LOGO    EXHIBIT 99.1

MKS Instruments Reports Second Quarter 2019 Financial Results

 

   

Quarterly revenue of $474 million, an increase of 2% compared to Q1 2019

 

   

Voluntarily prepaid $50 million towards our Term Loan Credit Facility

 

   

Non-GAAP net earnings of $59.9 million, or $1.09 per diluted share

 

   

GAAP net income of $37.7 million, or $0.69 per diluted share

Andover, MA, July 30, 2019 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported second quarter 2019 financial results.

“Another quarter of strong operational and financial execution drove our Non-GAAP operating margin and Non-GAAP net earnings above the mid-point of our guidance range in the second quarter despite the effects of uncertainty in the global trade environment,” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “The acquisition of ESI adds laser-based systems to our Advanced Markets portfolio, further expanding our ability to penetrate into these profitable and growing markets. The long-term growth potential in our Advanced Markets remains robust and we are committed to continue to outperform these markets over the long term. In the second quarter, we are pleased to report that, with the ESI acquisition, our revenue in Advanced Markets achieved a new record of over $260 million in the quarter, an increase of 10% from a year ago.”

“In the quarter, we completed a $50 million voluntary prepayment on our term loan as we are committed to reduce our leverage and interest costs. This was our ninth voluntary prepayment since loan origination in April 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. “Furthermore, we exited the quarter with a strong balance sheet and liquidity with $460 million of cash and short-term investments and trailing twelve-month net leverage ratio of under 1 times.”


Quarterly Consolidated Financial Results

(in millions, except per share data)

 

     Q2 2019     Q1 2019  

GAAP Results

    

Net revenues

   $ 474.1     $ 463.6  

Gross margin

     44.5     42.7

Operating margin

     13.5     5.0

Net income

   $ 37.7     $ 12.5  

Diluted EPS

   $ 0.69     $ 0.23  

Non-GAAP Results

    

Gross margin

     45.0     43.8

Operating margin

     18.6     17.7

Net earnings

   $ 59.9     $ 61.3  

Diluted EPS

   $ 1.09     $ 1.12  

Second Quarter 2019 Financial Results

Revenue was $474.1 million, an increase of 2% from $463.6 million in the first quarter of 2019 and a decrease of 17% from $573.1 million in the second quarter of 2018.

Net income was $37.7 million, or $0.69 per diluted share, compared to net income of $12.5 million, or $0.23 per diluted share, in the first quarter of 2019, and $122.9 million, or $2.22 per diluted share, in the second quarter of 2018.

Second quarter net income included acquisition and integration costs of $3.2 million associated with the ESI acquisition and $1.2 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $59.9 million, or $1.09 per diluted share, compared to $61.3 million, or $1.12 per diluted share, in the first quarter of 2019, and $128.8 million or $2.33 per diluted share, in the second quarter of 2018.

Sales to Advanced Markets were $260 million, an increase of 7% compared to the first quarter of 2019, which was primarily attributed to the acquisition of ESI, as the first quarter only included two months of sales. Sales to Semiconductor customers were $214 million, a decrease of 3% compared to the first quarter of 2019.

Additional Financial Information

The Company had $460 million in cash and short-term investments and $947 million of term loan debt outstanding as of June 30, 2019, which is net of a $50 million prepayment made during the second quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the second quarter of 2019. The Company has available an unused $100 million asset-based line of credit.


Third Quarter 2019 Outlook

Based on current business levels, the Company expects that revenue in the third quarter of 2019 could range from $415 to $465 million.

At these volumes, GAAP net income could range from $0.39 to $0.72 per diluted share and non-GAAP net earnings could range from $0.69 to $1.02 per diluted share.

Conference Call Details

A conference call with management will be held on Wednesday, July 31, 2019 at 8:30 a.m. (Eastern Time). To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you. Participants will need to provide the operator with the Conference ID of 5483628, 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, optics and laser-based manufacturing solutions. We also provide services relating to the maintenance and repair of our products, installation services and training. Our primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results

