MRO Magazine

KMG Reports First Quarter 2016 Financial Results


December 10, 2015
By Business Wire News

HOUSTON

KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals, today announced financial results for the fiscal 2016 first quarter ended October 31, 2015.

2016 First Quarter Financial Highlights

  • Adjusted EBITDA1 was a record $11.4 million, compared to $8.8 million in last year’s first quarter.
  • Adjusted diluted earnings per share2 was a record $0.42, up from $0.24 per share in the prior year’s first quarter.
  • GAAP EPS was $0.39 versus $0.10 in the first quarter of fiscal 2015.

Chris Fraser, KMG chairman and chief executive officer, said, “Building on the progress we achieved in fiscal 2015, KMG reported strong first quarter results. Adjusted EBITDA rose 30% to a record $11.4 million, marking our seventh consecutive quarter of double-digit adjusted EBITDA growth on a year-over-year basis, and adjusted EPS grew 75% compared to the prior year.”

Mr. Fraser continued, “Excluding the effect of foreign currency, our Electronic Chemicals sales increased 4% from the year-ago period, benefiting from our global distribution capabilities and our focus on supplying the highest purity products for our semiconductor customers’ most advanced manufacturing processes. Higher shipment volume and improved efficiencies resulting from the consolidation of our global operations continued to positively impact our profitability. Our penta business performed solidly in the first quarter, driven by increased volume from utility pole replacement programs in the western U.S. and enhanced margins from favorable raw materials costs. Our industrial lubricants business continues to contribute to our sales and earnings.”

           

First Quarter Results

Dollars in thousands, except EPSFiscal 2016Fiscal 2015
AdjustedAs ReportedAdjustedAs Reported
(non-GAAP)  (GAAP)(non-GAAP)  (GAAP)
Net Sales $ 76,650 $ 76,650 $ 90,779 $ 90,779
Operating Income 7,916 7,320 5,392 2,819
Operating Margin 10.3 % 9.6 % 5.9 % 3.1 %
Net Income 4,978 4,591 2,857 1,185
Diluted EPS $ 0.42 $ 0.39 $ 0.24 $ 0.10
 

Business segment results

Electronic Chemicals

       
 

First Quarter Results

Dollars in thousandsFiscal 2016Fiscal 2015
As ReportedAs Reported
(GAAP)(GAAP)
Net Sales $ 66,082 $ 66,323
Operating Income 7,274 4,121
Operating Margin 11.0 % 6.2 %
 

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

  • Sales of $66.1 million, essentially flat from the same period a year ago despite the impact from the strong U.S. dollar, which reduced sales by $3.0 million as compared to the prior year. Product volume grew in North America and Asia, partially offset by softness in Europe.
  • GAAP operating income of $7.3 million vs. $4.1 million in the same period of fiscal 2015. Operating income improved due to volume growth, as well as operating efficiencies from the restructuring and realignment of our electronic chemicals business.
  • EBITDA3 of $10.3 million, compared to $7.4 million last year. Foreign currency translation reduced first quarter fiscal 2016 EBITDA by $277,000.

Other Chemicals

As of May 1, 2015, the Other Chemicals segment includes the pentachlorophenol (“penta”) business and the industrial lubricants business.

       
Other Chemicals

First Quarter Results

Dollars in thousandsFiscal 2016Fiscal 2015
As ReportedAs Reported
(GAAP)(GAAP)
Net Sales $ 10,568 $ 24,427
Operating Income 3,764 2,585
Operating Margin 35.6 % 10.6 %
 

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

  • Sales of $10.6 million compared to $24.4 million in the same period a year ago. Sales declined due to the divestiture of the creosote product line in fiscal 2015, partially offset by higher penta sales and the addition of the industrial lubricants business.
  • GAAP operating income of $3.8 million, or 35.6% of sales, versus $2.6 million, or 10.6% of sales, last year. The increase in operating income was due to higher penta shipment volume and the contribution from the industrial lubricants business. Operating margins improved due to higher penta volume, lower raw materials costs, the contribution from the industrial lubricants business and the absence of lower-margin creosote sales.
  • EBITDA4 of $4.0 million, up from $2.7 million last year.

Outlook

Our fiscal 2016 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: Thursday, December 10, 2015
Time: 5:00 p.m. ET
Dial in:877-789-6981 or 541-797-2420
Conference ID: 85516535
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 transcript will be archived on the KMG website. A replay of the teleconference will also be available for one week, starting at 8:00 p.m. ET on December 10, 2015. To access the replay, call 855-859-2056 or 404-537-3406 using conference ID 85516535.

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 1 for reconciliation.

2 Non-U.S. GAAP measure. See Table 2 for reconciliation.

3 Non-U.S. GAAP measure. See Table 1 for reconciliation.

4 Non-U.S. GAAP measure. See Table 1 for reconciliation.

 
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except for per share amounts)
   
Three Months Ended
October 31,
2015    2014
 
Net sales $ 76,650 $ 90,779
Cost of sales   47,390     63,188  

Gross profit

  29,260     27,591  
 
Distribution expenses 10,129 12,999
Selling, general and administrative expenses 11,215 9,200
Restructuring charges 466 577
Realignment charges   130     1,996  
Operating income 7,320 2,819
 
Other income (expense)
Interest expense, net (152 ) (803 )
Other, net   (17 )   (28 )
Total other expense, net   (169 )   (831 )
 
Income before income taxes 7,151 1,988
Provision for income taxes   (2,560 )   (803 )
Net income $ 4,591   $ 1,185  
 
