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KMG Reports First Quarter 2018 Financial Results

FORT WORTH, Texas, Dec. 11, 2017 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals and performance materials, today announced financial results for the fiscal 2018 first quarter ended October 31, 2017.

2018 First Quarter Financial Highlights

  • Sales increased 45% from the first quarter of last year to a record $110.7 million.  
  • GAAP diluted earnings per share was $0.46 compared to $0.47 per diluted share in the first quarter of fiscal 2017. First quarter 2018 GAAP EPS included $2.9 million in amortization expense for Flowchem intangible assets and $4.2 million in debt extinguishment expense that reduced earnings by $0.36 per diluted share.
  • Adjusted diluted earnings per share1 increased to a record $0.83 compared to $0.48 per share reported in the first quarter of fiscal 2017.
  • GAAP net income was $5.8 million compared to $5.7 million in last year’s first quarter.
  • Adjusted EBITDA2 more than doubled to a record $27.5 million, from $12.6 million in the first quarter of fiscal 2017.
  • Cash flow generated by operations was $20.5 million compared to $10.9 million in last year’s first quarter.

“KMG achieved a milestone in the first quarter of fiscal 2018, with quarterly sales exceeding $100 million for the first time in our history,” said Chris Fraser, KMG chairman and CEO. “Strong organic growth within our existing businesses, as well as contributions from our two most recent acquisitions — Sealweld and Flowchem — drove our performance in the first quarter, which included quarterly records in adjusted EBITDA and adjusted earnings per share.”

Mr. Fraser continued, “First quarter performance materials segment sales more than tripled from the same period last year to a record $36.9 million. Benefiting from increased oil production in the U.S., Flowchem performed well and contributed substantially to our results. Our industrial lubricants business continued to generate robust year-over-year growth, aided by strengthening demand and the contribution from Sealweld. In addition, sales in our wood treating chemicals business improved from the prior year.

“Electronic chemicals segment sales reached a record $73.8 million in the first quarter, an increase of 10% from the prior year, reflecting broad-based demand for KMG’s high-purity process chemicals throughout the global semiconductor manufacturing sector. Segment operating income grew 40% from last year’s first quarter due to strong product volume growth, while segment operating margins increased to a record 15.3% on enhanced operating leverage and greater efficiency.

“In October, we raised net proceeds of approximately $176 million from a successful common stock offering, reducing our interest expense and significantly reducing our debt leverage,” Mr. Fraser concluded.     

Consolidated results

Dollars in thousands, except EPS Q1 Fiscal 2018   Q1 Fiscal 2017
  As Reported Adjusted As Reported Adjusted
  (GAAP) (non-GAAP)3 (GAAP) (non-GAAP)4
Net sales   $110,664     $110,664     $76,495     $76,495  
Operating income     20,080     23,491       8,681       8,814  
Operating margin     18.1 %   21.2 %     11.3 %     11.5 %
Net income     5,850     10,549      5,742     5,828  
Diluted earnings per share     $0.46     $0.83      $0.47     $0.48  

Business segment results

Electronic Chemicals

Dollars in thousands Q1 Fiscal 2018   Q1 Fiscal 2017
  As Reported As Reported
  (GAAP) (GAAP)
Net sales   $73,808     $66,921  
Operating income     11,258       8,062  
Operating margin     15.3 %     12.0 %
             

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

  • Sales of $73.8 million, up 10% from the first quarter of fiscal 2017. Product volume growth primarily drove the sales increase.  
  • Operating income of $11.3 million, up 40% from $8.1 million in the same period of fiscal 2017. Operating income increased due to product volume growth and operating efficiencies. Operating margin improved to 15.3% compared to 12.0% in the prior-year period.
  • Adjusted EBITDA5 of $14.0 million compared to $11.2 million last year.

Performance Materials
The Performance Materials segment consists of the pipeline performance business and the wood treating chemicals business.

Dollars in thousands Q1 Fiscal 2018   Q1 Fiscal 2017
  As Reported   As Reported
  (GAAP)   (GAAP)
Net sales   $36,856       $9,574  
Operating income     11,584         3,681  
Operating margin     31.4 %       38.4 %
               

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

  • Sales of $36.9 million compared to $9.6 million in the same period a year ago. Sales growth reflected contributions from Sealweld and Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals.
  • Operating income of $11.6 million, or 31.4% of sales, compared to $3.7 million, or 38.4% of sales, in last year’s first quarter. The increase in operating income reflected contributions from the Sealweld and Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals. Segment operating margins were 31.4%, compared to 38.4% in the first quarter of 2017, primarily due to higher depreciation and amortization expense related to the acquisitions of Sealweld and Flowchem.  
  • Adjusted EBITDA6 of $15.6 million compared to $3.9 million last year.

