LOGO   EXHIBIT 99.1

MKS Instruments Reports Third Quarter 2019 Financial Results

 

   

Quarterly revenue of $462 million

 

   

Non-GAAP net earnings of $62 million, or $1.12 per diluted share

 

   

GAAP net income of $47 million, or $0.86 per diluted share

 

   

Completed $50 million voluntary principal prepayment and repriced secured term loan to Libor + 175 basis points

Andover, MA, October 23, 2019 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2019 financial results.

“We are very pleased with our financial results for the quarter, as we delivered sequential growth in our Semiconductor end-market, driven by strong product differentiation and execution, combined with an improving demand backdrop. Although our Advanced Markets remain constrained due to global macro-economic and trade uncertainty, we remain very excited about our product and market offerings into 2020 and beyond.” said Gerald Colella, Chief Executive Officer.

Mr. Colella added, “We are also very proud that MKS has been selected to the Fortune® 100 Fastest-Growing Companies List for the third year in a row, ranking #21. Our strong operational and financial execution, combined with our commitment to innovation, have underpinned our ability to thrive as a global leader in the markets we serve – and we are just getting started.”

“In the quarter, we completed our tenth voluntary principal prepayment and fifth repricing of our secured term loan since loan origination in April 2016. These actions have lowered our annualized non-GAAP interest costs by almost $6 million based on current interest rates, and our goal is to continue to execute on de-levering the balance sheet. We exited the quarter with $475 million in cash and short-term investments, and $895 million of secured term loan debt,” said Seth H. Bagshaw, Senior Vice President and Chief Financial Officer.


Quarterly Consolidated Financial Results

(in millions, except per share data)

 

     Q3 2019     Q2 2019  

GAAP Results

    

Net revenues

   $ 462.5     $ 474.1  

Gross margin

     44.3     44.5

Operating margin

     14.4     13.5

Net income

   $ 47.4     $ 37.7  

Diluted EPS

   $ 0.86     $ 0.69  

Non-GAAP Results

    

Gross margin

     44.3     45.0

Operating margin

     17.6     18.6

Net earnings

   $ 61.6     $ 59.9  

Diluted EPS

   $ 1.12     $ 1.09  

Third Quarter 2019 Financial Results

Revenue was $462.5 million, a decrease of 2% from $474.1 million in the second quarter of 2019 and a decrease of 5% from $487.2 million in the third quarter of 2018.

Net income was $47.4 million, or $0.86 per diluted share, compared to net income of $37.7 million, or $0.69 per diluted share, in the second quarter of 2019, and $93.3 million, or $1.70 per diluted share, in the third quarter of 2018.

Third quarter GAAP net income included a gain from the sale of long-lived assets of $6.8 million, acquisition and integration costs of $2.1 million associated with the acquisition of Electro Scientific Industries, Inc., or ESI, and $1.5 million of restructuring and other costs.

Non-GAAP net earnings, which exclude special charges and credits, were $61.6 million, or $1.12 per diluted share, compared to $59.9 million, or $1.09 per diluted share, in the second quarter of 2019, and $103.2 million or $1.88 per diluted share, in the third quarter of 2018.

Sales to Semiconductor customers were $223 million, an increase of 4% compared to the second quarter of 2019. Sales to Advanced Markets were $239 million, a decrease of 8% compared to the second quarter of 2019.

Additional Financial Information

The Company had $475 million in cash and short-term investments and $895 million of secured term loan debt outstanding as of September 30, 2019, which is net of a $50 million voluntary principal prepayment made during the third quarter of 2019. MKS also paid a dividend of $10.9 million or $0.20 per diluted share during the third quarter of 2019. The Company has available an unused $100 million asset-based line of credit.


Fourth Quarter 2019 Outlook

Based on current business levels, the Company expects that revenue in the fourth quarter of 2019 could range from $445 to $495 million.

At these volumes, GAAP net income could range from $0.58 to $0.91 per diluted share and non-GAAP net earnings could range from $0.85 to $1.19 per diluted share.

Conference Call Details

A conference call with management will be held on Thursday, October 24, 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 9980809, 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 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, a gain from the sale of long-lived assets, windfall tax adjustments from stock-based compensation, accrued taxes on subsidiary distributions, the tax effects of the 2017 Tax Cut and Jobs Act, deferred tax adjustments 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.

