KMG Logo
    Print Page | Close Window


Investor News
KMG Reports First Quarter 2017 Financial Results

FORT WORTH, Texas--(BUSINESS WIRE)--Dec. 12, 2016-- KMG (NYSE: KMG), a global provider of specialty chemicals, today announced financial results for the fiscal 2017 first quarter ended October 31, 2016.

2017 First Quarter Financial Highlights

  • GAAP diluted earnings per share of $0.47 increased 21% from $0.39 per share in the first quarter of fiscal 2016.
  • Adjusted diluted earnings per share1 improved to $0.48 vs. $0.42 per share reported in the first quarter of last year.
  • GAAP net income rose to $5.7 million compared to $4.6 million in the prior year period.
  • Adjusted EBITDA2 was $12.6 million, up 11% from $11.4 million in the first quarter of fiscal 2016.

Chris Fraser, KMG chairman and chief executive officer, said, “Our fiscal 2017 year is off to a strong start, as KMG achieved 24% year-over-year growth in first quarter net income to $5.7 million. In addition, first quarter adjusted EBITDA reached a record quarterly level of $12.6 million, while operating cash flow of $10.9 million represented a 36% increase from the prior year’s first quarter. We also further strengthened our balance sheet by reducing long-term debt.”

Mr. Fraser continued, “Our electronic chemicals segment performed well in the first quarter, generating 2% sales growth, excluding a foreign currency impact, compared to the first quarter of fiscal 2016. KMG’s global capabilities, diverse customer base and expanded participation in key end markets, including automotive, the Internet-of-Things and next-generation memory, were important factors driving sales volume growth in the first quarter. Segment operating income and margins improved significantly from last year’s first quarter, reflecting continued efficiency enhancements and a more favorable product mix.

“Profitability in our other chemicals segment improved compared to the prior year period, despite softer pentachlorophenol sales due to a moderation in the pace of utility pole replacements in the western U.S. Our industrial lubricants business, which provides critical products for valve maintenance and safety in the energy storage and distribution markets, continues to contribute positively to segment results. We remain active in pursuing strategic acquisitions to expand this platform and broaden our global reach.”

Consolidated results

First quarter

Dollars in thousands, except EPS

    Fiscal 2017     Fiscal 2016
As Reported   Adjusted As Reported   Adjusted
(GAAP)  

(non-GAAP)3

(GAAP)  

(non-GAAP)4

Net sales $ 76,495 $ 76,495 $ 76,650 $ 76,650
Operating income 8,681 8,814 7,320 7,916
Operating margin 11.3 % 11.5 % 9.6 % 10.3 %
Net income 5,742 5,828 4,591 4,978
Diluted earnings per share $ 0.47 $ 0.48 $ 0.39 $ 0.42
 

Business segment results

Electronic Chemicals        

First Quarter

Fiscal 2017 Fiscal 2016
Dollars in thousands As Reported As Reported
(GAAP) (GAAP)
Net sales $ 66,921 $ 66,082
Operating income 8,062 7,274
Operating margin 12.0 % 11.0 %
 

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

  • Sales of $66.9 million, up 1% from the first quarter of fiscal 2016. Foreign currency translation reduced sales by approximately $420,000 as compared to the prior year period. Excluding the foreign currency impact, sales increased 2% due to higher product volume and a contribution from Nagase FineChem.
  • Operating income of $8.1 million, up 11% from $7.3 million in the same period of fiscal 2016. Operating income and margin improved primarily due to higher sales and operating efficiencies.
  • Adjusted EBITDA5 of $11.2 million compared to $10.3 million last year.

Other Chemicals

The Other Chemicals segment includes the pentachlorophenol (“penta”) business and the industrial lubricants business.

Other Chemicals        

First Quarter

Fiscal 2017 Fiscal 2016
Dollars in thousands As Reported As Reported
(GAAP) (GAAP)
Net sales $ 9,574 $ 10,568
Operating income 3,681 3,764
Operating margin 38.4 % 35.6 %
 

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

  • Sales of $9.6 million versus $10.6 million in the same period a year ago, primarily reflecting lower sales of penta.
  • Operating income of $3.7 million, or 38.4% of sales, compared to $3.8 million, or 35.6% of sales, last year. The decrease in operating income was due to lower sales while the margin increase was due to improved pricing and a favorable product mix.
  • Adjusted EBITDA6 of $3.9 million versus $4.0 million last year.

Conference call

Date: Monday, December 12, 2016
Time: 5:00 p.m. ET
Dial in: 877-789-6981 or 541-797-2420
Participant passcode: 24076428

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 12, 2016. To access the call, dial 855-859-2056 (domestic) or 404-537-3406 (international) using participant passcode 24076428.

