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KMG Reports Third Quarter 2017 Financial Results

FORT WORTH, Texas, June 09, 2017 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals, today announced financial results for the fiscal 2017 third quarter ended April 30, 2017.

2017 Third Quarter Financial Highlights

  • GAAP diluted earnings per share was $0.49 compared to $0.53 per diluted share in the third quarter of fiscal 2016. In last year’s third quarter, KMG recorded a bargain purchase gain of $2.1 million, equivalent to $0.17 per diluted share, for the acquisition of NFC.
  • Adjusted diluted earnings per share1 was $0.53 compared to $0.41 per share reported in the third quarter of last year.
  • GAAP net income was $6.1 million compared to $6.4 million in last year’s third quarter. The decrease in net income from the prior period was due to the bargain purchase gain for the acquisition of NFC that benefited net income by $2.1 million in the third quarter of 2016.
  • Adjusted net income2 was $6.5 million, up 31% from $4.9 million in the year-earlier period.
  • Adjusted EBITDA3 was a record $14.0 million, up 24% from $11.2 million in the third quarter of fiscal 2016.

Chris Fraser, KMG chairman and chief executive officer, said, “KMG achieved another quarter of strong results, driven by continued growth in both our electronic chemicals and performance materials segments as well as a positive contribution from the acquisition of Sealweld. Consolidated sales grew 3% sequentially and 9% year-over-year to $81.6 million, while adjusted EBITDA improved to a record $14 million, reflecting increases in all businesses. As a result, adjusted EPS grew 29% to $0.53, marking our eleventh consecutive quarter of double-digit year-over-year growth in adjusted earnings per share.”

Mr. Fraser continued, “Third quarter sales in our electronic chemicals segment increased 4% from last year’s third quarter, excluding a $1.2 million foreign currency translation impact from the strengthening of the US dollar, but declined slightly, as anticipated, from the exceptionally strong level reported in the second quarter. Global semiconductor production trends remained favorable, and we benefited from our strategic initiatives to align our product offerings and global capabilities with our customers’ growing needs for purity, quality and reliability.

“Our performance materials segment generated sales of $13.5 million, a 58% increase from last year’s third quarter, driven by stronger demand for industrial lubricants and the contribution from Sealweld, which expanded our presence and customer reach in the pipeline services market. We also experienced good sales growth in our wood treating chemicals business, as severe weather stimulated demand for replacement utility poles treated with penta. Overall, segment operating income grew 48% from the prior year to $4.2 million, a record level for this segment.”

Mr. Fraser concluded, “Looking ahead, our acquisition of Flowchem remains on track to close in mid-June and we’re excited to join forces with Flowchem’s exceptional team. The addition of Flowchem will expand and strengthen our capabilities and product offering in the growing market for pipeline performance products and services, enabling us to more fully serve our pipeline customers throughout the world. Flowchem adds significant size, scale and diversity to our global operations, and will be substantially accretive to our EBITDA, margins and adjusted earnings per share.” 


Consolidated results

Third quarter
Dollars in thousands, except EPS
Fiscal 2017   Fiscal 2016
  As Reported Adjusted As Reported Adjusted
  (GAAP) (non-GAAP)4 (GAAP) (non-GAAP)5
Net sales $ 81,616   $ 81,616   $ 75,168   $ 75,168  
Operating income   9,367     10,001     7,029     8,032  
Operating margin   11.5 %   12.3 %   9.4 %   10.7 %
Net income $ 6,067   $ 6,479     6,362     4,944  
Diluted earnings per share $ 0.49   $ 0.53   $ 0.53   $ 0.41  


Nine months ended April 30
Dollars in thousands, except EPS
Fiscal 2017 YTD   Fiscal 2016 YTD
  As Reported Adjusted As Reported Adjusted
  (GAAP) (non-GAAP)6 (GAAP) (non-GAAP)7
Net sales $ 237,182   $ 237,182   $ 222,677   $ 222,677  
Operating income   27,087     28,671     20,486     23,369  
Operating margin   11.4 %   12.1 %   9.2 %   10.5 %
Net income   18,293     19,323     14,932     14,736  
Diluted earnings per share $ 1.50   $ 1.58   $ 1.25   $ 1.24  
                         