Outlook
Our fiscal 2018 year is off to a strong start. We will review and update our annual financial outlook at our customary time when we report our second quarter results.

Conference call
Date: Monday, December 11, 2017
Time: 5:00 p.m. ET
Dial in: 844-316-8066 or 703-736-7353
Participant passcode: 5178707

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 8:00 p.m. ET on December 11, 2017. To access the call, dial 855-859-2056 or 404-537-3406 using participant passcode 5178707.

About KMG
KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals and performance materials for the semiconductor, industrial wood preservation, and pipeline and energy markets. 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 Tables 1 and 1A for reconciliation.

3 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

4 Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

5 Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.

6 Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.

 
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 (In thousands, except per share amounts)
 
    Three Months Ended  
    October 31,
    2017       2016  
Net sales    $110,664       $76,495  
Cost of sales   64,183       46,811  
Gross profit   46,481       29,684  
       
Distribution expenses   9,442       9,102  
Selling, general and administrative expenses   13,339       11,366  
Amortization of intangible assets   3,511       535  
Restructuring charges   109        
Operating income   20,080       8,681  
Other (expense) income      
Interest expense, net   (8,094 )       (177 )
Loss on the extinguishment of debt   (4,175 )      
Derivative fair value gain   849        
Other, net   (181 )        230  
Total other (expense) income, net   (11,601 )       53  
       
Income before income taxes   8,479       8,734  
Provision for income taxes   (2,629 )     (2,992 )
Net income   $5,850       $5,742  
Earnings per share:      
Net income per common share basic   $0.47       $0.48  
Net income per common share diluted   $0.46       $0.47  
       
Weighted average shares outstanding:      
Basic   12,410       11,880  
Diluted   12,727       12,152  


 
KMG CHEMICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS 
 (In thousands, except for share and per share amounts)
 
  October 31,   July 31,
   2017     2017 
  (Unaudited)    
Assets      
Current assets      
Cash and cash equivalents $ 29,863     $ 20,708  
Accounts receivable      
Trade, net of allowances of $214 at October 31, 2017 and $263 at July 31, 2017   51,946       51,168  
Other   4,271       6,168  
Inventories, net   46,174       46,482  
Prepaid expenses and other   8,216       8,617  
Total current assets   140,470       133,143  
       
Property, plant and equipment, net   106,747       105,435  
Goodwill   229,746       224,391  
Intangible assets, net   310,834       320,401  
Other assets, net   7,017       9,061  
Total assets $ 794,814     $ 792,431  
       
Liabilities & stockholders’ equity      
Current liabilities      
Accounts payable $ 32,064     $ 29,570  
Accrued liabilities   12,689       12,456  
Employee incentive accrual   4,283       7,713  
Current portion of long-term debt         3,167  
Total current liabilities   49,036       52,906  
       
Long-term debt   352,867       523,102  
Deferred tax liabilities   32,934       37,944  
Other long-term liabilities   4,964       4,763  
Total liabilities   439,801       618,715  
       
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, 15,365,646 shares issued and
outstanding at October 31, 2017 and 11,889,649 shares issued and outstanding at July 31, 2017
  154       119  
Additional paid-in capital   218,927       42,535  
Accumulated other comprehensive loss   (10,334 )     (9,712 )
Retained earnings   146,266       140,774  
Total stockholders’ equity   355,013       173,716  
Total liabilities and stockholders’ equity $ 794,814     $ 792,431  
               


 
KMG CHEMICALS, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 (In thousands)
 
    Three Months Ended  
    October 31,  
    2017     2016  
Cash flows from operating activities                
Net income   $ 5,850     $ 5,742  
Adjustments to reconcile net income to net cash provided by
operating activities
               
Depreciation and amortization     7,109       3,552  
Loss on extinguishment of debt     4,175        
Stock-based compensation expense     1,608       1,425  
Amortization of debt discounts and financing costs included in interest expense     493        
Deferred income tax benefit     (1,185 )     188  
Other     (195 )     182  
Changes in operating assets and liabilities                
Accounts receivable — trade     (292 )     (1,657 )
Accounts receivable — other     2,013       1,240  
Inventories     150       2,092  
Other current and noncurrent assets     276       (153 )
Accounts payable     3,247       1,359  
Accrued liabilities and other     (2,711 )     (3,064 )
Net cash provided by operating activities     20,538       10,906  
                 