Earnings per share:
Net income per common share basic $ 0.39 $ 0.10
Net income per common share diluted $ 0.39 $ 0.10
 
 
Weighted average shares outstanding:
Basic 11,697 11,658
Diluted 11,865 11,696
   

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
October 31,July 31,
20152015
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 10,398 $ 7,517
Accounts receivable
Trade, net of allowances of $156 at October 31, 2015 and $144

at July 31, 2015

35,573 36,887
Other 3,515 3,668
Inventories, net 39,592 42,082
Current deferred tax assets 2,953 2,953
Prepaid expenses and other   2,739 3,738
Total current assets   94,770 96,845
 
Property, plant and equipment, net 80,289 80,589
Deferred tax assets 131 131
Goodwill 22,374 22,408
Intangible assets, net 35,959 36,560
Restricted cash 1,000 1,000
Other assets, net   4,850   4,826
Total assets $ 239,373 $ 242,359
 

Liabilities and stockholders’ equity

Current liabilities
Accounts payable $ 27,279 $ 35,980
Accrued liabilities 10,120 9,602
Employee incentive accrual   6,780   4,852
Total current liabilities   44,179   50,434
       
Long-term debt 51,500 53,000
Deferred tax liabilities 13,145 13,075
Other long-term liabilities   2,422   2,429
Total liabilities   111,246   118,938
 
Commitments and contingencies
 
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

Common stock, $0.01 par value, 40,000,000 shares authorized,
11,710,439 shares issued and outstanding at October 31, 2015 and
11,690,439 shares issued and outstanding at July 31, 2015 117 117
Additional paid-in capital 32,625 31,676
Accumulated other comprehensive income (loss) (10,151 ) (9,667 )
Retained earnings   105,536   101,295
Total stockholders’ equity   128,127   123,421
Total liabilities and stockholders’ equity $ 239,373 $ 242,359
   

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 
Three Months Ended
October 31,
2015    2014
Cash flows from operating activities
Net income $ 4,591 $ 1,185
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 3,545 3,430
Non-cash restructuring and realignment charges 105 2,589
Amortization of loan costs 42 27
Stock-based compensation expense 939 436
Bad debt expense 12

Allowance for excess and obsolete inventory 57 221
Loss (gain) on disposal of property 9 (2 )
Deferred income taxes 86 (1,141 )
Tax benefit from stock-based awards (10 ) (9 )
 
Changes in operating assets and liabilities, net of effects of acquisition
Accounts receivable — trade 1,099 (2,398 )
Accounts receivable — other 160 (373 )
Inventories 2,310 (826 )
Other current and non-current assets 420 (139 )
Accounts payable (7,850 ) 4,486
Accrued liabilities and other   2,450     2,099
Net cash provided by operating activities   7,965     9,585
 
Cash flows from investing activities
Additions to property, plant and equipment (3,616 ) (4,184 )
Disposals of property, plant and equipment  

  10
Net cash used in investing activities   (3,616 )   (4,174 )
 
Cash flows from financing activities

 

Net payments under revolving credit agreement

(40,000 )
Principal payments on term loan

(20,000 )
Borrowings under New Credit Facility

59,100
Payments under New Credit Facility (1,500 ) (3,100 )
Tax benefit from stock-based awards 10 9
Payment of dividends   (351 )   (349 )
Net cash used in financing activities   (1,841 )   (4,340 )
 
Effect of exchange rate changes on cash   373   (592

)

 
Net increase in cash and cash equivalents 2,881 479

 

 
Cash and cash equivalents at beginning of period   7,517   19,252

 

Cash and cash equivalents at end of period $ 10,398 $ 19,731
 

Reconciliation of non-GAAP financial measures to 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 nonrecurring 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 OPERATING INCOME TO EBITDA AND ADJUSTED EBITDA

(in thousands)

 

First Quarter Fiscal 2016

ElectronicOther
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  
EBITDA10,3194,002(3,367)10,954
 
Restructuring & realignment charges*             490       490  
Adjusted EBITDA10,3194,002(2,877)11,444
Corporate allocation   2,481     790       (3,271 )      
Adjusted EBITDA excl. corporate allocation$12,800  $4,792      ($6,148)  $11,444  
* Excludes depreciation
 
 

First Quarter Fiscal 2015

ElectronicWood Treating
Chemicals  Chemicals  Corporate  Total
Operating Income (Loss)$4,121$2,585($3,887)$2,819
Other income (expense) 120 (10 ) (138 ) (28 )
Depreciation and amortization   3,202     96       2,721       6,019  
EBITDA7,4432,671(1,304)8,810
 
Restructuring & realignment charges*             (16 )     (16 )
Adjusted EBITDA7,4432,671(1,320)8,794
Corporate allocation   2,391     934       (3,325 )      
Adjusted EBITDA excl. corporate allocation$9,834  $3,605    $(4,645)  $8,794  
* Excludes depreciation
               

Table 2

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

 

First Quarter Fiscal 2016

Dollars in thousands, except EPSKMG Chemicals, Inc.
 
OperatingNetDiluted Earnings

Income

Margin

Income

Per Share

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

First Quarter Fiscal 2015

Dollars in thousands, except EPSKMG Chemicals, Inc.
 
OperatingNetDiluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 5,392 5.9 % $ 2,857 $ 0.24
Restructuring & realignment charges   (2,573 ) (2.8 %)   (1,672 )   ($0.14 )
GAAP measure $ 2,819   3.1 % $ 1,185   $ 0.10  

KMG Chemicals, Inc.
Eric Glover, 713-600-3865
Investor Relations Manager
eglover@kmgchemicals.com