This release includes measures that are not in accordance with U.S. generally accepted accounting principles (“Non-GAAP measures”). Non-GAAP measures exclude amortization of acquired intangible assets, costs associated with completed acquisitions, acquisition integration costs, fees and expenses related to our term loan, amortization of debt issuance costs, restructuring and other costs, windfall tax benefits from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, tax cost of the inter-


company sale of an asset 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, and MKS’ expected synergies and cost savings from its recent acquisition of Electro Scientific Industries, Inc (“ESI”). These statements are only predictions based on current assumptions and expectations. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to our major customers, the ability of MKS to successfully integrate ESI’s operations and employees, unexpected costs, charges or expenses resulting from the ESI acquisition, MKS’ ability to realize anticipated synergies and cost savings from the ESI acquisition, the terms of our term loan, competition from larger or more established companies in MKS’ markets; MKS’ ability to successfully grow ESI’s business; potential adverse reactions or changes to business relationships resulting from the ESI acquisition, the challenges, risks and costs involved with integrating the operations of the other companies we have acquired, the Company’s ability to successfully grow our business, potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and the other factors described in MKS’ most recent Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

###


Company Contact: Seth H. Bagshaw

Senior Vice President, Chief Financial Officer and Treasurer

Telephone: 978.645.5578

Email: seth_bagshaw@mksinst.com

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 Statement of Operations

(in thousands, except per share data)

 

     Three Months Ended  
     June 30,
2019
     June 30,
2018
    March 31,
2019
 

Net revenues:

       

Products

   $ 401,326      $ 509,999     $ 397,363  

Services

     72,784        63,141       66,198  
  

 

 

    

 

 

   

 

 

 

Total net revenues

     474,110        573,140       463,561  

Cost of revenues:

       

Products

     226,213        266,890       229,710  

Services

     36,870        31,373       35,733  
  

 

 

    

 

 

   

 

 

 

Total cost of revenues

     263,083        298,263       265,443  

Gross profit

     211,027        274,877       198,118  

Research and development

     41,855        36,504       38,933  

Selling, general and administrative

     83,236        76,181       82,455  

Fees and expenses related to term loan

     —          378       5,847  

Acquisition and integration costs

     3,240        (1,168     30,167  

Restructuring and other

     1,242        790       1,923  

Amortization of intangible assets

     17,552        10,901       15,727  
  

 

 

    

 

 

   

 

 

 

Income from operations

     63,902        151,291       23,066  

Interest income

     1,423        1,456       1,714  

Interest expense

     12,674        3,922       9,119  

Other expense, net

     788        281       325  
  

 

 

    

 

 

   

 

 

 

Income from operations before income taxes

     51,863        148,544       15,336  

Provision for income taxes

     14,124        25,682       2,881  
  

 

 

    

 

 

   

 

 

 

Net income

   $ 37,739      $ 122,862     $ 12,455  
  

 

 

    

 

 

   

 

 

 

Net income per share:

       

Basic

   $ 0.69      $ 2.25     $ 0.23  

Diluted

   $ 0.69      $ 2.22     $ 0.23  

Cash dividends per common share

   $ 0.20      $ 0.20     $ 0.20  

Weighted average shares outstanding:

       

Basic

     54,815        54,719       54,147  

Diluted

     55,089        55,274       54,848  


The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:

 

     Three Months Ended  
     June 30,
2019
    June 30,
2018
    March 31,
2019
 

Net income

   $ 37,739     $ 122,862     $ 12,455  

Adjustments:

      

Acquisition and integration costs (Note 1)

     3,240       (1,168     30,167  

Acquisition inventory step-up (Note 2)

     2,484       —         5,140  

Fees and expenses related to term loan (Note 3)

     —         378       5,847  

Amortization of debt issuance costs (Note 4)

     1,254       660       599  

Restructuring and other (Note 5)

     1,242       790       1,923  

Amortization of intangible assets

     17,552       10,901       15,727  

Windfall tax benefit on stock-based compensation (Note 6)

     (790     (4,752     (1,389

Tax reform adjustments (Note 7)

     2,731       —         —    

Transition tax on accumulated foreign earnings (Note 8)

     —         (659     —    

Pro-forma tax adjustments

     (5,596     (200     (9,169
  

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings (Note 9)

   $ 59,856     $ 128,812     $ 61,300  
  

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings per share (Note 9)

   $ 1.09     $ 2.33     $ 1.12  
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

     55,089       55,274       54,848  

Income from operations

   $ 63,902     $ 151,291     $ 23,066  

Adjustments:

      

Acquisition and integration costs (Note 1)

     3,240       (1,168     30,167  

Acquisition inventory step-up (Note 2)

     2,484       —         5,140  

Fees and expenses related to term loan (Note 3)

     —         378       5,847  

Restructuring and other (Note 5)

     1,242       790       1,923  

Amortization of intangible assets

     17,552       10,901       15,727  
  

 

 

   

 

 

   

 

 

 