Cash flows from investing activities                
Additions to property, plant and equipment     (5,803 )     (2,634 )
Other investing activities     (898 )      
Proceeds — insurance claim           250  
Net cash used in investing activities     (6,701 )     (2,384 )
                 
Cash flows from financing activities                
Proceeds from sale of common stock, net of issuance costs     175,669        
Payments under credit facility           (2,500 )
Principal payments on borrowings on term loans     (178,000 )      
Derivative fair value gain     (849 )      
Excess tax benefit from stock-based awards           (57 )
Payment of dividends     (357 )     (353 )
Cash payments related to tax withholdings from stock-based awards     (850 )      
Net cash used in financing activities     (4,387 )     (2,910 )
                 
Effect of exchange rate changes on cash     (295 )     (434 )
Net increase in cash, cash equivalents and restricted cash     9,155       5,178  
Cash, cash equivalents and restricted cash at beginning of period     20,708       13,428  
Cash, cash equivalents and restricted cash at end of period   $ 29,863     $ 18,606  
                 

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) First Quarter
Fiscal 2018
First Quarter
Fiscal 2017
Consolidated GAAP net income   $5,850     $5,742
Add back:    
Interest expense, net   8,094     177
Provision for income taxes   2,629     2,992
Depreciation & amortization   7,109     3,552
Loss on the extinguishment of debt   4,175  
Derivative fair value gain   (849 )
Acquisition & integration expenses   411     83
Corporate relocation expense       50
Restructuring charges   109    
Consolidated adjusted EBITDA   $27,528     $12,596
 

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.

First Quarter Fiscal 2018 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss)   $11,258     $11,584   ($2,762 )   $20,080  
Other income (expense), net   (148 )   77   (110 )   (181 )
Depreciation and amortization   2,794     3,881   434     7,109  
Acquisition & integration expenses       61   350     411  
Restructuring charges   109           109  
Adjusted EBITDA   14,013     15,603   (2,088 )   27,528  
Corporate allocation   2,919     1,947   (4,866 )    
Adjusted EBITDA excl. corporate allocation   $16,932     $17,550   ($6,954 )   $27,528  
 


First Quarter Fiscal 2017 Electronic Performance    
(in thousands) Chemicals Materials Corporate Total
Operating Income (Loss)   $8,062   $3,681     ($3,062 )   $8,681
Other income (expense)   308   (24 )     (54 )   230
Depreciation and amortization   2,852     287       413       3,552
Acquisition & integration expenses       —     83     83
Corporate relocation expense         50     50
Adjusted EBITDA   11,222   3,944     (2,570 )   12,596
Corporate allocation   3,329   842     (4,171 )  
Adjusted EBITDA excl. corporate allocation   $14,551   $4,786     ($6,741 )   $12,596
 

Table 2
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE

 

(in thousands, except earnings per share)
Three Months Ended
  October 31,
    2017       2016  
Net income   $5,850       $5,742  
Items impacting pre-tax income:      
Acquisition & integration expenses   411       83  
Corporate relocation expense         50  
Restructuring charges   109        
Derivative fair value gain   (849 )      
Amortization of Flowchem intangible assets   2,891        
Loss on the extinguishment of debt   4,175        
Amortization of debt discounts and financing costs   493        
Provision for income taxes*     (2,531 )       (47 )
Adjusted net income   $10,549       $5,828  
Adjusted diluted earnings per share    $0.83         $0.48  
Weighted average diluted shares outstanding   12,727       12,152  
* 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

First Quarter Fiscal 2018 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure    $20,080     18.2 %     $5,850     $0.46  
Acquisition & integration expenses   411      0.4 %     267      0.02  
Restructuring charges   109     0.1 %      71      0.01  
Amortization of Flowchem intangible assets   2,891      2.6 %     1,879      0.15  
Derivative fair value gain        0.0 %     (552 )   (0.04 )
Loss on the extinguishment of debt        0.0 %     2,714      0.21  
Amortization of debt discounts and financing costs        0.0 %     320      0.02  
Non-GAAP measure   $23,491    21.2 %     $10,549     $0.83  


First Quarter Fiscal 2017 KMG Chemicals, Inc.
Dollars in thousands, except EPS  
    Operating   Net   Diluted Earnings
Income   Margin   Income   Per Share
GAAP measure    $8,681    11.3 %     $5,742   $0.47
Acquisition & integration expenses      83    0.1 %     54     0.01
Corporate relocation expense      50    0.1 %       32     0.00
Non-GAAP measure    $8,814    11.5 %     $5,828   $0.48


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

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