Company’s current interpretation of the 2017 Tax Cuts and Jobs Act and may change as additional clarification and implementation guidance is issued.

Conference Call Details
A conference call with management will be held on Wednesday, October 24, 2018 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 4268689, 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 and optics.  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, 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, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to the re-pricings of our term loan, amortization of debt issuance costs, environmental costs related to an acquisition, costs associated with the sale of a business, the one-time tax effects of the 2017 Tax Cuts and Jobs Act, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, a tax adjustment related to the sale of a business 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. 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 challenges, risks and costs involved with integrating the operations of the companies we have acquired, including our most recent acquisition of Newport Corporation, the Company’s ability to successfully grow our business, potential fluctuations in quarterly results, the terms of our term loan, 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, 2017 filed with 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

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  
  September 30, September 30, June 30, 
   2018 2017  2018 
    (Note 12)   
Net revenues:       
Products $  426,255  $  428,891  $  509,999  
Services    60,897     57,376     63,141  
Total net revenues    487,152     486,267     573,140  
              
Cost of revenues:       
Products    219,311     226,445     266,890  
Services    35,981     31,827     31,373  
Total cost of revenues    255,292     258,272     298,263  
        
Gross profit    231,860     227,995     274,877  
Research and development    31,898     32,548     36,504  
Selling, general and administrative    70,822     71,347     76,181  
Acquisition and integration costs    36     2,466     (1,168) 
Restructuring    1,364     10     790  
Fees and expenses related to repricing of term loan    —     492     378  
Amortization of intangible assets    10,695     10,977     10,901  
Income from operations    117,045     110,155     151,291  
Interest income    1,516     873     1,456  
Interest expense    3,719     7,172     3,922  
Other expense, net    326     2,485     281  
Income from operations before income taxes    114,516     101,371     148,544  
Provision for income taxes     21,239     25,377     25,682  
Net income $  93,277  $  75,994  $  122,862  
Net income per share:       
Basic $  1.71  $  1.40  $  2.25  
Diluted $  1.70  $  1.38  $  2.22  
Cash dividends per common share $  0.20  $  0.18  $  0.20  
Weighted average shares outstanding:        
Basic    54,476     54,282     54,719  
Diluted    54,954     55,101     55,274  
        
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results: 
  
Net income $  93,277  $  75,994  $  122,862  
Adjustments:       
Acquisition and integration costs (Note 1)    36     2,466     (1,168) 
Fees and expenses related to repricing of term loan (Note 2)     —     492     378  
Amortization of debt issuance costs (Note 3)    682     2,314     660  
Restructuring (Note 4)    1,364     10     790  
Amortization of intangible assets    10,695     10,977     10,901  
Windfall tax benefit on stock-based compensation (Note 5)    (287)    (594)    (4,752) 
Accrued tax on subsidiary distribution (Note 6)    (2,756)    —     —  
Transition tax on accumulated foreign earnings (Note 7)    863     —     (659) 
Pro-forma tax adjustments    (659)    (5,789)    (200) 
Non-GAAP net earnings (Note 8)  $  103,215  $  85,870  $  128,812  
Non-GAAP net earnings per share (Note 8) $  1.88  $  1.56  $  2.33  
Weighted average shares outstanding    54,954     55,101     55,274  
Income from operations $  117,045  $  110,155  $  151,291  
Adjustments:       
Acquisition and integration costs (Note 1)    36     2,466     (1,168) 
Fees and expenses related to repricing of term loan (Note 2)     —     492     378  
Restructuring (Note 4)    1,364     10     790  
Amortization of intangible assets    10,695     10,977     10,901  
Non-GAAP income from operations (Note 9) $  129,140  $  124,100  $  162,192  
Non-GAAP operating margin percentage (Note 9)  26.5%  25.5%  28.3% 
Interest expense $  3,719  $  7,172  $  3,922  
Amortization of debt issuance costs (Note 3)    682     2,314     660  
Non-GAAP interest expense $  3,037  $  4,858  $  3,262  
Net income $  93,277  $  75,994  $  122,862  
Interest expense, net    2,203     6,299     2,466  
Provision for income taxes    21,239     25,377     25,682  
Depreciation    8,834     9,153     8,984  
Amortization    10,695     10,977     10,901  
EBITDA (Note 10) $  136,248  $  127,800  $  170,895  
Stock-based compensation    5,213     4,846     6,366  
Acquisition and integration costs (Note 1)    36     2,466     (1,168) 
Fees and expenses related to repricing of term loan (Note 2)     —     492     378  
Restructuring (Note 4)    1,364     10     790  
Other adjustments    —     836     —  
Adjusted EBITDA (Note 11) $  142,861  $  136,450  $  177,261  
        