Non-GAAP income from operations (Note 10)

   $ 88,420     $ 162,192     $ 81,870  
  

 

 

   

 

 

   

 

 

 

Non-GAAP operating margin percentage (Note 10)

     18.6     28.3     17.7
  

 

 

   

 

 

   

 

 

 

Gross profit

   $ 211,027     $ 274,877     $ 198,118  

Acquisition inventory step-up (Note 2)

     2,484       —         5,140  
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit (Note 11)

   $ 213,511     $ 274,877     $ 203,258  
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit percentage (Note 11)

     45.0     48.0     43.8
  

 

 

   

 

 

   

 

 

 

Interest expense

   $ 12,674     $ 3,922     $ 9,119  

Amortization of debt issuance costs (Note 4)

     1,254       660       599  
  

 

 

   

 

 

   

 

 

 

Non-GAAP interest expense

   $ 11,420     $ 3,262     $ 8,520  
  

 

 

   

 

 

   

 

 

 

Net income

   $ 37,739     $ 122,862     $ 12,455  

Interest expense, net

     11,251       2,466       7,405  

Provision for income taxes

     14,124       25,682       2,881  

Depreciation

     9,892       8,984       9,484  

Amortization

     17,552       10,901       15,727  
  

 

 

   

 

 

   

 

 

 

EBITDA (Note 12)

   $ 90,558     $ 170,895     $ 47,952  
  

 

 

   

 

 

   

 

 

 

Stock-based compensation

     5,903       6,366       9,274  

Acquisition and integration costs (Note 1)

     3,240       (1,168     30,167  

Acquisition inventory step-up (Note 2)

     2,484       —         5,140  

Fees and expenses related to term loan (Note 3)

     —         378       5,847  

Restructuring and other (Note 5)

     1,242       790       1,923  

Other adjustments

     —         —         3,337  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (Note 13)

   $ 103,427     $ 177,261     $ 103,640  
  

 

 

   

 

 

   

 

 

 


Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the three months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.

Note 3: We recorded fees and expenses during the three months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.

Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.

Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low costs regions. We also recorded other expense during the three months ended March 31, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 8: We adjusted the provisional transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended June 30, 2018.

Note 9: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, 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 10: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to our Term Loan Credit Agreement, restructuring and other costs and amortization of intangible assets.

Note 11: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.

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, the amortization of the step-up of inventory to fair value, fees and expenses related to an amendment of our Term Loan Credit agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.


MKS Instruments, Inc.

Unaudited Consolidated Statement of Operations

(in thousands, except per share data)

 

     Six Months Ended  
     June 30,  
     2019      2018  

Net revenues:

     

Products

   $ 798,689      $ 1,006,676  

Services

     138,982        120,739  
  

 

 

    

 

 

 

Total net revenues

     937,671        1,127,415  

Cost of revenues:

     

Products

     455,923        528,211  

Services

     72,603        61,472  
  

 

 

    

 

 

 

Total cost of revenues

     528,526        589,683  

Gross profit

     409,145        537,732  

Research and development

     80,788        71,361  

Selling, general and administrative

     165,691        159,130  

Acquisition and integration costs

     33,407        (1,168

Restructuring and other

     3,165        3,010  

Fees and expenses related to term loan

     5,847        378  

Amortization of intangible assets

     33,279        22,091  
  

 

 

    

 

 

 

Income from operations

     86,968        282,930  

Interest income

     3,137        2,561  

Interest expense

     21,793        9,352  

Other expense, net

     1,113        853  
  

 

 

    

 

 

 

Income from operations before income taxes

     67,199        275,286  

Provision for income taxes

     17,005        47,303  
  

 

 

    

 

 

 

Net income

   $ 50,194      $ 227,983  
  

 

 

    

 

 

 

Net income per share:

     

Basic

   $ 0.92      $ 4.18  

Diluted

   $ 0.91      $ 4.12  

Cash dividends per common share

   $ 0.40      $ 0.38  

Weighted average shares outstanding:

     

Basic

     54,481        54,571  

Diluted

     54,966        55,280  


The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:

 

     Six Months Ended  
     June 30,  
     2019     2018  

Net income

   $ 50,194     $ 227,983  

Adjustments:

    

Acquisition and integration costs (Note 1)

     33,407       (1,168

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     5,847       378  

Amortization of debt issuance costs (Note 4)

     1,853       2,491  

Restructuring and other (Note 5)

     3,165       3,010  

Amortization of intangible assets

     33,279       22,091  

Windfall tax benefit on stock-based compensation (Note 6)

