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8-K - LIVE FILING - MKS INSTRUMENTS INChtm_54857.htm

(MKS LOGO)

EXHIBIT 99.1

MKS Instruments Reports First Quarter 2017 Financial Results

Achieved new quarterly records for total semiconductor revenue and Non-GAAP net earnings

Total quarterly revenue up 33% compared to Q1 2016 on a pro-forma basis

Completed an additional $50 million voluntary debt pre-payment on term loan

Andover, Mass., April 26, 2017 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported first quarter 2017 financial results.

                 
Quarterly Financial Results
(in millions, except per share data)
    Q1 2017   Q4 2016
GAAP Results                
Net revenues
  $ 437     $ 405  
Gross margin
    47.0 %     45.3 %
Operating margin
    19.1 %     15.4 %
Net income
  $ 65.1     $ 45.5  
Diluted EPS
  $ 1.18     $ 0.83  
Non-GAAP Results
               
Gross margin
    47.0 %     45.3 %
Operating margin
    22.5 %     20.6 %
Net earnings
  $ 70.0     $ 57.2  
Diluted EPS
  $ 1.27     $ 1.05  

First Quarter 2017 Financial Results

Revenue was $437 million, an increase of 8% from $405 million in the fourth quarter of 2016 and an increase of 33% from $330 million in the first quarter of 2016 on a pro-forma basis.

Net income was $65.1 million, or $1.18 per diluted share, compared to net income of $45.5 million, or $0.83 per diluted share in the fourth quarter of 2016, and $17.6 million, or $0.33 per diluted share in the first quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $70.0 million, or $1.27 per diluted share, compared to $57.2 million, or $1.05 per diluted share in the fourth quarter of 2016, and $20.1 million, or $0.38 per diluted share in the first quarter of 2016.

“We are very pleased with our strong start to 2017. We set a new record for quarterly revenue, continued to enhance our organizational strengths, and collaborated more closely and effectively with our customers,” said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, “Our strategic objective to drive sustainable and profitable growth has allowed MKS to not only leverage technology inflection points within the semiconductor market, but also to further drive growth in a number of adjacent markets. In the first quarter, semiconductor revenue and sales to other advanced markets, on a pro-forma basis, increased 54% and 10% respectively from a year ago.”

“We also continue to execute on our strategy to delever our balance sheet and reduce our interest cost. During the quarter, we completed a $50 million voluntary pre-payment on our term loan facility bringing our cumulative pre-payments to date to $200 million. Since origination on April 29, 2016, we have reduced our non-GAAP interest expense by $15 million or approximately 40% on an annualized basis,” said Seth Bagshaw, Vice President and Chief Financial Officer.

Additional Financial Information

The Company had $416 million in cash and short-term investments as of March 31, 2017 and $575 million outstanding under its term loan. During the first quarter of 2017, MKS paid a dividend of $9.4 million or $0.175 per diluted share, a 3% increase from the fourth quarter of 2016.

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

Second Quarter 2017 Outlook

Based on current business levels, the Company expects that revenue in the second quarter of 2017 may range from $440 to $480 million.

At these volumes, and including the gain on the sale of the Data Analytics Solutions Business Unit, GAAP net income could range from $2.12 to $2.37 per diluted share and non-GAAP net earnings could range from $1.26 to $1.50 per diluted share.

Primarily as a result of the sale of the Data Analytics Solutions Business Unit, GAAP net income in the second quarter is expected to be significantly higher than non-GAAP net earnings.

Conference Call Details

A conference call with management will be held tomorrow, Thursday, April 27, 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 93351357, 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 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. 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 costs, charges or expenses resulting from the Newport acquisition, the terms of the term loan financing, MKS’ ability to realize anticipated synergies and cost savings from the Newport acquisition, our ability to successfully grow our business, potential adverse reactions or changes to business relationships resulting from the Newport acquisition, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of any other 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 the other factors described in MKS’ Annual Report for the year ended December 31, 2016 on Form 10-K filed with the 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.

