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MKS Announces Second Quarter Results for Fiscal 2007

Waterloo, ON – November 29, 2006: MKS Inc. (“MKS” or the “Company”) (TSX: MKX) today announced its financial results for the second quarter of fiscal 2007, which ended October 31, 2006. All amounts are reported in US dollars under United States Generally Accepted Accounting Principles.

Waterloo, ON – November 29, 2006: MKS Inc. (“MKS” or the “Company”) (TSX: MKX) today announced its financial results for the second quarter of fiscal 2007, which ended October 31, 2006. All amounts are reported in US dollars under United States Generally Accepted Accounting Principles.

Financial & Operational Highlights:

Q2 Fiscal 2007 (compared with Q2 Fiscal 2006)

  • Total revenue remained constant at $11.5 million
  • Net income decreased from $0.9 million or $0.02 per share to a net loss of $(0.7) million or $(0.01) per share
  • Application lifecycle management (ALM) revenue increased from $9.6 million to $9.7 million
  • ALM maintenance revenue increased 22 per cent from $3.9 million to $4.7 million
  • ALM services revenues increased 13 percent from $1.4 million to $1.6 million
  • Announced new contract wins at Mitsui Knowledge Industries, Karl Storz and follow-on wins at Abbott Laboratories, BNSF Railway, Centers for Medicare & Medicaid Services, Neiman Marcus, SUVA, and Teva Pharmaceuticals.
  • Signed 15 contracts worth greater than $100,000, compared with 19 during the same period last year.

Cash decreased during the quarter to $14.7 million from $15.4 million at July 31, 2006.

“During the quarter we experienced lower license revenue than anticipated. Although we continue to make progress in new strategic beachheads, we are having to adjust our sales and services model to help our longstanding customers deploy faster and best deliver on the promise of our greatly expanded software product capabilities,” said Philip Deck, CEO of MKS. “Our ALM services and maintenance revenue, and our Interoperability business unit results remained on track.”

Over the past few quarters, MKS has released technology upgrades that extend the applicability of its platform across a significantly broader user base within its target enterprise customers. This extends functionality beyond core version and development task management into requirement, testing, server deployment and portfolio management. While this expansion of capability has generated significant interest among our large enterprise customers and increases the value of the Company’s solution to them, it has added to the complexity of software implementation planning and associated purchases.

MKS has also experienced longer sales cycles as more of its new customers are seeking to implement larger-scale ALM implementations. In spite of its clear technology advantages, the Company is finding longer sales cycles in large transactions and must invest more in sales resources to overcome its lesser known brand relative to the competition.

To improve the pace of license transactions, MKS has been building its services practice both internally and through third-party services providers to assist customers with deployment and alleviate the lack of methodology and experience associated with extended areas of functionality.

“Our new capabilities have been received with great enthusiasm by new and longstanding customers alike, but we need to support their deployments more broadly,” said Michael Harris, MKS President and COO, “As the strong results from our services practice are demonstrating, our customers absolutely require the deployment support that our internal services organization and our growing roster of services partners can provide.”

Financial Review
Total revenue for the second quarter of fiscal 2007 was $11.5 million, remaining constant with $11.5 million in the second quarter of fiscal 2006. Net loss for the second quarter of fiscal 2007 was $(0.7) million, or $(0.01) per share, a decrease of $1.6 million compared to net income of $0.9 million or $0.02 per share in the second quarter of fiscal 2006. Second quarter fiscal 2007 application lifecycle management (ALM) revenues were $9.7 million, an increase of 1 percent compared with $9.6 million in the second quarter of fiscal 2006.

Outlook & Guidance
The Company believes that the anticipated growth in ALM revenue will lead to annual fiscal 2007 revenue in the range of $52 to $55 million (down $5 million in each case from the outlook provided last quarter) and income before tax in the range of $0 to $2 million (down $4 million in each case from the outlook provided last quarter). The material factors and assumptions applied by the Company in arriving at these ranges and that could materially affect the Company’s liquidity are: the ability of the Company to successfully expand its ALM sales, services and research and development staff and to generate higher revenue in the ALM segment; the ability of the Company to make increased marketing expenditures in the ALM segment; increased ALM research and development expenditures to ensure the Company maintains its technical leadership in the ALM market; the Company will incur increased costs relating to stock compensation charges; and the expectation that the Company's Interoperability business will decline on an annual basis of approximately 10 percent over the course of the year.

Income tax expense is recorded in the Company’s financial statements at the prevailing tax rate in the jurisdiction where the income was generated, to the extent a deferred tax asset has been recorded in that jurisdiction. Such rate may be higher than the average rate the Company expects to pay in the future across all jurisdictions. The Company expects the long term tax rate to be approximately 35% to 36%. This will be subject to an ongoing quarterly assessment of the valuation allowance by jurisdiction which may give rise to further increases or decreases to the existing tax asset.

Conference Call Details
The Company will hold a conference call on November 29, 2006 at 5:00 p.m. EST to discuss its second quarter of fiscal 2007 performance. Interested parties may access the call by dialing 877-871-9526 or 416-620-2400. A digital recording of the call will be available for one (1) week from November 29, 2006 to December 06, 2006 and may be accessed by dialing 800-558-5253 or 416-626-4100 and by entering reservation #21283994.

For summarized financial information please click here.

About MKS
MKS is the premier provider of application lifecycle management solutions for the global 1000. MKS’s flagship ALM solution, MKS Integrity, is the most highly integrated ALM platform in the industry today, spanning all aspects of the software development lifecycle and supporting critical business transformations including SOA, application rationalization and outsourcing. MKS Integrity’s single architecture drives high levels of user productivity, facilitates rapid deployment and process standardization while delivering a complete view of application development activity through real time metrics, trends and reporting. MKS Integrity also provides essential support for IT operations through software deployment and issue management. Founded in 1984, MKS serves more than 10,000 customers in countries across the world. Whether through deployment of MKS’s solution strategically on an enterprise scale, or by leveraging individual components to solve project-level challenges, our customers can use MKS’s software to enable higher levels of process maturity, better manage global development activity and safeguard their most critical business applications and software assets. Under its widely known MKS Toolkit brand, MKS also provides UNIX-Windows co-existence and system administration that significantly cut development and administrative costs and reduce time to market, while enabling enhanced performance. More information about MKS can be found at http://www.mks.com or by calling 1-800-265-2797 (US & Canada), +49-711-351775-0 (Germany), +44-1483-733900 (United Kingdom), +65-6732-8768 (Singapore), +61 3 9674 0454 (Australia) and 1-519-884-2251 (Rest of World).

Copyright © 2006 MKS Inc. MKS and MKS Toolkit are trademarks or registered trademarks 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 the Company’s 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 including development of the ALM market, fluctuation in quarterly results, intense competition, management of growth, rapid technological change, dependence on and retention of management and key employees, currency exchange rate fluctuations, international sales, importance of maintenance contracts, economic uncertainty, dependence on a limited number of products, acquisitions, distribution channels in the interoperability market, potential for undetected errors in software, protection of intellectual property, reliance on third party relationships, limited financial resources, litigation, concentration of ownership and market maturity in the Interoperability market. .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 and Canada Media Contact:
Douglas Sawatzky, Chief Financial Officer
MKS Inc.
Phone: 519-883-3252
Email: dsawatzky@mks.com

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