MKS Inc.
TSX : MKX

MKS Inc.

March 04, 2008 16:05 ET

MKS Announces Third Quarter Fiscal 2008 Results

WATERLOO, ONTARIO--(Marketwire - March 4, 2008) - MKS Inc. (MKS) (TSX:MKX) today announced its financial results for the third quarter of fiscal 2008 ended January 31, 2008. All amounts are reported in US dollars under United States Generally Accepted Accounting Principles.

Financial & Operational Highlights:

Q3 2008 (compared with Q3 2007)

- Total revenue increased 11 percent to $12.8 million from $11.6 million.

- Net loss of ($0.8) million or ($0.01) per share compared to a net loss of ($1.2) million or ($0.02) per share.

- Application lifecycle management (ALM) revenues increased 13 percent to $11.0 million from $9.8 million. ALM license revenue declined 3 percent to $3.1 million from $3.2 million.

- ALM maintenance revenues increased 18 percent to $5.8 million from $4.9 million. ALM service revenues increased 31 percent to $2.1 million from $1.6 million.

New business was won at Ameren, Daito Trust, Emerson, Fortis Banque, Inergi Solutions, Lloyds TSB and New Horizon Systems Solutions, with follow-on wins at BNSF Railway, Cincinnati Financial, Magna Electronics, Motorola, RWE Systems, TeleAtlas, Textron Systems.

Closing cash balance at January 31, 2008 was $10.6 million, up from $9.9 million at October 31, 2007.

"We were pleased to see continued improvements in trailing twelve months revenue and profitability." said Philip Deck, CEO of MKS. "While we had no license transactions larger than $200,000 during the 3rd quarter, we expect much stronger 4th quarter licensing that will contribute to our full year license growth. Overall we are confident that we will achieve our full year guidance of profitability based on license, services and maintenance growth.

"Sales activities continue to see improving momentum as our market visibility improves and lead flow picks up" said Michael Harris, MKS President and COO. "Our improved analyst rankings, growing list of reference installations and customer enthusiasm for our requirements management offering are all contributing to strong pipeline expansion."

Financial Review

Total revenue for the third quarter of fiscal 2008 was $12.8 million, an increase of 11 percent over the third quarter of fiscal 2007. Net loss for the third quarter of fiscal 2008 was ($0.8) million, or ($0.01) per share, compared to a net loss of ($1.2) million or ($0.02) per share in the third quarter of fiscal 2007.

Nine month revenues for fiscal 2008 increased 12 percent to $40.0 million compared with revenues of $35.7 million for the same period in fiscal 2007. Nine month net loss was ($0.9) million, in contrast to a net loss of ($2.4) million for the same period in fiscal 2007.

Third quarter fiscal 2008 application lifecycle management (ALM) revenues increased 13 percent to $11.0 million, compared to ALM revenues of $9.8 million reported in the third quarter of fiscal 2007.

Nine month ALM revenues for fiscal 2008 increased 16 percent to $34.6 million from $29.9 million for the first nine months of fiscal 2007.

Outlook & Guidance

MKS expects that ALM license revenue will improve in fiscal 2008 from the levels of fiscal 2007, which combined with continued increases in maintenance and services revenue will result in higher total revenue for the fiscal year compared to fiscal 2007, more than offsetting expected declines in Interoperability revenue. MKS expects significantly higher license revenue in the 4th quarter (compared to the 3rd quarter) that it believes will contribute to full year profitability for fiscal 2008.

MKS is limiting the expansion of its sales and marketing capacity to ensure that profitability can be expected throughout its planning horizon. For the 2008 fiscal year, the significant volatility in MKS operating currencies has represented a substantial planning challenge. The average cost of Canadian dollars during the 3rd quarter of 2008 was US$1.01. As a result, MKS does not expect further currency related cost increases for the remainder of fiscal 2008 assuming stable Canadian dollar rates during that period.

MKS expects to maintain more than sufficient cash balances through fiscal 2008 through the combination of expected improvements in net income, reduced capital expenditures over those in fiscal 2007 and an expected continuation of lower overall receivables days net of current dividend policy. The Company expects that seasonal factors will cause inflows of cash in the second half of the fiscal year as the Company's annual maintenance renewals are more heavily weighted to the last two quarters of the fiscal year.

Conference Call Details

The Company will hold a conference call today at 5:00 p.m. EST to discuss its third quarter performance. Interested parties may access the call by dialing 800-215-2393 or 1-416-620-9644. A digital recording of the call will be available for seven (7) days from March 4, 2008 to March 10, 2008 and may be accessed by dialing 800-558-5253 or 416-626-4100 and by entering reservation #21352429.

About MKS

MKS is the rapidly growing thought leader in application lifecycle management, which enables software engineering and IT organization to seamlessly manage their worldwide software development activities. With its flagship product, MKS Integrity, MKS offers support for all software development activities through a single enterprise application, resulting in better global collaboration and higher productivity. MKS supports customers worldwide with offices across North America, Europe and Asia. For more information about MKS, visit our Web site at http://www.mks.com.

Copyright (C) 2008 MKS Inc. MKS is a registered trademark of MKS Inc. All other trademarks mentioned in this release are the property of their respective owners.

