MKS Instruments (MKSI) Q1 Earnings & Revenues Beat Estimates

MKS Instruments (NASDAQ:MKSI) reported first-quarter 2019 adjusted earnings of $1.12 per share that beat the Zacks Consensus Estimate by a nickel.

However, earnings declined 45.9% year over year and 27.3% sequentially.

Revenues of $463.6 million also beat the Zacks Consensus Estimate of $461 million.

However, the top line declined 16.4% year over year, primarily due to lower spending in the semiconductor market. Sequentially, revenues increased 0.7%.

Quarter Details

Products revenues (85.7% of total revenues) were $397.4 million, down 20% from the year-ago quarter and 1.2% sequentially.

Services revenues (14.3%) increased 14.9% year over year and 13.6% quarter over quarter to $66.2 million.

Sales to semiconductor customers decreased 10% sequentially to $221 million.

Sales to Advanced Markets were $243 million, up 8% sequentially, driven by strong contribution from Electro Scientific Industries, the acquisition of which was closed during the first quarter.

MKS Instruments’ non-GAAP gross margin for the quarter was 43.8%, down 360 basis points (bps) year over year and 170 bps sequentially.

Adjusted EBITDA declined 37.2% from the year-ago quarter and 15.7% sequentially to $103.6 million. Adjusted EBITDA margin contracted 740 bps on a year-over-year basis and 430 bps on a sequential basis to 22.4%.

Research & development (R&D), and sales, general & administrative (SG&A) expenses as percentage of revenues increased 210 bps and 280 bps year over year to 8.4% and 17.8%, respectively.

Sequentially, R&D and SG&A expenses as percentage of revenues increased 140 bps and 300 bps.

While acquisition and Integration costs were $30.2 million, restructuring costs were $0.2 million in the reported quarter.

MKS Instruments’ reported non-GAAP operating income of $81.9 million, down 43.6% from the year-ago quarter and 25.1% sequentially. Adjusted operating margin was 17.7%, which contracted 850 bps on a year-over-year basis and 610 bps sequentially.

Balance Sheet & Cash Flow

MKS Instruments exited the quarter with cash and cash equivalents of $418 million compared with $644.3 million as of Dec 31, 2018.

Long-term debt was $976.8 million compared with $343.8 million as of Dec 31, 2018.

Cash from operating activities was $29.1 million compared with $135.5 million in fourth-quarter 2018 and $72.8 million in the year-ago quarter.

Guidance for Q2

MKS Instruments anticipates to report revenues between $460 million and $510 million. Non-GAAP earnings are expected to range between 89 cents and $1.26 per share.

Moreover, the company targets to realize $15 million of annualized cost synergies from Electro Scientific Industries acquisition over the next 18-36 months.

Zacks Rank & Stocks to Consider

Currently, MKS Instruments carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Ceridian HCM Holding (NYSE:CDAY) , Upland Software (NASDAQ:UPLD) and Fortinet (NASDAQ:FTNT) . While Ceridian HCM Holding and Upland Software sport a Zacks Rank #1 (Strong Buy), Fortinet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Ceridian HCM Holding is set to report quarterly results on May 1, Upland Software and Fortinet are scheduled to report on May 2.

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