Business segment results

Electronic Chemicals Third Quarter Third Quarter   Nine Months Nine Months
Dollars in thousands Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016
  As Reported As Reported As Reported As Reported
  (GAAP) (GAAP) (GAAP) (GAAP)
Net sales $ 68,141   $ 66,637   $ 204,829   $ 195,239  
Operating income   8,509     8,183     26,153     23,927  
Operating margin   12.5 %   12.3 %   12.8 %   12.3 %
                         

For the third fiscal quarter, the Electronic Chemicals segment reported:

  • Sales of $68.1 million, up 2.3% from the third quarter of fiscal 2016. Excluding a foreign currency translation impact of $1.2 million, sales increased 4.0% year-over-year to $69.3 million. Product volume growth primarily drove the Q3 sales increase.  
  • Operating income of $8.5 million, up 4.0% from $8.2 million in the same period of fiscal 2016. Operating income increased primarily due to product volume growth and operating efficiencies. Operating margin improved to 12.5% compared to 12.3% in the prior-year period.
  • Adjusted EBITDA8 of $11.5 million compared to $10.7 million last year.


Performance Materials

The Performance Materials segment, previously called Other Chemicals, consists of the wood treating chemicals business and the industrial lubricants business.

Performance
Materials
Third Quarter Third Quarter   Nine Months Nine Months
Dollars in thousands Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016
  As Reported As Reported As Reported As Reported
  (GAAP) (GAAP) (GAAP) (GAAP)
Net sales $ 13,475   $ 8,531   $ 32,353   $ 27,437  
Operating income   4,224     2,853     10,927     9,421  
Operating margin   31.4 %   33.4 %   33.8 %   34.3 %
                         

For the third fiscal quarter, the Performance Materials segment reported:

  • Sales of $13.5 million, up 58% versus $8.5 million in the same period a year ago. Sales increased due to higher sales of industrial lubricants, the contribution from Sealweld and increased wood treating chemicals sales.
  • Operating income of $4.2 million, or 31.4% of sales, compared to $2.9 million, or 33.4% of sales, last year. The increase in operating income was due to higher volume in the industrial lubricants business, including the contribution from Sealweld, and higher volume in the wood treating chemicals business. Segment operating margins declined 200 basis points, reflecting product sales mix and higher raw materials costs.  
  • Adjusted EBITDA9 of $4.8 million versus $3.2 million last year.


Conference call

Date: Friday, June 9, 2017
Time: 9:00 a.m. ET
Dial in: 877-789-6981 or 541-797-2420
Participant passcode: 32739092

The conference call will be webcast live via the “Investors” section of the Company’s website at http://kmgchemicals.com.

If you are unable to listen live, the conference call will be archived on the KMG website. A telephone replay of the call will also be available for one week, starting at 12:00 p.m. ET on June 9, 2017. To access the call, dial 855-859-2056 (domestic) or 404-537-3406 (international) using participant passcode 32739092.

About KMG
KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to select markets. The Company grows by acquiring and optimizing stable chemical product lines and businesses with established production processes. For more information, visit the Company's website at http://kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.

                                                          

1 Non-U.S. GAAP measure. See Table 2 for reconciliation.    
2 Non-U.S. GAAP measure. See Table 2 for reconciliation.
3 Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.
4 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.
5 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.
6 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.
7 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.
8 Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.
9 Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.


KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
 
  Three Months Ended   Nine Months Ended
  April 30,   April 30,
    2017       2016       2017       2016  
Net sales   $ 81,616     $ 75,168     $ 237,182     $ 222,677  
Cost of sales   49,106       46,010       143,787       136,026  
  Gross profit   32,510       29,158       93,395       86,651  
               
Distribution expenses   9,457       9,177       28,329       28,125  
Selling, general and administrative expenses   13,616       12,575       37,909       36,512  
Restructuring charges   70       377       70       1,398  
Realignment charges         130  
  Operating income   9,367       7,029       27,087       20,486  
Other (expense) income              
  Interest expense, net   (301 )     (201 )     (650 )     (605 )
  Gain on purchase of NFC     2,069         2,069  
  Other, net   144       (375 )     88       (243 )
  Total other (expense) income, net   (157 )     1,493       (562 )     1,221  
               