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the three months ended September 30, 2018 and 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met. 
        
Note 2: We recorded fees and expenses during the three months ended June 30, 2018 and September 30, 2017 related to repricings of our Term Loan Credit Agreement. 
        
Note 3: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
        
Note 4: We recorded restructuring charges during the three months ended September 30, 2018, which consisted primarily of severance costs related to an organization-wide reduction in workforce. We recorded restructuring costs during the three months ended June 30, 2018 which were primarily comprised of severance costs related to transferring a portion of our shared accounting functions to a third party as well as the consolidation of certain shared accounting functions in Asia. We recorded restructuring costs during the three months ended September 30, 2017, primarily related to the consolidation of two manufacturing plants. 
        
Note 5: We recorded windfall tax benefits on the vesting of stock-based compensation. 
        
Note 6: We recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary. 
        
Note 7*: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended September 30, 2018 and June 30, 2018. 
        
Note 8: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, fees and expenses related to the repricing of our Term Loan Credit Agreement, amortization of debt issuance costs, restructuring costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, 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 9: 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 the Term Loan Credit Agreement, restructuring costs and amortization of intangible assets. 
        
Note 10: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets. 
        
Note 11: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, fees and expenses related to the repricing of the Term Loan Credit Agreement, restructuring costs and other adjustments as defined in our Term Loan Credit Agreement. 
        
Note 12: We historically recorded the revenue and related cost of revenue for our spare parts within Products in our Statement of Operations for the Vacuum and Analysis Division. We have now determined that these items are better reflected within Services in our Statement of Operations and have revised the presentation of our previously issued financial statements as shown below: 
        
  Three Months Ended September 30, 2017 
  As previously
reported
 Adjustment As revised 
Net revenues:       
Products $  434,710  $  (5,819) $  428,891  
Services    51,557     5,819     57,376  
Total net revenues     486,267     —     486,267  
Cost of revenues:       
Cost of products    225,174     1,271     226,445  
Cost of services    33,098     (1,271)    31,827  
Total cost of revenues  $  258,272  $  —  $  258,272  
        
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time. 
        


        
MKS Instruments, Inc. 
Unaudited Consolidated Statements of Operations 
(In thousands, except per share data) 
        
        
        
    Nine Months Ended  
    September 30, 
     2018  2017 (Note 20) 
Net revenues:       
Products   $  1,432,931  $  1,243,146  
Services      181,636     161,031  
Total net revenues      1,614,567     1,404,177  
Cost of revenues:       
Products      747,522     662,985  
Services      97,453     88,067  
Total cost of revenues      844,975     751,052  
Gross profit      769,592     653,125  
Research and development      103,259     99,510  
Selling, general and administrative      229,952     217,546  
Acquisition and integration costs      (1,132)    4,698  
Restructuring      3,374     2,596  
Environmental costs      1,000     —  
Asset impairment       —     6,719  
Fees and expenses related to repricing of term loan      378     492  
Amortization of intangible assets      32,786     34,946  
Income from operations      399,975     286,618  
Interest income      4,077     1,896  
Interest expense      13,071     23,001  
Gain on sale of business      —     74,856  
Other expense, net      1,179     3,741  
Income from operations before income taxes      389,802     336,628  
Provision for income taxes       68,542     75,134  
Net income   $  321,260  $  261,494  
Net income per share:       
Basic   $  5.89  $  4.84  
Diluted   $  5.82  $  4.75  
Cash dividends per common share   $  0.58  $  0.53  
Weighted average shares outstanding:        
Basic      54,539     54,076  
Diluted      55,171     55,020  
        