Non-GAAP interest expense excludes amortization of debt issuance costs. On an annualized basis, GAAP interest savings, at the current interest rate, is approximately $7 million, which includes approximately $1 million of amortization of deferred financing costs.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance, business prospects and growth of MKS. These statements are only predictions based on current assumptions and expectations. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to our major customers, the 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 and any subsequent Quarterly Reports on Form 10-Q, as 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:

David Ryzhik

Vice President, Investor Relations

Telephone: (978) 557-5180

Email: david.ryzhik@mksinst.com


MKS Instruments, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

 

     Three Months Ended  
     September 30,     September 30,      June 30,  
     2019     2018      2019  

Net revenues:

       

Products

   $ 386,173     $ 426,255      $ 401,326  

Services

     76,278       60,897        72,784  
  

 

 

   

 

 

    

 

 

 

Total net revenues

     462,451       487,152        474,110  

Cost of revenues:

       

Products

     216,238       219,311        226,213  

Services

     41,209       35,981        36,870  
  

 

 

   

 

 

    

 

 

 

Total cost of revenues

     257,447       255,292        263,083  

Gross profit

     205,004       231,860        211,027  

Research and development

     41,566       31,898        41,855  

Selling, general and administrative

     82,101       70,822        83,236  

Fees and expenses related to term loan

     642       —          —    

Acquisition and integration costs

     2,103       36        3,240  

Restructuring and other

     1,525       1,364        1,242  

Amortization of intangible assets

     17,020       10,695        17,552  

Gain on sale of long-lived assets

     (6,773     —          —    
  

 

 

   

 

 

    

 

 

 

Income from operations

     66,820       117,045        63,902  

Interest income

     1,230       1,516        1,423  

Interest expense

     13,542       3,719        12,674  

Other (income) expense, net

     (914     326        788  
  

 

 

   

 

 

    

 

 

 

Income from operations before income taxes

     55,422       114,516        51,863  

Provision for income taxes

     7,994       21,239        14,124  
  

 

 

   

 

 

    

 

 

 

Net income

   $ 47,428     $ 93,277      $ 37,739  
  

 

 

   

 

 

    

 

 

 

Net income per share:

       

Basic

   $ 0.86     $ 1.71      $ 0.69  

Diluted

   $ 0.86     $ 1.70      $ 0.69  

Cash dividends per common share

   $ 0.20     $ 0.20      $ 0.20  

Weighted average shares outstanding:

       

Basic

     54,945       54,476        54,815  

Diluted

     55,204       54,954        55,089  


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

 

     Three Months Ended  
     September 30,     September 30,     June 30,  
     2019     2018     2019  

Net income

   $ 47,428     $ 93,277     $ 37,739  

Adjustments:

      

Acquisition and integration costs (Note 1)

     2,103       36       3,240  

Acquisition inventory step-up (Note 2)

     —         —         2,484  

Fees and expenses related to term loan (Note 3)

     642       —         —    

Amortization of debt issuance costs (Note 4)

     3,053       682       1,254  

Restructuring and other (Note 5)

     1,525       1,364       1,242  

Amortization of intangible assets

     17,020       10,695       17,552  

Gain on the sale of long-lived assets (Note 6)

     (6,773     —         —    

Windfall tax expense (benefit) on stock-based compensation (Note 7)

     256       (287     (790

Tax reform adjustments (Note 8)

     38       —         2,731  

Accrued tax on subsidiary distribution (Note 9)

     —         (2,756     —    

Transition tax on accumulated foreign earnings (Note 10)

     —         863       —    

Pro-forma tax adjustments

     (3,709     (659     (5,596
  

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings (Note 11)

   $ 61,583     $ 103,215     $ 59,856  
  

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings per diluted share (Note 11)

   $ 1.12     $ 1.88     $ 1.09  
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

     55,204       54,954       55,089  

Income from operations

   $ 66,820     $ 117,045     $ 63,902  

Adjustments:

      

Acquisition and integration costs (Note 1)

     2,103       36       3,240  

Acquisition inventory step-up (Note 2)