Income before income taxes   9,210       8,522       26,525       21,707  
  Provision for income taxes   (3,143 )     (2,160 )     (8,232 )     (6,775 )
Net income $ 6,067     $ 6,362     $ 18,293     $ 14,932  
Earnings per share:              
  Net income per common share basic $ 0.51     $ 0.54     $ 1.54     $ 1.27  
  Net income per common share diluted $ 0.49     $ 0.53     $ 1.50     $ 1.25  
               
Weighted average shares outstanding:              
  Basic   11,888       11,729       11,884       11,714  
  Diluted   12,303       11,990       12,236       11,923  



KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS 
(In thousands, except for share and per share amounts)
 
  April 30, July 31,
    2017     2016  
  (Unaudited)  
Assets    
Current assets    
Cash and cash equivalents $ 14,097    $ 12,428  
Accounts receivable    
Trade, net of allowances of $105 at April 30, 2017 and $210 at July 31, 2016   39,098     33,324  
Other   3,230     5,572  
Inventories, net   38,868     37,401  
Prepaid expenses and other   7,105     6,623  
Total current assets   102,398     95,348  
     
Property, plant and equipment, net   81,725     79,739  
Goodwill   24,648     22,228  
Intangible assets, net   38,508     33,906  
Restricted cash       1,000  
Other assets, net   5,152     4,807  
Total assets $ 252,431   $ 237,028  
     
Liabilities & stockholders’ equity    
Current liabilities    
Accounts payable $ 25,867   $ 26,418  
Accrued liabilities   12,265     11,252  
Employee incentive accrual   4,190     5,999  
Total current liabilities   42,322     43,669  
     
Long-term debt   34,000     35,800  
Deferred tax liabilities   9,434     9,948  
Other long-term liabilities   4,459     4,422  
Total liabilities   90,215     93,839  
     
Commitments and contingencies    
     
Stockholders’ equity    
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Common stock, $.01 par value, 40,000,000 shares authorized, 11,887,513 shares issued and outstanding at April 30, 2017 and 11,877,282 shares issued and outstanding at July 31, 2016   119     119  
Additional paid-in capital   40,557     36,553  
Accumulated other comprehensive loss   (14,251 )   (12,047 )
Retained earnings   135,791     118,564  
Total stockholders’ equity   162,216     143,189  
Total liabilities and stockholders’ equity $ 252,431   $ 237,028  



KMG CHEMICALS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 
    Nine Months Ended  
    April, 30  
    2017     2016  
Cash flows from operating activities                
Net income   $ 18,293     $ 14,932  
Adjustments to reconcile net income to net cash provided by
operating activities
               
Depreciation and amortization     10,864       10,606  
Non-cash restructuring and realignment charges           295  
Amortization of loan costs     125       125  
Stock-based compensation expense     4,280       3,659  
Allowance for excess and obsolete inventory     (27 )     173  
Gain on disposition of equipment     (200 )      
Gain on purchase of NFC           (2,069 )
Deferred income tax benefit     (1,189 )     (219 )
Excess tax benefit from stock-based awards     (694 )      
Other     (14 )     28  
Changes in operating assets and liabilities                
Accounts receivable — trade     (3,172 )     5,022  
Accounts receivable — other     2,253       (2,515 )
Inventories     606       2,798  
Other current and noncurrent assets     (1,062 )     541  
Accounts payable     (1,282 )     (7,257 )
Accrued liabilities and other     (1,444 )     3,234  
Net cash provided by operating activities     27,337       29,353  
                 
Cash flows from investing activities                
Additions to property, plant and equipment     (8,586 )     (11,377 )
Purchase of NFC, net of cash acquired           (2,572 )
Purchase of Sealweld, net of cash acquired     (16,584 )      
Proceeds − insurance claim     1,247        
Net cash used in investing activities     (23,923 )     (13,949 )
                 
Cash flows from financing activities                
Borrowings under credit facility     17,000       2,800  
Payments under credit facility     (18,800 )     (14,000 )
Excess tax benefit from stock-based awards           38  
Payment of dividends     (1,066 )     (1,053 )
Cash payments related to tax withholdings from stock-based awards     (277 )      
Net cash used in financing activities     (3,143 )     (12,215 )
                 