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results: 
  
Net income   $  321,260  $  261,494  
Adjustments:       
Acquisition and integration costs (Note 1)      (1,132)    4,698  
Expenses related to sale of a business (Note 2)      —     859  
Excess and obsolete inventory charge (Note 3)      —     1,160  
Fees and expenses related to repricing of term loan (Note 4)       378     492  
Amortization of debt issuance costs (Note 5)      3,173     5,422  
Restructuring (Note 6)      3,374     2,596  
Environmental costs (Note 7)      1,000     —  
Asset impairment (Note 8)      —     6,719  
Gain on sale of business (Note 9)      —     (74,856) 
Amortization of intangible assets      32,786     34,946  
Windfall tax benefit on stock-based compensation (Note 10)      (8,075)    (10,413) 
Accrued tax on subsidiary distribution (Note 11)      (2,756)    —  
Tax adjustment related to the sale of a business (Note 12)      —     15,007  
Deferred tax adjustment (Note 13)      878     —  
Transition tax on accumulated foreign earnings (Note 14)      (1,464)    —  
Pro-forma tax adjustments      (3,106)    (15,499) 
Non-GAAP net earnings (Note 15)    $  346,316  $  232,625  
Non-GAAP net earnings per share (Note 15)   $  6.28  $  4.23  
Weighted average shares outstanding      55,171     55,020  
Income from operations   $  399,975  $  286,618  
Adjustments:       
Acquisition and integration costs (Note 1)      (1,132)    4,698  
Expenses related to sale of a business (Note 2)      —     859  
Excess and obsolete inventory charge (Note 3)      —     1,160  
Fees and expenses related to repricing of term loan (Note 4)       378     492  
Restructuring (Note 6)      3,374     2,596  
Environmental costs (Note 7)      1,000     —  
Asset impairment (Note 8)      —     6,719  
Amortization of intangible assets      32,786     34,946  
Non-GAAP income from operations (Note 16)   $  436,381  $  338,088  
Non-GAAP operating margin percentage (Note 16)    27.0%  24.1% 
Gross profit   $  769,592  $  653,125  
Excess and obsolete inventory charge (Note 3)      —     1,160  
Non-GAAP gross profit (Note 17)   $  769,592  $  654,285  
Non-GAAP gross profit percentage (Note 17)    47.7%  46.6% 
Interest expense   $  13,071  $  23,001  
Amortization of debt issuance costs (Note 5)      3,173     5,422  
Non-GAAP interest expense   $  9,898  $  17,579  
Net Income   $  321,260  $  261,494  
Interest expense, net      8,994     21,105  
Provision for income taxes      68,542     75,134  
Depreciation      27,120     27,605  
Amortization      32,786     34,946  
EBITDA (Note 18)   $  458,702  $  420,284  
Stock-based compensation      22,005     19,835  
Acquisition and integration costs (Note 1)      (1,132)    4,698  
Expenses related to sale of a business (Note 2)      —     859  
Excess and obsolete inventory charge (Note 3)      —     1,160  
Fees and expenses related to repricing of term loan (Note 4)       378     492  
Restructuring (Note 6)      3,374     2,596  
Environmental costs (Note 7)      1,000     —  
Asset impairment (Note 8)      —     6,719  
Gain on sale of business (Note 9)      —     (74,856) 
Other adjustments      772     2,405  
Adjusted EBITDA (Note 19)   $  485,099  $  384,192  
        
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the nine months ended September 30, 2018 and 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met. 
        
Note 2: We recorded legal and consulting expenses during the nine months ended September 30, 2017 related to the sale of a business, which was completed in April 2017. 
        
Note 3: We recorded excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites. 
        