     —         —         2,484  

Fees and expenses related to term loan (Note 3)

     642       —         —    

Restructuring and other (Note 5)

     1,525       1,364       1,242  

Amortization of intangible assets

     17,020       10,695       17,552  

Gain on the sale of long-lived assets (Note 6)

     (6,773     —         —    
  

 

 

   

 

 

   

 

 

 

Non-GAAP income from operations (Note 12)

   $ 81,337     $ 129,140     $ 88,420  
  

 

 

   

 

 

   

 

 

 

Non-GAAP operating margin (Note 12)

     17.6     26.5     18.6
  

 

 

   

 

 

   

 

 

 

Gross profit

   $ 205,004     $ 231,860     $ 211,027  

Acquisition inventory step-up (Note 2)

     —         —         2,484  
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit (Note 13)

   $ 205,004     $ 231,860     $ 213,511  
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross margin (Note 13)

     44.3     47.6     45.0
  

 

 

   

 

 

   

 

 

 

Interest expense

   $ 13,542     $ 3,719     $ 12,674  

Amortization of debt issuance costs (Note 4)

     3,053       682       1,254  
  

 

 

   

 

 

   

 

 

 

Non-GAAP interest expense

   $ 10,489     $ 3,037     $ 11,420  
  

 

 

   

 

 

   

 

 

 

Net income

   $ 47,428     $ 93,277     $ 37,739  

Interest expense, net

     12,312       2,203       11,251  

Provision for income taxes

     7,994       21,239       14,124  

Depreciation

     10,188       8,834       9,892  

Amortization

     17,020       10,695       17,552  
  

 

 

   

 

 

   

 

 

 

EBITDA (Note 14)

   $ 94,942     $ 136,248     $ 90,558  
  

 

 

   

 

 

   

 

 

 

Stock-based compensation

     5,795       5,213       5,903  

Acquisition and integration costs (Note 1)

     2,103       36       3,240  

Acquisition inventory step-up (Note 2)

     —         —         2,484  

Fees and expenses related to term loan (Note 3)

     642       —         —    

Restructuring and other (Note 5)

     1,525       1,364       1,242  

Gain on the sale of long-lived assets (Note 6)

     (6,773     —         —    
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (Note 15)

   $ 98,234     $ 142,861     $ 103,427  
  

 

 

   

 

 

   

 

 

 


Note 1: Acquisition and integration costs for the three months ended September 30, 2019 and June 30, 2019, related to the acquisition of Electro Scientific Industries, Inc. (“ESI”) which closed on February 1, 2019. Acquisition and integration costs for the three months ended September 30, 2018, related to the Newport acquisition, which closed during the second quarter of 2016.

Note 2: Costs of revenues during the three 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 September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026.

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

Note 5: We recorded restructuring costs during the three months ended September 30, 2019 and 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. Restructuring costs during the three months ended September 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: During the three months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.

Note 7: We recorded windfall tax expense (benefits) on the vesting of stock-based compensation.

Note 8: We recorded tax adjustments during the three months ended September 30, 2019 and June 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 9: During the three months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.

Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended September 30, 2018.

Note 11: The Non-GAAP net earnings and Non-GAAP net earnings per diluted 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 and amendment of our Secured Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a gain on the sale of long-lived assets, windfall tax adjustments related to stock compensation expense, tax reform adjustments, an accrued tax on subsidiary distribution, 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 12: The Non-GAAP income from operations and Non-GAAP operating margin exclude acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, amortization of intangible assets and a gain on the sale of long-lived assets.

Note 13: The Non-GAAP gross profit amounts and Non-GAAP gross margin exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.

Note 14: EBITDA excludes net interest expense, income taxes, depreciation and amortization of intangible assets.

Note 15: 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 and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs and a gain on the sale of long-lived assets.