Effect of exchange rate changes on cash     398       (160 )
                 
Net increase in cash, cash equivalents and restricted cash     669       3,029  
Cash, cash equivalents and restricted cash at beginning of period     13,428       8,517  
Cash, cash equivalents and restricted cash at end of period   $ 14,097     $ 11,546  
                 


Reconciliation of GAAP financial measures to non-GAAP financial measures

KMG provides non-GAAP financial information to complement reported GAAP results. KMG believes that analysis of our financial performance would be enhanced by an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. We define adjusted EBITDA as earnings from operations before interest, taxes, depreciation, amortization, acquisition and integration expenses, restructuring and realignment charges and other relevant items.

KMG intends to continue to provide certain non-GAAP financial information and the appropriate reconciliation to GAAP in its financial results. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures. These non-GAAP measures should be viewed as a supplement to, and not a substitute for, U.S. GAAP measures of performance.


Table 1
RECONCILIATION OF CONSOLIDATED GAAP NET INCOME TO CONSOLIDATED ADJUSTED EBITDA
(in thousands)

  Third Quarter
Fiscal 2017
Third Quarter
Fiscal 2016
Consolidated GAAP net income $ 6,067 $ 6,362  
Add back:    
Interest expense   301   201  
Income taxes   3,143   2,160  
Depreciation & amortization*   3,817   3,772  
Gain on purchase of NFC     (2,069 )
Acquisition & integration expenses   562   233  
Corporate relocation expense   2   393  
Restructuring charges, excluding accelerated depreciation   70   187  
Consolidated adjusted EBITDA $ 13,962 $ 11,239  
*Includes depreciation related to restructuring and realignment included in non-cash restructuring and realignment charges on the statement of cash flows.


  Nine Months Ended
April 30, 2017
Nine Months Ended
April 30, 2016
Consolidated GAAP net income $ 18,293 $ 14,932  
Add back (deduct):    
Interest expense   650   605  
Income taxes   8,232   6,775  
Depreciation & amortization*   10,864   10,901  
Gain on purchase of NFC     (2,069 )
Acquisition & integration expenses   1,145   233  
Corporate relocation expense   369   1,122  
Restructuring & realignment charges, excluding accelerated depreciation   70   1,233  
Consolidated adjusted EBITDA $ 39,623 $ 33,732  
*Includes depreciation related to restructuring and realignment included in non-cash restructuring and realignment charges on the statement of cash flows.
 
 

Table 1A
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
Note that we do not allocate certain financial statement line items below operating income to our segments; as such, the reconciliations below only reflect the reconciliation of our operating income by segment to our non-GAAP measures.

Third Quarter Fiscal 2017 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss) $ 8,509 4,224 (3,366 ) 9,367
Other income (expense)   99 33 12   144
Depreciation and amortization   2,857 549 411   3,817
Acquisition & integration expenses 562   562
Restructuring charges 70   70
Corporate relocation expense 2   2
Adjusted EBITDA   11,465 4,806 (2,309 ) 13,962
Corporate allocation   3,329 842 (4,171 )
Adjusted EBITDA excl. corporate allocation   14,794 5,648 (6,480 ) 13,962
 


Nine Months Ended April 30, 2017 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss) 26,153   10,927 (9,993 ) 27,087
Other income (expense) (88 ) 66 110   88
Depreciation and amortization 8,502   1,121 1,241   10,864
Acquisition & integration expenses 1,145   1,145
Restructuring charges 70   70
Corporate relocation expense 369   369
Adjusted EBITDA 34,567   12,114 (7,058 ) 39,623
Corporate allocation 9,987   2,527 (12,514 )
Adjusted EBITDA excl. corporate allocation 44,554   14,641 (19,572 ) 39,623
 


Third Quarter Fiscal 2016 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss) $ 8,183   $ 2,853 ($ 4,007 ) $ 7,029  
Other income (expense)   (401 )   17   9     (375 )
Depreciation and amortization   2,896     285   591     3,772  
Acquisition & integration expenses         233     233  
Restructuring charges*         187     187  
Corporate relocation expense         393     393  
Adjusted EBITDA   10,678     3,155   (2,594 )   11,239  
Corporate allocation   2,818     992   (3,810 )    
Adjusted EBITDA excl. corporate allocation $ 13,496   $ 4,147 ($ 6,404 ) $ 11,239  
*Excludes depreciation        