     (2,179     (7,788

Tax reform adjustments (Note 7)

     2,731       —    

Deferred tax adjustment (Note 8)

     —         878  

Transition tax on accumulated foreign earnings (Note 9)

     —         (2,327

Pro-forma tax adjustments

     (14,765     (2,447
  

 

 

   

 

 

 

Non-GAAP net earnings (Note 10)

   $ 121,156     $ 243,101  
  

 

 

   

 

 

 

Non-GAAP net earnings per share (Note 10)

   $ 2.20     $ 4.40  
  

 

 

   

 

 

 

Weighted average shares outstanding

     54,966       55,280  

Income from operations

   $ 86,968     $ 282,930  

Adjustments:

    

Acquisition and integration costs (Note 1)

     33,407       (1,168

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     5,847       378  

Restructuring and other (Note 5)

     3,165       3,010  

Amortization of intangible assets

     33,279       22,091  
  

 

 

   

 

 

 

Non-GAAP income from operations (Note 11)

   $ 170,290     $ 307,241  
  

 

 

   

 

 

 

Non-GAAP operating margin percentage (Note 11)

     18.2     27.3
  

 

 

   

 

 

 

Gross profit

   $ 409,145     $ 537,732  

Acquisition inventory step-up (Note 2)

     7,624       —    
  

 

 

   

 

 

 

Non-GAAP gross profit (Note 12)

   $ 416,769     $ 537,732  
  

 

 

   

 

 

 

Non-GAAP gross profit percentage (Note 12)

     44.4     47.7
  

 

 

   

 

 

 

Interest expense

   $ 21,793     $ 9,352  

Amortization of debt issuance costs (Note 4)

     1,853       2,491  
  

 

 

   

 

 

 

Non-GAAP interest expense

   $ 19,940     $ 6,861  
  

 

 

   

 

 

 

Net Income

   $ 50,194     $ 227,983  

Interest expense, net

     18,656       6,791  

Provision for income taxes

     17,005       47,303  

Depreciation

     19,376       18,286  

Amortization

     33,279       22,091  
  

 

 

   

 

 

 

EBITDA (Note 13)

   $ 138,510     $ 322,454  
  

 

 

   

 

 

 

Stock-based compensation

     15,177       16,792  

Acquisition and integration costs (Note 1)

     33,407       (1,168

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     5,847       378  

Restructuring and other (Note 5)

     3,165       3,010  

Other adjustments

     3,337       772  
  

 

 

   

 

 

 

Adjusted EBITDA (Note 14)

   $ 207,067     $ 342,238  
  

 

 

   

 

 

 


Note 1: Acquisition and integration costs for the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.

Note 3: We recorded fees and expenses during the six months ended March 31, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.

Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.

Note 5: We recorded restructuring costs during the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We also recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 8: 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 and updated the provisional transition tax during the six months ended June 30, 2018.

Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the six months ended June 30, 2018.

Note 10: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of the Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a windfall tax benefit related to stock compensation expense, tax reform adjustments, 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 11: 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 our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit agreement, restructuring and other costs and amortization of intangible assets.

Note 12: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.

Note 13: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.

Note 14: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing of our Term Loan Credit Agreement, fees and expenses related to an amendment to our Term Loan Credit Agreement, restructuring and other costs and other adjustments as defined in our Term Loan Credit Agreement.


MKS Instruments, Inc.

Unaudited Consolidated Balance Sheet

(in thousands)

 

     June 30,     December 31,  
     2019     2018  

ASSETS

    

Cash and cash equivalents

   $ 366,935     $ 644,345  

Short-term investments

     92,985       73,826  

Trade accounts receivable, net

     313,530       295,454  

Inventories

     479,497       384,689  

Other current assets

     80,303       65,790  

Assets classified as held for sale

     36,750       —    
  

 

 

   

 

 

 

Total current assets

     1,370,000       1,464,104  

Property, plant and equipment, net

     230,649       194,367  

Right-of-use asset

     68,631       —    

Goodwill

     1,058,667       586,996  

Intangible assets, net

     599,372       319,807  

Long-term investments

     10,401       10,290  

Other assets

     44,228       38,682  
  

 

 

   

 

 

 

Total assets

   $ 3,381,948     $ 2,614,246  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Short-term debt

   $ 10,931     $ 3,986  

Accounts payable

     88,046       83,825  

Accrued compensation

     64,415       82,350  

Income taxes payable

     12,811       16,358  

Lease liability

     20,670       —    

Deferred revenue and customer advances

     26,597       14,246  

Other current liabilities

     61,686       62,520  
  

 