MKS Instruments, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

 

 

     Nine Months Ended  
     September 30,  
     2019     2018  

Net revenues:

    

Products

   $ 1,184,862     $ 1,432,931  

Services

     215,260       181,636  
  

 

 

   

 

 

 

Total net revenues

     1,400,122       1,614,567  

Cost of revenues:

    

Products

     672,161       747,522  

Services

     113,812       97,453  
  

 

 

   

 

 

 

Total cost of revenues

     785,973       844,975  

Gross profit

     614,149       769,592  

Research and development

     122,354       103,259  

Selling, general and administrative

     247,792       229,952  

Acquisition and integration costs

     35,510       (1,132

Restructuring and other

     4,690       4,374  

Fees and expenses related to term loan

     6,489       378  

Amortization of intangible assets

     50,299       32,786  

Gain on sale of long-lived assets

     (6,773     —    
  

 

 

   

 

 

 

Income from operations

     153,788       399,975  

Interest income

     4,367       4,077  

Interest expense

     35,335       13,071  

Other expense, net

     199       1,179  
  

 

 

   

 

 

 

Income from operations before income taxes

     122,621       389,802  

Provision for income taxes

     24,999       68,542  
  

 

 

   

 

 

 

Net income

   $ 97,622     $ 321,260  
  

 

 

   

 

 

 

Net income per share:

    

Basic

   $ 1.79     $ 5.89  

Diluted

   $ 1.77     $ 5.82  

Cash dividends per common share

   $ 0.60     $ 0.58  

Weighted average shares outstanding:

    

Basic

     54,636       54,539  

Diluted

     55,045       55,171  

 


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

 

     Nine Months Ended  
     September 30,  
     2019     2018  

Net income

   $ 97,622     $ 321,260  

Adjustments:

    

Acquisition and integration costs (Note 1)

     35,510       (1,132

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     6,489       378  

Amortization of debt issuance costs (Note 4)

     4,906       3,173  

Restructuring and other (Note 5)

     4,690       4,374  

Amortization of intangible assets

     50,299       32,786  

Gain on sale of long-lived assets (Note 6)

     (6,773     —    

Windfall tax benefit on stock-based compensation (Note 7)

     (1,923     (8,075

Tax reform adjustments (Note 8)

     2,769       —    

Accrued tax on subsidiary distribution (Note 9)

     —         (2,756

Transition tax on accumulated foreign earnings (Note 10)

     —         (1,464

Deferred tax adjustment (Note 11)

     —         878  

Pro-forma tax adjustments

     (18,474     (3,106
  

 

 

   

 

 

 

Non-GAAP net earnings (Note 12)

   $ 182,739     $ 346,316  
  

 

 

   

 

 

 

Non-GAAP net earnings per diluted share (Note 12)

   $ 3.32     $ 6.28  
  

 

 

   

 

 

 

Weighted average shares outstanding

     55,045       55,171  

Income from operations

   $ 153,788     $ 399,975  

Adjustments:

    

Acquisition and integration costs (Note 1)

     35,510       (1,132

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     6,489       378  

Restructuring and other (Note 5)

     4,690       4,374  

Amortization of intangible assets

     50,299       32,786  

Gain on sale of long-lived assets (Note 6)

     (6,773     —    
  

 

 

   

 

 

 

Non-GAAP income from operations (Note 13)

   $ 251,627     $ 436,381  
  

 

 

   

 

 

 

Non-GAAP operating margin (Note 13)

     18.0     27.0
  

 

 

   

 

 

 

Gross profit

   $ 614,149     $ 769,592  

Acquisition inventory step-up (Note 2)

     7,624       —    
  

 

 

   

 

 

 

Non-GAAP gross profit (Note 14)

   $ 621,773     $ 769,592  
  

 

 

   

 

 

 

Non-GAAP gross margin (Note 14)

     44.4     47.7
  

 

 

   

 

 

 

Interest expense

   $ 35,335     $ 13,071  

Amortization of debt issuance costs (Note 4)

     4,906       3,173  
  

 

 

   

 

 

 

Non-GAAP interest expense

   $ 30,429     $ 9,898  
  

 

 

   

 

 

 

Net Income

   $ 97,622     $ 321,260  

Interest expense, net

     30,968       8,994  

Provision for income taxes

     24,999       68,542  

Depreciation

     29,564       27,120  

Amortization

     50,299       32,786  
  

 

 

   

 

 

 

EBITDA (Note 15)

   $ 233,452     $ 458,702  
  

 

 

   

 

 

 

Stock-based compensation

     20,972       22,005  

Acquisition and integration costs (Note 1)

     35,510       (1,132

Acquisition inventory step-up (Note 2)