Nine Months Ended April 30, 2016 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss) $ 23,927   $ 9,421   ($ 12,862 ) $ 20,486  
Other income (expense)   (75 )   (75 )   (93 )   (243 )
Depreciation and amortization   8,660     868     1,373     10,901  
Acquisition & integration expenses           233     233  
Restructuring & realignment charges*           1,233     1,233  
Corporate relocation expense           1,122     1,122  
Adjusted EBITDA   32,512     10,214     (8,994 )   33,732  
Corporate allocation   7,779     2,573     (10,352 )    
Adjusted EBITDA excl. corporate allocation $ 40,291   $ 12,787   ($ 19,346 ) $ 33,732  
* Excludes depreciation
 
 

Table 2
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
(in thousands)

  Three Months Ended
  April 30,
    2017       2016  
Net income $ 6,067     $ 6,362  
Items impacting pre-tax income:      
Acquisition & integration expenses   562       233  
Corporate relocation expense   2       393  
Gain on purchase of NFC         (2,069 )
Restructuring & realignment charges   70       377  
Income taxes*   (222 )     (352 )
Adjusted net income $ 6,479     $ 4,944  
Adjusted diluted earnings per share $ 0.53     $ 0.41  
Weighted average diluted shares outstanding   12,303       11,990  
 
* Represents the aggregate tax-effect assuming a 35% tax rate of the items impacting pre-tax income,
except for the gain on the purchase of NFC, which is not a recognized gain for tax purposes.
 
 

Table 2 (continued)
(in thousands)

  Nine Months Ended
  April 30,
    2017       2016  
Net income $ 18,293     $ 14,932  
Items impacting pre-tax income:      
Acquisition & integration expenses   1,145       233  
Corporate relocation expense   369       1,122  
Gain on purchase of NFC         (2,069 )
Restructuring & realignment charges   70       1,528  
Income taxes*   (554 )     (1,010 )
Adjusted net income $ 19,323     $ 14,736  
Adjusted diluted earnings per share $ 1.58     $ 1.24  
Weighted average diluted shares outstanding   12,236       11,923  
 
*Represents the aggregate tax-effect assuming a 35% tax rate of the items impacting pre-tax income.
 
 

Table 2A
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

Third Quarter Fiscal 2017 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure $ 9,367   11.5 %   $ 6,067   $0.49
Acquisition & integration expenses   562   0.7 %     365   0.03
Restructuring & realignment charges   70   0.1 %     46    0.01
Corporate relocation expense   2   0.0 %     1    0.00
Non-GAAP measure $ 10,001   12.3 %   $ 6,479   $0.53


Nine Months Ended April 30, 2017 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure $ 27,087   11.4 %   $ 18,293   $1.50
Acquisition & integration expenses   1,145   0.5 %     744    0.06
Restructuring & realignment charges   70   0.0 %     46    0.00
Corporate relocation expense   369   0.2 %     240    0.02
Non-GAAP measure $ 28,671   12.1 %   $ 19,323   $1.58


Third Quarter Fiscal 2016 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure $ 7,029   9.4 %   $ 6,362       $0.53  
Acquisition & integration expenses   233   0.3 %     151       0.01  
Restructuring charges   377   0.5 %     245       0.02  
Gain on purchase of NFC     0.0 %     (2,069 )     (0.17)  
Corporate relocation expense   393   0.5 %     255       0.02  
Non-GAAP measure $ 8,032   10.7 %   $ 4,944       $0.41  


Nine Months Ended April 30, 2016 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure $ 20,486   9.2 %   $ 14,932       $1.25  
Acquisition & integration expenses   233   0.1 %     151       0.01  
Restructuring & realignment charges   1,528   0.7 %     993       0.09  
Gain on purchase of NFC     0.0 %     (2,069 )     (0.17)  
Corporate relocation expense   1,122   0.5 %     729       0.06  
Non-GAAP measure $ 23,369   10.5 %   $ 14,736       $1.24  


KMG Investor Relations
Eric Glover, 817-761-6006
eglover@kmgchemicals.com

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