 

   

 

 

 

Total current liabilities

     285,156       263,285  

Long-term debt, net

     926,879       343,842  

Non-current deferred taxes

     76,042       48,223  

Non-current accrued compensation

     62,947       55,598  

Non-current lease liability

     51,141       —    

Other liabilities

     34,296       30,111  
  

 

 

   

 

 

 

Total liabilities

     1,436,461       741,059  
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock

     113       113  

Additional paid-in capital

     849,585       793,932  

Retained earnings

     1,113,036       1,084,797  

Accumulated other comprehensive loss

     (17,247     (5,655
  

 

 

   

 

 

 

Total stockholders’ equity

     1,945,487       1,873,187  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,381,948     $ 2,614,246  
  

 

 

   

 

 

 


MKS Instruments, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands, except per share data)

 

     Three Months Ended  
     June 30     June 30,     March 31  
     2019     2018     2019  

Cash flows from operating activities:

      

Net income

   $ 37,739     $ 122,862     $ 12,455  

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

     27,444       19,885       25,211  

Amortization of inventory step-up adjustment to fair value

     2,484       —         5,140  

Amortization of debt issuance costs, original issue discount and soft call premium

     1,751       868       1,202  

Stock-based compensation

     6,929       6,366       27,838  

Provision for excess and obsolete inventory

     6,990       4,959       5,063  

(Recovery) Provision for doubtful accounts

     (251     261       (440

Deferred income taxes

     (180     1,875       (2,445

Other

     851       426       66  

Changes in operating assets and liabilities

     (6,203     (47,891     (45,040
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     77,554       109,611       29,050  
  

 

 

   

 

 

   

 

 

 

Cash flows used in investing activities:

      

Acquisition of business, net of cash acquired

     —         —         (988,599

Purchases of investments

     (73,707     (99,063     (44,212

Sales of investments

     3,221       54,433       154,489  

Maturities of investments

     21,702       41,138       18,684  

Proceeds from sale of assets

     —         —         35  

Purchases of property, plant and equipment

     (13,725     (12,428     (14,529
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (62,509     (15,920     (874,132
  

 

 

   

 

 

   

 

 

 

Cash flows (used in) provided by financing activities:

      

Payments of short-term borrowings

     (1,750     (17,788     (176

Net proceeds from short and long-term borrowings

     2,301       25,082       638,638  

Payments of long-term borrowings

     (51,625     —         —    

Dividend payments

     (10,880     (10,942     (10,843

Net payments related to employee stock awards

     (2,025     (4,131     (8,987
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (63,979     (7,779     618,632  
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2,147     631       121  
  

 

 

   

 

 

   

 

 

 

(Decrease) Increase in cash and cash equivalents

     (51,081     86,543       (226,329
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     418,016       340,888       644,345  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 366,935     $ 427,431     $ 418,016  
  

 

 

   

 

 

   

 

 

 


MKS Instruments, Inc.

Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate

(In thousands)

 

     Three Months Ended June 30, 2019     Three Months Ended March 31, 2019  
     Income Before      Provision (benefit)     Effective     Income Before      Provision (benefit)      Effective  
     Income Taxes      for Income Taxes     Tax Rate     Income Taxes      for Income Taxes      Tax Rate  

GAAP

   $ 51,863      $ 14,124       27.2   $ 15,336      $ 2,881        18.8

Adjustments:

               

Acquisition and integration costs (Note 1)

     3,240        —           30,167        —       

Acquisition inventory step-up (Note 2)

     2,484        —           5,140        —       

Fees and expenses related to term loan (Note 3)

     —          —           5,847        —       

Amortization of debt issuance costs (Note 4)

     1,254        —           599        —       

Restructuring and other (Note 5)

     1,242        —           1,923        —       

Amortization of intangible assets

     17,552        —           15,727        —       

Windfall tax benefit on stock-based compensation (Note 6)

     —          790         —          1,389     

Tax reform adjustments (Note 7)

     —          (2,731       —          —       

Tax effect of pro-forma adjustments

     —          5,596         —          9,169     
  

 

 

    

 

 

     

 

 

    

 

 

    

Non-GAAP

   $ 77,635      $ 17,779       22.9   $ 74,739      $ 13,439        18.0
  

 

 

    

 

 

     

 

 

    

 

 

    

 

     Three Months Ended June 30, 2018  
     Income Before     Provision (benefit)      Effective  
     Income Taxes     for Income Taxes      Tax Rate  