     7,624       —    

Fees and expenses related to term loan (Note 3)

     6,489       378  

Restructuring and other (Note 5)

     4,690       4,374  

Gain on sale of long-lived assets (Note 6)

     (6,773     —    

Other adjustments

     3,337       772  
  

 

 

   

 

 

 

Adjusted EBITDA (Note 16)

   $ 305,301     $ 485,099  
  

 

 

   

 

 

 


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

Note 2: Costs of revenues during the nine months ended September 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 nine months ended September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026. We also recorded fees and expenses during the nine months ended September 30, 2019 related to Amendment No. 5 of our Secured Term Loan Credit Agreement. We recorded fees and expenses during the nine months ended September 30, 2018 related to the fourth repricing of our Secured Term Loan Credit Agreement.

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

Note 5: We recorded restructuring costs during the nine months ended September 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 nine months ended September 30, 2019 related to a legal settlement from a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the nine months ended September 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 nine months ended September 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: During the nine months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.

Note 7: We recorded windfall tax benefits on the vesting of stock-based compensation.

Note 8: We recorded tax adjustments during the nine months ended September 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 9: During the nine months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.

Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the nine months ended September 30, 2018.

Note 11: During the nine months ended September 30, 2018, we recorded a provisional deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the fourth quarter of 2017.

Note 12: The Non-GAAP net earnings and Non-GAAP net earnings per diluted 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 and amendment of our Secured Term Loan Credit Agreement, amortization of debt issuance costs, restructuring and other costs, amortization of intangible assets, a gain on the sale of long-lived assets, windfall tax benefits related to stock compensation expense, tax reform adjustments, an accrued tax on subsidiary distribution, transition tax on accumulated foreign earnings, a deferred tax adjustment and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.

Note 13: The Non-GAAP income from operations and Non-GAAP operating margin excludes acquisition and integration costs, the amortization of the step-up of inventory to fair value, fees and expenses related to the repricing and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, amortization of intangible assets and a gain on the sale of long-lived assets.


Note 14: The Non-GAAP gross profit amounts and Non-GAAP gross margin exclude the amortization of the step-up of inventory to fair value related to the acquisition of ESI.

Note 15: EBITDA excludes net interest expense, income taxes, depreciation and amortization of intangible assets.

Note 16: 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 and amendment of our Secured Term Loan Credit Agreement, restructuring and other costs, a gain on the sale of long-lived assets and other adjustments as defined in our Term Loan Credit Agreement.


MKS Instruments, Inc.

Unaudited Consolidated Balance Sheet

(In thousands)

 

     September 30,     December 31,  
     2019     2018  

ASSETS

    

Cash and cash equivalents

   $ 386,281     $ 644,345  

Short-term investments

     88,847       73,826  

Trade accounts receivable, net

     327,983       295,454  

Inventories

     463,263       384,689  

Other current assets

     94,011       65,790  
  

 

 

   

 

 

 

Total current assets

     1,360,385       1,464,104  

Property, plant and equipment, net

     236,124       194,367  

Right-of-use asset

     67,632       —    

Goodwill

     1,054,091       586,996  

Intangible assets, net

     580,880       319,807  

Long-term investments

     10,146       10,290  

Other assets

     45,286       38,682  
  

 

 

   

 

 

 

Total assets

   $ 3,354,544     $ 2,614,246  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Short-term debt

   $ 12,623     $ 3,986  

Accounts payable

     88,078       83,825  

Accrued compensation

     87,045       82,350  

Income taxes payable

     11,048       16,358  

Lease liability

     20,575       —    

Deferred revenue and customer advances

     22,363       14,246  

Other current liabilities

     68,925       62,520  
  

 

 

   

 

 

 

Total current liabilities

     310,657       263,285  

Long-term debt, net

     873,450       343,842  

Non-current deferred taxes

     69,190       48,223  

Non-current accrued compensation

     43,704       55,598  

Non-current lease liability

     47,294       —    

Other liabilities

     36,718       30,111  
  

 

 

   

 

 

 

Total liabilities

     1,381,013       741,059  
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common stock

     113       113  

Additional paid-in capital

     856,437       793,932  

Retained earnings

     1,149,457       1,084,797  

Accumulated other comprehensive loss

     (32,476     (5,655
  

 