This news release contains forward-looking statements that involve risks and uncertainties, which may cause actual results to differ materially from the statements made. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company's current views with respect to future events and are subject to such risks and uncertainties. Although the Company believes the expectations represented by such forward looking statements are reasonable, there can be no assurance that those expectations will prove to be correct. Many factors could cause our actual results to differ materially from the statements made including those factors detailed from time to time in filings made by the Company with Canadian securities regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated or expected. The Company does not intend and does not assume any obligation to update these forward-looking statements.



US GAAP
MKS Inc.
Consolidated Balance Sheets
(U.S. dollars, thousands, unaudited)

January 31 April 30
2008 2007
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Assets:

Current assets:
Cash and cash equivalents $ 10,632 $ 15,258
Accounts receivable, net of allowances for
doubtful accounts of $249 (April 30, 2007 - $233) 9,292 6,118
Deferred income taxes 1,847 1,847
Other 2,060 1,946
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Total current assets 23,831 25,169

Fixed assets 4,681 4,709
Intangible assets 176 240
Goodwill 2,424 2,424
Deferred income taxes 2,281 2,964
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Total assets $ 33,393 $ 35,506
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Liabilities and shareholders' equity:

Current liabilities:
Accounts payable $ 1,265 $ 1,482
Accrued liabilities 2,885 2,722
Income taxes payable 111 70
Deferred revenue 14,828 13,783
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Total current liabilities 19,089 18,057

Shareholders' equity:
Share capital 55,732 54,837
Accumulated other comprehensive loss (1,794) (1,671)
Accumulated deficit (39,634) (35,717)
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Total shareholders' equity 14,304 17,449
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Total liabilities and shareholders' equity $ 33,393 $ 35,506
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US GAAP
MKS Inc.
Consolidated Statements of Operations
(U.S. dollars, thousands, except
per share data, unaudited)
Three Months Ended Nine Months Ended
January 31 January 31
---------------------------------------
2008 2007 2008 2007
------------------------------------------------------------------------

Revenue:
License $ 4,120 $ 4,229 $ 15,050 $ 14,668
Maintenance 6,584 5,727 19,191 16,423
Service 2,086 1,594 5,784 4,587
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12,790 11,550 40,025 35,678

Operating expenses:
Cost of product and support 1,123 805 3,109 2,836
Cost of service 1,479 1,241 4,233 3,508
Sales and marketing 5,672 5,727 17,455 17,659
Research and development 3,191 2,834 9,772 8,494
General and administrative 1,929 1,796 5,596 5,285
Stock based compensation 202 269 505 794
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13,596 12,672 40,670 38,576
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Loss from operations (806) (1,122) (645) (2,898)

Interest income, net 44 99 255 370
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Loss before income taxes (762) (1,023) (390) (2,528)

Income tax provision (recovery):
Current - - (196) (330)
Deferred (8) 184 683 187
------------------------------------------------------------------------
Income tax provision (recovery) (8) 184 487 (143)
------------------------------------------------------------------------
Net loss $ (754) $ (1,207) $ (877) $(2,385)
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Loss per share:
Basic and diluted $ (0.01) $ (0.02) $ (0.02) $ (0.05)

Basic and diluted weighted
average number of shares
outstanding 50,751 50,550 50,652 50,401



US GAAP
MKS Inc.
Consolidated Statements of Cash Flows
(U.S. dollars, thousands, unaudited)

Three Months Ended Nine Months Ended
January 31 January 31
-----------------------------------------
2008 2007 2008 2007
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Cash flows from operating
activities:

Net loss $ (754) $ (1,207) $ (877) $ (2,385)
Adjustments to reconcile net
loss to net cash provided
by (used for) operating
activities:
Depreciation of fixed assets 368 262 994 683
Amortization of intangible assets 22 15 64 16
Stock based compensation 202 269 505 794
Deferred income taxes (8) 184 683 187
Loss on disposal of fixed assets 30 - 73 -

Change in operating assets and
liabilities:
Accounts receivable 289 (127) (3,174) 3,277
Other (97) 221 (114) 514
Accounts payable (454) (103) (217) (281)
Accrued liabilities (549) 78 163 (166)
Income taxes payable 238 (97) 41 (285)
Deferred revenue 2,565 2,540 1,045 1,342
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Net cash provided by (used for)
operating activities 1,852 2,035 (814) 3,696

Cash flows used for investing
activities:
Purchase of fixed assets (401) (526) (1,003) (1,496)
Purchase of intangible assets - (49) - (278)
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Net cash used for investing
activities (401) (575) (1,003) (1,774)

Cash flows used for financing
activities:
Proceeds on issuance of common
shares 265 18 390 788
Dividends paid (1,015) (1,011) (3,040) (3,029)
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Net cash used for financing
activities (750) (993) (2,650) (2,241)
Effect of exchange rate changes
on cash and cash equivalents 53 (80) (159) (266)
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Change in cash and cash
equivalents balances 754 387 (4,626) (585)
Cash and cash equivalents,
beginning of period 9,878 14,721 15,258 15,693
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Cash and cash equivalents, end
of period $ 10,632 $ 15,108 $ 10,632 $ 15,108
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