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MKS Instruments Reports Fourth Quarter and Full Year 2015 Financial Results

ANDOVER, Mass., Jan. 27, 2016 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reports fourth quarter and full year 2015 financial results.

Financial Results
 
 Q4 2015 Full Year 2015
 GAAP ResultsNon-GAAP Results GAAP ResultsNon-GAAP Results
Net revenues ($ millions)$172 $172  $814 $814 
Operating margin 12.9% 14.4%  19.3% 20.1%
Net income ($ millions)$25.5 $18.4  $122.3 $119.1 
Diluted EPS$0.48 $0.34  $2.28 $2.22 


Fourth Quarter Financial Results
 

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

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

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

Full Year Results

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

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

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

Conference Call Details

A conference call with management will be held on Thursday, January 28, 2016 at 8:30 a.m. (Eastern Time).  To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you.  Participants will need to provide the operator with the Conference ID of 11158287, which has been reserved for this call.  A live and archived webcast of the call will be available on the company’s website at www.mksinst.com.  

Use of Non-GAAP Financial Results

Non-GAAP amounts exclude amortization of acquired intangible assets, costs associated with completed acquisitions, income related to the sale of excess and obsolete inventory previously written down to net realizable value, certain excess and obsolete inventory charges, an inventory step-up adjustment related to an acquisition, restructuring charges, discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP). MKS' management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in pressure measurement and control, materials delivery, gas composition analysis, control and information technology, power and reactive gas generation, and vacuum technology. Our primary served markets are manufacturers of capital equipment for semiconductor devices, and for other thin film applications including flat panel displays, solar cells, light emitting diodes, data storage media, and other advanced coatings. We also leverage our technology in other markets with advanced manufacturing applications including medical equipment, pharmaceutical manufacturing, energy generation and environmental monitoring.

Forward-Looking Statements

This release contains projections or other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27 of the Securities Act, and Section 21E of the Securities Exchange Act regarding MKS' future growth and the future financial performance of MKS. These projections or statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the projections or other forward-looking statements are the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to MKS' major customers, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of MKS and any acquired companies, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and future growth subject to risks. Readers are referred to MKS' filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of these and other important risk factors concerning MKS and its operations. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

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

 

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

 

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

 

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

Investor Relations Contact: Claire McAdams
Headgate Partners LLC
Telephone: 530.265.9899
Email: claire@headgatepartners.com

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