 

   

 

 

 

Total stockholders’ equity

     1,973,531       1,873,187  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,354,544     $ 2,614,246  
  

 

 

   

 

 

 


MKS Instruments, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands, except per share data)

 

     Three Months Ended  
     September 30     September 30     June 30  
     2019     2018     2019  

Cash flows from operating activities:

      

Net income

   $ 47,428     $ 93,277     $ 37,739  

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

 

Depreciation and amortization

     27,208       19,529       27,444  

Amortization of inventory step-up adjustment to fair value

     —         —         2,484  

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

     3,601       897       1,751  

Stock-based compensation

     7,373       5,213       6,929  

Provision for excess and obsolete inventory

     6,546       5,283       6,990  

Provision (recovery) for doubtful accounts

     917       263       (251

Deferred income taxes

     (6,442     (4,695     (180

Gain on sale of long-lived asset

     (6,773     —         —    

Other

     (553     71       851  

Changes in operating assets and liabilities

     (18,647     (23,882     (6,203
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     60,658       95,956       77,554  
  

 

 

   

 

 

   

 

 

 

Cash flows provided by (used in) investing activities:

      

Purchases of investments

     (53,397     (64,958     (73,707

Sales of investments

     4,705       4,505       3,221  

Maturities of investments

     52,958       44,605       21,702  

Proceeds from sale of assets

     41,179       —         —    

Purchases of property, plant and equipment

     (16,499     (15,067     (13,725
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     28,946       (30,915     (62,509
  

 

 

   

 

 

   

 

 

 

Cash flows used in financing activities:

      

Payments of short-term borrowings

     (2,001     (29,803     (1,750

Net proceeds from short and long-term borrowings

     1,241       23,635       2,301  

Payments of long-term borrowings

     (52,244     (2     (51,625

Repurchase of common stock

     —         (75,000     —    

Dividend payments

     (10,898     (10,858     (10,880

Net payments related to employee stock awards

     (716     (589     (2,025
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (64,618     (92,617     (63,979
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (5,640     (5     (2,147
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     19,346       (27,581     (51,081
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     366,935       427,431       418,016  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 386,281     $ 399,850     $ 366,935  
  

 

 

   

 

 

   

 

 

 


MKS Instruments, Inc.

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

(in thousands)

 

     Three Months Ended September 30, 2019     Three Months Ended June 30, 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

   $ 55,422     $ 7,994       14.4   $ 51,863      $ 14,124       27.2

Adjustments:

             

Acquisition and integration costs (Note 1)

     2,103       —           3,240        —      

Acquisition inventory step-up (Note 2)

     —         —           2,484        —      

Fees and expenses related to term loan (Note 3)

     642       —           —          —      

Amortization of debt issuance costs (Note 4)

     3,053       —           1,254        —      

Restructuring and other (Note 5)

     1,525       —           1,242        —      

Amortization of intangible assets

     17,020       —           17,552        —      

Gain on sale of long-lived assets (Note 6)

     (6,773     —           —          —      

Windfall tax (expense) benefit on stock-based compensation (Note 7)

     —         (256       —          790    

Tax reform adjustments (Note 8)

     —         (38       —          (2,731  

Tax effect of pro-forma adjustments

     —         3,709         —          5,596    
  

 

 

   

 

 

     

 

 

    

 

 

   

Non-GAAP

   $ 72,992     $ 11,409       15.6   $ 77,635      $ 17,779       22.9
  

 

 

   

 

 

     

 

 

    

 

 

   


MKS Instruments, Inc.

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

(in thousands)

 

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

GAAP

   $ 114,516      $ 21,239       18.5

Adjustments:

       

Acquisition and integration costs (Note 1)

     36        —      

Amortization of debt issuance costs (Note 4)

     682        —      

Restructuring and other (Note 5)

     1,364        —      

Amortization of intangible assets

     10,695        —      

Windfall tax (expense) benefit on stock-based compensation (Note 7)

     —          287    

Accrued tax on subsidiary distribution (Note 9)

     —          2,756    

Transition tax on accumulated foreign earnings (Note 10)

     —          (863  

Tax effect of pro-forma adjustments

     —          659    
  

 

 

    

 

 

   

Non-GAAP

   $ 127,293      $ 24,078       18.9
  

 

 

    

 

 

   


MKS Instruments, Inc.