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 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,
2016   2015
Net sales $ 76,495 $ 76,650
Cost of sales   46,811     47,390  
Gross profit   29,684     29,260  
 
Distribution expenses 9,102 10,129
Selling, general and administrative expenses 11,901 11,215
Restructuring charges

-

466
Realignment charges  

-

    130  
Operating income   8,681     7,320  
Other income (expense)
Interest expense, net (177 ) (152 )
Other, net   230     (17 )
Total other income (expense), net   53     (169 )
 
Income before income taxes 8,734 7,151
Provision for income taxes   (2,992 )   (2,560 )
Net income $ 5,742   $ 4,591  
Earnings per share:
Net income per common share basic $ 0.48 $ 0.39
Net income per common share diluted $ 0.47 $ 0.39
 
Weighted average shares outstanding:
Basic 11,880 11,697
Diluted 12,152 11,865
     

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 
October 31, July 31,
2016   2016
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 17,606 $ 12,428
Accounts receivable
Trade, net of allowances of $184 at October 31, 2016 and $210 at July 31, 2016

34,446

33,324

Other 5,101 5,572
Inventories, net 34,851 37,401
Prepaid expenses and other   6,438       6,623  
Total current assets   98,442       95,348  
 
Property, plant and equipment, net 77,706 79,739
Goodwill 22,039 22,228
Intangible assets, net 32,968 33,906
Restricted cash 1,000 1,000
Other assets, net   4,828       4,807  
Total assets $ 236,983     $ 237,028  
 
Liabilities & stockholders’ equity
Current liabilities
Accounts payable $ 27,534 $ 26,418
Accrued liabilities 10,977 11,252
Employee incentive accrual   3,142       5,999  
Total current liabilities 41,653 43,669
 
Long-term debt 33,300 35,800
Deferred tax liabilities 9,982 9,948
Other long-term liabilities   4,299       4,422  
Total liabilities   89,234       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, 11,888,664 shares issued and outstanding at October 31, 2016 and 11,877,282 shares issued and outstanding at July 31, 2016

 

119

 

119

Additional paid-in capital 38,035 36,553
Accumulated other comprehensive loss (14,358 ) (12,047 )
Retained earnings   123,953       118,564  
Total stockholders’ equity   147,749       143,189  
Total liabilities and stockholders’ equity $ 236,983     $ 237,028  
 

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 
Three Months Ended
October 31,
2016   2015
Cash flows from operating activities
Net income $ 5,742 $ 4,591
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 3,552 3,545
Non-cash restructuring and realignment charges

-

105
Stock-based compensation expense 1,425 939
Deferred income tax expense 188 86
Other 182 110
Changes in operating assets and liabilities
Accounts receivable — trade (1,657 ) 1,099
Accounts receivable — other 1,240 160
Inventories 2,092 2,310
Other current and noncurrent assets (153 ) 420
Accounts payable 1,359 (7,850 )
Accrued liabilities and other (3,064 ) 2,450  
Net cash provided by operating activities 10,906 7,965
 
Cash flows from investing activities
Additions to property, plant and equipment (2,634 ) (3,616 )
Proceeds − insurance claim 250  

-

 
Net cash used in investing activities (2,384 ) (3,616 )
 
Cash flows from financing activities
Payments under credit facility (2,500 ) (1,500 )
Excess tax benefit from stock-based awards (57 ) 10
Payment of dividends (353 ) (351 )
Net cash used in financing activities (2,910 ) (1,841 )
 
Effect of exchange rate changes on cash (434 ) 373  
 
Net increase in cash and cash equivalents 5,178 2,881
Cash and cash equivalents at beginning of period   12,428   7,517  
Cash and cash equivalents at end of period $ 17,606 $ 10,398  
 

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 2017

 

First Quarter
Fiscal 2016

Consolidated GAAP net income $ 5,742 $ 4,591
Add back:
Interest expense 177 152
Income taxes 2,992 2,560
Depreciation & amortization* 3,552 3,651
Acquisition & integration expenses 83

-

Corporate relocation expense 50

-

Restructuring & realignment charges, excluding accelerated depreciation

 

-

    490
Consolidated adjusted EBITDA $ 12,596   $ 11,444
*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.

 

First Quarter Fiscal 2017

Electronic Other
(in thousands) Chemicals   Chemicals   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
 
 

First Quarter Fiscal 2016

Electronic Other
(in thousands) Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $7,274 $3,764 ($3,718) $7,320
Other income (expense) 130 (59) (88) (17)
Depreciation and amortization* 2,915 297 439 3,651

Restructuring & realignment charges, excluding accelerated depreciation

-

 

-

  490   490
Adjusted EBITDA 10,319 4,002 (2,877) 11,444
Corporate allocation 2,481   790   (3,271)  

-

Adjusted EBITDA excl. corporate allocation $12,800   $4,792   ($6,148)   $11,444
* Includes depreciation related to restructuring and realignment included in non-cash restructuring and realignment charges on the statement of cash flows.
   

Table 2

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

(in thousands)

 
Three Months Ended
October 31,
2016   2015
Net income $ 5,742 $ 4,591
Items impacting pre-tax income:
Acquisition & integration expenses 83

-

Corporate relocation expense 50

-

Restructuring & realignment charges

-

596
Income taxes*   (47 )   (209 )
Adjusted net income $ 5,828 $ 4,978
Adjusted diluted earnings per share $ 0.48 $ 0.42
Weighted average diluted shares outstanding 12,152 11,865
 

*Represents the aggregate tax-effect of the items impacting pre-tax income utilizing a tax rate of 35%.

   

Table 2A

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

 

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
 
 

First Quarter Fiscal 2016

KMG Chemicals, Inc.
Dollars in thousands, except EPS
Operating Net Diluted Earnings

Income

Margin

Income

Per Share

GAAP measure $ 7,320 9.5 % $ 4,591 $ 0.39
Restructuring & realignment charges   596 0.8 %   387   0.03
Non-GAAP measure $ 7,916 10.3 % $ 4,978 $ 0.42

Source: KMG Chemicals, Inc.

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