###

Company Contact: Seth H. Bagshaw
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

1

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)

                         
    Three Months Ended
    March 31, 2017   March 31, 2016   December 31, 2016
Net revenues:
                       
Products
  $ 392,922     $ 153,621     $ 359,765  
Services
    44,231       30,060       45,375  
 
                       
Total net revenues
    437,153       183,681       405,140  
Cost of revenues:
                       
Products
    205,060       85,352       194,716  
Services
    26,546       20,416       27,016  
 
                       
Total cost of revenues
    231,606       105,768       221,732  
Gross profit
    205,547       77,913       183,408  
Research and development
    33,282       17,227       32,870  
Selling, general and administrative
    74,220       33,950       67,626  
Acquisition and integration costs
    1,442       2,494       2,089  
Restructuring
    522             618  
Asset impairment
                5,000  
Amortization of intangible assets
    12,501       1,683       12,691  
 
                       
Income from operations
    83,580       22,559       62,514  
Interest income
    516       924       702  
Interest expense
    8,832       44       10,085  
Other income (expense), net
    2,021       366       (3,575 )
 
                       
Income from operations before income taxes
    77,285       23,805       49,556  
Provision for income taxes
    12,225       6,242       4,069  
 
                       
Net income
  $ 65,060     $ 17,563     $ 45,487  
 
                       
Net income per share:
                       
Basic
  $ 1.21     $ 0.33     $ 0.85  
Diluted
  $ 1.18     $ 0.33     $ 0.83  
Cash dividends per common share
  $ 0.175     $ 0.17     $ 0.17  
Weighted average shares outstanding:
                       
Basic
    53,769       53,235       53,617  
Diluted
    54,958       53,563       54,518  
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
                       
Net income
  $ 65,060     $ 17,563     $ 45,487  
Adjustments:
                       
Acquisition and integration costs (Note 1)
    1,442       2,494       2,089  
Expenses related to sale of business (Note 2)
    423              
Fees and expenses relating to repricing of term loan (Note 3)
                526  
Amortization of debt issuance costs (Note 4)
    2,414             2,430  
Restructuring (Note 5)
    522             618  
Tax benefit from legal entity restructuring (Note 6)
                (6,570 )
Asset impairment (Note 7)
                5,000  
Withholding tax on dividends (Note 8)
                1,362  
Windfall tax benefit on stock based compensation (Note 9)
    (6,650 )            
Amortization of intangible assets
    12,501       1,683       12,691  
Pro-forma tax adjustments
    (5,718 )     (1,593 )     (6,437 )
 
                       
Non-GAAP net earnings (Note 10)
  $ 69,994     $ 20,147     $ 57,196  
 
                       
Non-GAAP net earnings per share (Note 10)
  $ 1.27     $ 0.38     $ 1.05  
 
                       
Weighted average shares outstanding
    54,958       53,563       54,518  
Income from operations
  $ 83,580     $ 22,559     $ 62,514  
Adjustments:
                       
Acquisition and integration costs (Note 1)
    1,442       2,494       2,089  
Expenses related to sale of business (Note 2)
    423              
Fees and expenses relating to repricing of term loan (Note 3)
                526  
Restructuring (Note 5)
    522             618  
Asset impairment (Note 7)
                5,000  
Amortization of intangible assets
    12,501       1,683       12,691  
 
                       
Non-GAAP income from operations (Note 11)
  $ 98,468     $ 26,736     $ 83,438  
 
                       
Non-GAAP operating margin percentage (Note 11)
    22.5 %     14.6 %     20.6 %
 
                       
Interest expense
  $ 8,832     $ 44     $ 10,085  
Amortization of debt issuance costs (Note 4)
    2,414             2,430  
 
                       
Non-GAAP interest expense
  $ 6,418     $ 44     $ 7,655  
 
                       
Net income
  $ 65,060     $ 17,563     $ 45,487  
Interest expense (income), net
    8,316       (880 )     9,383  
Provision for income taxes
    12,225       6,242       4,069  
Depreciation
    9,332       3,595       9,478  
Amortization
    12,501       1,683       12,691  
 