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

(in thousands)

 

     Nine Months Ended September 30, 2019     Nine Months Ended September 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

   $ 122,621     $ 24,999       20.4   $ 389,802     $ 68,542       17.6

Adjustments:

            

Acquisition and integration costs (Note 1)

     35,510       —           (1,132     —      

Acquisition inventory step-up (Note 2)

     7,624       —           —         —      

Fees and expenses related to term loan (Note 3)

     6,489       —           378       —      

Amortization of debt issuance costs (Note 4)

     4,906       —           3,173       —      

Restructuring and other (Note 5)

     4,690       —           4,374       —      

Amortization of intangible assets

     50,299       —           32,786       —      

Gain on sale of long-lived assets (Note 6)

     (6,773     —           —         —      

Windfall tax (expense) benefit on stock-based compensation (Note 7)

     —         1,923         —         8,075      

Tax reform adjustments (Note 8)

     —         (2,769       —         —      

Accrued tax on subsidiary distribution (Note 9)

     —         —           —         2,756    

Transition tax on accumulated foreign earnings (Note 10)

     —         —           —         1,464    

Deferred tax adjustment (Note 11)

     —         —           —         (878  

Tax effect of pro-forma adjustments

     —         18,474         —         3,106    
  

 

 

   

 

 

     

 

 

   

 

 

   

Non-GAAP

   $ 225,366     $ 42,627       18.9   $ 429,381     $ 83,065       19.3
  

 

 

   

 

 

     

 

 

   

 

 

   


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

Note 2: Costs of revenues during the three months ended June 30, 2019 and nine months ended September 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 and nine months ended September 30, 2019, related to Amendment No. 6 which included the fifth repricing of our Secured Term Loan Credit Agreement and the combination of the two existing tranches of the Secured Term Loan Credit Agreement with a maturity date in February 2026. We also recorded fees and expenses during the nine months ended September 30, 2019 related to Amendment No. 5 of our Secured Term Loan Credit Agreement. We recorded fees and expenses during the nine months ended September 30, 2018 related to the fourth repricing of our Secured Term Loan Credit Agreement.

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

Note 5: We recorded restructuring costs during the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 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 nine months ended September 30, 2019 related to a legal settlement from a contractual obligation we assumed as part of our acquisition of Newport Corporation. Restructuring costs during the three and nine months ended September 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 nine months ended September 30, 2018, related to an Environmental Protection Agency-designated Superfund site, which was acquired as part of our acquisition of Newport Corporation.

Note 6: During the three and nine months ended September 30, 2019, we recorded a net gain on the sale of two of our buildings in Boulder, CO and three of our buildings in Portland, OR.

Note 7: We recorded windfall tax (expense) benefits on the vesting of stock-based compensation.

Note 8: We recorded tax adjustments during the three months ended September 30, 2019, June 30, 2019 and nine months ended September 30, 2019 resulting from additional guidance provided by the IRS related to 2017 tax reform.

Note 9: During the three and nine months ended September 30, 2018, we recorded an adjustment to a tax accrual related to a planned distribution of an MKS subsidiary.

Note 10: We adjusted the transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and nine months ended September 30, 2018.

Note 11: During the nine months ended September 30, 2018, 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.


MKS Instruments, Inc.

Reconciliation of Q4-19 Guidance – GAAP Net Income to Non-GAAP Net Earnings

(In thousands, except per share data)

 

     Three Months Ended December 31, 2019  
     Low Guidance     High Guidance  
     $ Amount     $ Per Share     $ Amount     $ Per Share  

GAAP net income

   $ 32,200     $ 0.58     $ 50,400     $ 0.91  

Amortization

     17,100       0.31       17,100       0.31  

Deferred financing costs

     200       0.00       200       0.00  

Acquisition and integration costs

     1,900       0.03       1,900       0.03  

Tax effect of adjustments (Note 1)

     (4,100     (0.07     (4,100     (0.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net earnings

   $ 47,300     $ 0.85     $ 65,500     $ 1.19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Q4 -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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