Note 4: We recorded fees and expenses during the nine months ended September 30, 2018 and 2017 related to repricings of our Term Loan Credit Agreement. 
        
Note 5: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
        
Note 6: We recorded restructuring costs during the nine months ended September 30, 2018, which were primarily comprised of severance costs related to a worldwide reduction in workforce in the third quarter, transferring a portion of our shared accounting functions to a third party as well as the consolidation of certain shared accounting functions in Asia. We recorded restructuring costs during the nine months ended September 30, 2017, primarily related to the restructuring of one of our international facilities and the consolidation of sales offices. 
        
Note 7: We recorded additional environmental costs during the nine months ended September 30, 2018, related to an EPA-designated Superfund site, which was acquired as part of our Newport acquisition. 
        
Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants. 
        
Note 9: We recorded a gain during the nine months ended September 30, 2017, related to the sale of our Data Analytics Solutions business. 
        
Note 10: We recorded windfall tax benefits on the vesting of stock-based compensation. 
        
Note 11: We recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary. 
        
Note 12: We recorded taxes related to the sale of our Data Analytics Solutions business during the nine months ended September 30, 2017. 
        
Note 13*: 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 14*: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during  the nine months ended September 30, 2018. 
        
Note 15: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the repricing of the Term Loan Credit Agreement, amortization of debt issuance costs, restructuring costs, environmental costs, an asset impairment charge, a gain on the sale of a business, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, taxes related to the sale of a business, 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 16: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the repricing of the Term Loan Credit Agreement, restructuring costs, environmental costs, an asset impairment charge and amortization of intangible assets. 
        
Note 17: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an excess and obsolete inventory charge related to the discontinuation of a product line. 
        
Note 18: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets. 
        
Note 19: 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 repricing of the Term Loan Credit Agreement, restructuring costs, environmental costs, an asset impairment charge, a gain on the sale of a business and other adjustments as defined in our Term Loan Credit Agreement. 
        
Note 20: We historically recorded the revenue and related cost of revenue for our spare parts within Products in our Statement of Operations for the Vacuum and Analysis Division. We have now determined that these items are better reflected within Services in our Statement of Operations and have revised the presentation of our previously issued financial statements as shown below: 
        
  
        
  Nine Months Ended September 30, 2017 
  As previously reported Adjustment As revised 
Net revenues:       
Products  $  1,259,582 $  (16,436) $  1,243,146  
Services     144,595    16,436     161,031  
Total net revenues     1,404,177    —     1,404,177  
Cost of revenues:       
Cost of products     659,538    3,447     662,985  
Cost of services     91,514    (3,447)    88,067  
Total cost of revenues  $  751,052 $  —  $  751,052  
        
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time. 


       
MKS Instruments, Inc.  
Unaudited Consolidated Balance Sheet  
(In thousands)  
       
       
       
       
  September 30, December 31,  
   2018  2017  
ASSETS      
Cash and cash equivalents, including restricted cash $  399,850 $  333,887  
Short-term investments    219,776    209,434  
Trade accounts receivable, net    318,470    300,308  
Inventories    399,077    339,081  
Other current assets    75,298    53,543  
Total current assets    1,412,471    1,236,253  
Property, plant and equipment, net    180,182    171,782  
Goodwill    587,861    591,047  
Intangible assets, net    331,288    366,398  
Long-term investments    10,404    10,655  
Other assets    42,390    37,883  
Total assets $  2,564,596 $  2,414,018  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Short-term debt $  6,130 $  2,972  
Accounts payable    81,486    82,518  
Accrued compensation    74,472    96,147  
Income taxes payable    12,942    21,398  
Deferred revenue    9,136    12,842  
Other current liabilities    78,327    73,945  
Total current liabilities    262,493    289,822  
Long-term debt, net    342,970    389,993  
Non-current deferred taxes    61,540    61,571  
Non-current accrued compensation    56,888    51,700  
Other liabilities    30,412    32,025  
Total liabilities    754,303    825,111  
Stockholders' equity:      
Common stock    113    113  
Additional paid-in capital    786,138    789,644  
Retained earnings    1,023,959    795,698  
Accumulated other comprehensive income    83    3,452  
Total stockholders' equity    1,810,293    1,588,907  
Total liabilities and stockholders' equity $  2,564,596 $  2,414,018  
       