GAAP

   $ 148,544     $ 25,682        17.3

Adjustments:

       

Acquisition and integration costs (Note 1)

     (1,168     —       

Fees and expenses related to term loan (Note 3)

     378       —       

Amortization of debt issuance costs (Note 4)

     660       —       

Restructuring and other (Note 5)

     790       —       

Amortization of intangible assets

     10,901       —       

Windfall tax benefit on stock-based compensation (Note 6)

     —         4,752     

Transition tax on accumulated foreign earnings (Note 9)

     —         659     

Tax effect of pro-forma adjustments

     —         200     
  

 

 

   

 

 

    

Non-GAAP

   $ 160,105     $ 31,293        19.5
  

 

 

   

 

 

    


     Six Months Ended June 30, 2019     Six 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

   $ 67,199      $ 17,005       25.3   $ 275,286     $ 47,303       17.2

Adjustments:

             

Acquisition and integration costs (Note 1)

     33,407        —           (1,168     —      

Acquisition inventory step-up (Note 2)

     7,624        —           —         —      

Fees and expenses related to term loan (Note 3)

     5,847        —           378       —      

Amortization of debt issuance costs (Note 4)

     1,853        —           2,491       —      

Restructuring and other (Note 5)

     3,165        —           3,010       —      

Amortization of intangible assets

     33,279        —           22,091       —      

Windfall tax benefit on stock-based compensation (Note 6)

     —          2,179         —         7,788    

Tax reform adjustments (Note 7)

     —          (2,731       —         —      

Deferred tax adjustment (Note 8)

     —          —           —         (878  

Transition tax on accumulated foreign earnings (Note 9)

     —          —           —         2,327    

Tax effect of pro-forma adjustments

     —          14,765         —         2,447    
  

 

 

    

 

 

     

 

 

   

 

 

   

Non-GAAP

   $ 152,374      $ 31,218       20.5   $ 302,088     $ 58,987       19.5
  

 

 

    

 

 

     

 

 

   

 

 

   


Note 1: Acquisition and integration costs for the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. During the three and six months ended June 30, 2018, we reversed a portion of costs recognized during previous periods related to the Newport acquisition, which closed during the second quarter of 2016, related to severance agreement provisions that were not met.

Note 2: Costs of revenues during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019 includes the amortization of the step-up of inventory to fair value as a result of the ESI acquisition.

Note 3: We recorded fees and expenses during the three months ended March 31, 2019 and six months ended June 30, 2019 related to Amendment No. 5 of our Term Loan Credit Agreement. We recorded fees and expenses during the three and six months ended June 30, 2018 related to the fourth repricing of our Term Loan Credit Agreement.

Note 4: We recorded additional interest expense related to the amortization of debt issuance costs associated with our Term Loan Credit Agreement.

Note 5: We recorded restructuring costs during the three months ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, which consisted primarily of severance costs related to an organization-wide reduction in workforce, the consolidation of service functions in Asia and the movement of certain products to low cost regions. We also recorded expense during the three months ended March 31, 2019 and six months ended June 30, 2019 related to a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and six months ended June 30, 2018 were primarily comprised of severance costs related to transferring a portion of our shared services functions to a third party as well as the consolidation of certain shared service functions in Asia. We recorded environmental costs during the six months ended June 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 7: We recorded tax adjustments resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 8: 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 and updated the provisional transition tax during the six months ended June 30, 2018.

Note 9: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and six months ended June 30, 2018.


MKS Instruments, Inc.

Reconciliation of Q3-19 Guidance - GAAP Net Income to Non-GAAP Net Earnings

(In thousands, except per share data)

 

     Three Months Ended September 30, 2019  
     Low Guidance     High Guidance  
     $ Amount     $ Per Share     $ Amount     $ Per Share  

GAAP net income

   $ 21,400     $ 0.39     $ 39,800     $ 0.72  

Amortization

     17,200       0.31       17,200       0.31  

Deferred financing costs

     800       0.01       800       0.01  

Integration costs

     1,700       0.03       1,700       0.03  

Restructuring and other costs

     1,800       0.03       1,800       0.03  

Tax effect of adjustments (Note 1)

     (4,700     (0.08     (4,700     (0.08
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings

   $ 38,200     $ 0.69     $ 56,600     $ 1.02  
  

 

 

   

 

 

   

 

 

   

 

 

 

Q3 -19 forecasted shares

       55,300         55,300  
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.

 

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