                       
EBITDA (Note 12)
  $ 107,434     $ 28,203     $ 81,108  
 
                       
Stock based compensation
    8,782       4,152       5,402  
Acquisition and integration costs (Note 1)
    1,442       2,494       2,089  
Expenses related to sale of business (Note 2)
    423              
Fees and expenses relating to repricing of term loan (Note 3)
                526  
Restructuring (Note 5)
    522             618  
Asset impairment (Note 7)
                5,000  
Other adjustments
    747             817  
 
                       
Adjusted EBITDA (Note 13)
  $ 119,350     $ 34,849     $ 95,560  
 
                       

Note 1: We recorded $1.4 million, $2.1 million and $2.5 million of acquisition and integration costs during the three months ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded $0.4 million of legal and consulting expenses during the three months ended March 31, 2017 related to the sale of a business, which was completed in April of 2017.

Note 3: We recorded $0.5 million of fees and expenses during the three months ended December 31, 2016 related to the second repricing of our Term Loan Credit Agreement.

Note 4: We recorded $2.4 million of additional interest expense during the three months ended March 31, 2017 and December 31, 2016, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 5: We recorded $0.5 million and $0.6 million of restructuring costs during the three months ended March 31, 2017 and December 31, 2016, respectively, related to the restructuring of one of our international facilities and the consolidation of sales offices.

Note 6: We recorded a tax benefit of $6.6 million during the three months ended December 31, 2016 related to a legal entity restructuring.

Note 7: We recorded a $5.0 million impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.

Note 8: We recorded $1.4 million for withholding tax on intercompany dividends during the three months ended December, 31, 2016.

Note 9: We recorded a $6.6 million windfall tax benefit on the vesting of stock based compensation during 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 10: 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, fees and expenses related to the repricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, the tax effect of a legal entity restructuring, an asset impairment charge, a withholding tax on dividends, a windfall tax benefit related to stock compensation expense, amortization of intangible assets and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.

Note 11: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, expenses related to the sale of a business, fees and expenses related to the repricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.

Note 12: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 13: Adjusted EBITDA excludes stock based compensation, acquisition and integration costs, expenses related to the sale of a business, fees and expenses related to the repricing of a term loan credit agreement, restructuring costs, an asset impairment charge and other adjustments as defined in our Term Loan Credit Agreement.

2

MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)

                                                 
    Three Months Ended March 31, 2017   Three Months Ended December 31, 2016
         Provision    Effective        Provision    
    Income Before   (benefit) for    Tax Rate    Income Before   (benefit) for   Effective
     Income Taxes     Income Taxes             Income Taxes     Income Taxes     Tax Rate 
GAAP                
  $          77,285   $        12,225      15.8%      $          49,556   $        4,069   8.2%   
Adjustments:
                                               
Acquisition and integration costs (Note 1)
  1,442             2,089          
Expenses related to sale of business (Note 2)
  423                      
Fees and expenses relating to repricing of
              526          
term loan (Note 3)
                                               
Amortization of debt issuance costs (Note 4)
  2,414             2,430          
Restructuring (Note 5)
  522             618          
Tax benefit from legal entity restructuring
                6,570        
(Note 6)
                                               
Asset impairment (Note 7)
              5,000          
Withholding tax on dividends (Note 8)
                (1,362 )        
Windfall tax benefit on stock based
    6,650                    
compensation (Note 9)
                                               
Amortization of intangible assets
  12,501             12,691          
Tax effect of pro-forma adjustments
    5,443             6,437        
Adjustment to pro-forma tax rate
    275                    
 
                               
Non-GAAP
  $       94,587   $       24,593      26.0%      $       72,910   $       15,714   21.6%   
 
                               
                         
    Three Months Ended March 31, 2016
         Provision    
    Income Before    (benefit) for   Effective
     Income Taxes     Income Taxes     Tax Rate 
GAAP
  $       23,805     $       6,242         26.2%    
Adjustments:
                       
Acquisition and integration costs (Note 1)
    2,494                
Amortization of intangible assets
    1,683                
Tax effect of pro-forma adjustments
          1,503          
Adjustment to pro-forma tax rate
          90          
 
                       
Non-GAAP
  $       27,982     $       7,835       28.0%    
 
                       

Note 1: We recorded $1.4 million, $2.1 million and $2.5 million of acquisition and integration costs during the three months ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively, related to the Newport Corporation acquisition which closed during the second quarter of 2016.