        
MKS Instruments, Inc. 
Unaudited Consolidated Statements of Cash Flows 
(In thousands, except per share data) 
        
  Three Months Ended  
  September 30, September 30, June 30, 
   2018  2017  2018 
Cash flows from operating activities:       
Net income $  93,277  $  75,994  $  122,862  
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization    19,529     20,129     19,885  
Amortization of debt issuance costs and original issue discount    897     2,643     868  
Stock-based compensation    5,213     4,845     6,366  
Provision for excess and obsolete inventory    5,283     4,347     4,959  
Provision for doubtful accounts    263     139     261  
Deferred income taxes    (4,695)    (1,157)    1,875  
Other    71     36     426  
Changes in operating assets and liabilities    (23,882)    (8,013)    (47,891) 
Net cash provided by operating activities    95,956     98,963     109,611  
Cash flows from investing activities:       
Purchases of investments    (64,958)    (129,430)    (99,063) 
Sales of investments    4,505     18,252     54,433  
Maturities of investments    44,605     31,545     41,138  
Purchases of property, plant and equipment    (15,067)    (8,118)    (12,428) 
Net cash used in investing activities    (30,915)    (87,751)    (15,920) 
Cash flows from financing activities:       
Payments of short-term borrowings    (29,803)    (4,016)    (17,788) 
Proceeds from short and long-term borrowings    23,635     4,521     25,082  
Payments of long-term borrowings    (2)    (125,000)    —  
Repurchase of common stock    (75,000)    —     —  
Dividend payments    (10,858)    (9,500)    (10,942) 
Net payments related to employee stock awards    (589)    (1,306)    (4,131) 
Net cash used in financing activities    (92,617)    (135,301)    (7,779) 
Effect of exchange rate changes on cash and cash equivalents    (5)    2,071     631  
Increase in cash and cash equivalents and restricted cash    (27,581)    (122,018)    86,543  
Cash and cash equivalents, including restricted cash at beginning of period    427,431     428,112     340,888  
Cash and cash equivalents, including restricted cash at end of period $  399,850  $  306,094  $  427,431  
        


             
MKS Instruments, Inc. 
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate 
(In thousands) 
             
  Three Months Ended September 30, 2018 Three 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 $  114,516  $  21,239   18.5% $  148,544  $  25,682   17.3%
Adjustments:            
Acquisition and integration costs (Note 1)    36     —       (1,168)    —   
Fees and expenses related to repricing of term loan (Note 2)     —     —       378     —   
Amortization of debt issuance costs (Note 3)    682     —       660     —   
Restructuring (Note 4)    1,364     —       790     —   
Amortization of intangible assets    10,695     —       10,901     —   
Windfall tax benefit on stock-based compensation (Note 10)    —     287       —     4,752   
Accrued tax on subsidiary distribution (Note 11)    —     2,756       —     —   
Transition tax on accumulated foreign earnings (Note 14)    —     (863)      —     659   
Tax effect of pro-forma adjustments    —     659       —     200   
Non-GAAP $  127,293  $  24,078   18.9% $  160,105  $  31,293   19.5%
             
             
  Three Months Ended September 30, 2017      
  Income Before Provision (benefit) Effective       
  Income Taxes for Income Taxes Tax Rate      
GAAP $  101,371  $  25,377   25.0%      
Adjustments:            
Acquisition and integration costs (Note 1)    2,466     —         
Fees and expenses related to repricing of term loan (Note 2)     492     —         
Amortization of debt issuance costs (Note 3)    2,314     —         
Restructuring (Note 4)    10     —         
Amortization of intangible assets    10,977     —         
Windfall tax benefit on stock-based compensation (Note 10)    —     594         
Tax effect of pro-forma adjustments    —     5,789         
Non-GAAP $  117,630  $  31,760   27.0%      
             