Note 2: We recorded $0.4 million of legal and consulting expenses during the three months ended March 31, 2017 related to the sale of a business, which was completed in April of 2017.

Note 3: We recorded $0.5 million of fees and expenses during the three months ended December 31, 2016 related to the second repricing of our Term Loan Credit Agreement.

Note 4: We recorded $2.4 million of additional interest expense during the three months ended March 31, 2017 and December 31, 2016, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 5: We recorded $0.5 million and $0.6 million of restructuring costs during the three months ended March 31, 2017 and December 31, 2016, respectively, related to the restructuring of one of our international facilities and the consolidation of sales offices.

Note 6: We recorded a tax benefit of $6.6 million during the three months ended December 31, 2016 related to a legal entity restructuring.

Note 7: We recorded a $5.0 million impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.

Note 8: We recorded $1.4 million for withholding tax on intercompany dividends during the three months ended December, 31, 2016.

Note 9: We recorded a $6.6 million windfall tax benefit on the vesting of stock based compensation during 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).

3

MKS Instruments, Inc.
Reconciliation of Q2-17 Guidance — GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)

                                 
    Three Months Ended June 30, 2017
    Low Guidance   High Guidance
    $ Amount   $ Per Share   $ Amount   $ Per Share
GAAP net income
  $ 117,300     $ 2.12     $ 131,200     $ 2.37  
Amortization
    11,400       0.21       11,400       0.21  
Debt issuance costs
    1,000       0.02       1,000       0.02  
Gain on sale of business
    (75,000 )     (1.36 )     (75,000 )     (1.36 )
Integration costs
    2,300       0.04       2,300       0.04  
Tax effect of adjustments (Note 1)
    12,600       0.23       12,200       0.22  
 
                               
Non-GAAP net earnings
  $ 69,600     $ 1.26     $ 83,100     $ 1.50  
 
                               
Q2 - 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.

4

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)

                 
    March 31, 2017   December 31, 2016
ASSETS
               
Cash and cash equivalents
  $ 255,912     $ 228,623  
Restricted cash
    5,274       5,287  
Short-term investments
    155,299       189,463  
Trade accounts receivable, net
    267,249       248,757  
Inventories
    285,518       275,869  
Other current assets
    52,266       50,770  
 
               
Total current assets
    1,021,518       998,769  
Property, plant and equipment, net
    169,833       174,559  
Goodwill
    590,502       588,585  
Intangible assets, net
    396,409       408,004  
Long-term investments
    9,933       9,858  
Other assets
    32,352       32,467  
 
               
Total assets
  $ 2,220,547     $ 2,212,242  
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Short-term debt
  $ 10,623     $ 10,993  
Accounts payable
    70,493       69,337  
Accrued compensation
    50,034       67,728  
Income taxes payable
    27,469       22,794  
Other current liabilities
    71,777       66,448  
 
               
Total current liabilities
    230,396       237,300  
Long-term debt, net
    552,232       601,229  
Non-current deferred taxes
    64,221       66,446  
Non-current accrued compensation
    46,201       44,714  
Other liabilities
    22,092       20,761  
 
               
Total liabilities
    915,142       970,450  
 
               
Stockholders’ equity:
               
Common stock
    113       113  
Additional paid-in capital
    783,371       777,482  
Retained earnings
    550,385       494,744  
Accumulated other comprehensive loss
    (28,464 )     (30,547 )
 
               
Total stockholders’ equity
    1,305,405       1,241,792  
 
               
Total liabilities and stockholders’ equity
  $ 2,220,547     $ 2,212,242  
 
               

5