             
  Nine Months Ended September 30, 2018 Nine Months Ended September 30, 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 $  389,802  $  68,542   17.6% $  336,628  $  75,134   22.3%
Adjustments:            
Acquisition and integration costs (Note 1)    (1,132)    —       4,698     —   
Fees and expenses related to repricing of term loan (Note 2)     378     —       492     —   
Amortization of debt issuance costs (Note 3)    3,173     —       5,422     —   
Restructuring (Note 4)    3,374     —       2,596     —   
Expenses related to the sale of a business (Note 5)    —     —       859     —   
Excess and obsolete inventory charge (Note 6)    —     —       1,160     —   
Environmental costs (Note 7)    1,000     —       —     —   
Asset impairment (Note 8)    —     —       6,719     —   
Gain on sale of business (Note 9)    —     —       (74,856)    —   
Amortization of intangible assets    32,786     —       34,946     —   
Windfall tax benefit on stock-based compensation (Note 10)    —     8,075       —     10,413   
Accrued tax on subsidiary distribution (Note 11)    —     2,756         
Tax adjustment related to the sale of a business (Note 12)    —     —       —     (15,007)  
Deferred tax adjustment (Note 13)    —     (878)      —     —   
Transition tax on accumulated foreign earnings (Note 14)    —     1,464       —     —   
Tax effect of pro-forma adjustments    —     3,106       —     15,499   
Non-GAAP $  429,381  $  83,065   19.3% $  318,664  $  86,039   27.0%
             
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016, during the three and nine months ended June 30, 2017. During the second quarter of 2018, we reversed a portion of these costs related to severance agreement provisions that were not met.
             
Note 2: We recorded fees and expenses during the three months ended June 30, 2018 and nine months ended September 30, 2018 and three and nine months ended September 30, 2017 related to repricings of our Term Loan Credit Agreement.
             
Note 3: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
             
Note 4: We recorded restructuring costs during the three and nine months ended September 30, 2018 and three months ended June 30, 2018, which were primarily comprised of severance costs related to a worldwide reduction in workforce, transferring a portion of our shared accounting functions to a third party as well as the consolidation of certain shared accounting functions in Asia. We recorded restructuring costs during the three and nine months ended September 30, 2017, primarily related to the restructuring of one of our international facilities and the consolidation of sales offices.
             
Note 5: We recorded legal and consulting expenses during the nine months ended September 30, 2017 related to the sale of a business, which was completed in April 2017.
             
Note 6: We recorded excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.
             
Note 7: We recorded additional environmental costs during the nine months ended September 30, 2018, related to an EPA-designated Superfund site, which was acquired as part of our Newport acquisition.
             
Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants.
             
Note 9: We recorded a gain during the nine months ended September 30, 2017, related to the sale of our Data Analytics Solutions business.
             
Note 10: We recorded windfall tax benefits on the vesting of stock-based compensation.
             
Note 11: We recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.
             
Note 12: We recorded taxes related to the sale of our Data Analytics Solutions business during the nine months ended September 30, 2017.
             
Note 13*: 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 14*: 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.
             
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
             
             
MKS Instruments, Inc. 
Reconciliation of Q4-18 Guidance - GAAP Net Income to Non-GAAP Net Earnings  
(In thousands, except per share data)  
             
  Three Months Ended December 31, 2018    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
GAAP net income $  64,900  $  1.19  $  78,800  $  1.45         
Amortization  10,800     0.20   10,800     0.20         
Deferred financing costs  700     0.01   700     0.01         
Restructuring  100     0.00   100     0.00         
Tax effect of adjustments (Note 1)  (1,400)    (0.03)  (1,200)    (0.02)        
Non-GAAP net earnings $  75,100  $  1.38  $  89,200  $  1.64         
Q4 -18 forecasted shares    54,500     54,500     
             
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

© 2024 Canjex Publishing Ltd. All rights reserved.