MRO Magazine

KMG Reports Fourth Quarter and Full Year 2015 Financial Results


October 14, 2015
By Business Wire News

HOUSTON

KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals, today announced financial results for the fourth fiscal quarter and fiscal year ended July 31, 2015.

2015 Fourth Quarter Financial Highlights

  • Net sales were $76.0 million versus $91.2 million in last year’s fourth quarter. Sales declined due to the divestiture of the creosote business in the second quarter.
  • Adjusted EBITDA1 was $10.1 million, a 12% increase from $9.0 million in last year’s fourth quarter.
  • Adjusted diluted earnings per share2 was $0.32 vs. $0.27 per share in the prior year’s fourth quarter.
  • GAAP EPS was $0.28 vs. $(0.07) in the fourth quarter of fiscal 2014.

2015 Fiscal Year Financial Highlights

  • Net sales were $320.5 million versus $353.4 million in fiscal 2014.
  • Adjusted EBITDA1 increased to $37.1 million, up 21% from $30.6 million last year.
  • Adjusted diluted earnings per share2 was $1.21 vs. $0.81 per share reported in the prior year.
  • GAAP EPS was $1.03 vs. a loss of $(0.09) in fiscal 2014.
  • Long-term debt balance at year-end was $53 million, compared to $60 million at the close of fiscal 2014. During fiscal 2015, the company paid down debt by $30.5 million and borrowed $23.5 million to acquire Val-Tex.

Chris Fraser, KMG chairman and chief executive officer, said, “We are pleased with our fiscal 2015 financial results, which included record adjusted EBITDA of $37.1 million for the year and our highest ever quarterly adjusted EBITDA of $10.1 million. Despite foreign currency headwinds, our electronic chemicals business generated 23% growth in adjusted EBITDA in fiscal 2015, reflecting strong volume growth and increased efficiency across our global operations. Our wood treating business continued to perform well during the year, and we benefited from the contribution of the Val-Tex industrial lubricants business to our fourth quarter results.”

Mr. Fraser continued, “Through consistent execution and a clear focus on our objectives, KMG achieved substantial progress in fiscal 2015. We fully integrated the UPC business and continued the consolidation of our global manufacturing assets, significantly improving profitability. Strategically, we established a third growth platform in the industrial lubricants and sealants market with the acquisition of Val-Tex, and we streamlined our wood treating chemicals product line by divesting our non-strategic creosote assets.”

       

Fourth Quarter Results

Dollars in thousands, except EPSFiscal 2015Fiscal 2014
AdjustedAs ReportedAdjustedAs Reported
(non-GAAP)  (GAAP)(non-GAAP)  (GAAP)
Net Sales $ 75,993 $ 75,993 $ 91,156 $ 91,156
Operating Income (Loss) 6,506 5,842 5,600 (415 )
Operating Margin 8.6 % 7.7 % 6.1 % (0.5 %)
Net Income (Loss) 3,759 3,328 3,163 (822 )
Diluted EPS $ 0.32 $ 0.28 $ 0.27 $ (0.07 )
       
Full Year Results
Dollars in thousands, except EPSFiscal 2015Fiscal 2014
AdjustedAs ReportedAdjustedAs Reported
(non-GAAP)  (GAAP)(non-GAAP)  (GAAP)
Net Sales $ 320,498 $ 320,498 $ 353,406 $ 353,406
Operating Income 24,023 16,589 17,356 3,951
Operating Margin 7.5 % 5.2 % 4.9 % 1.1 %
Net Income (Loss) 14,241 12,138 9,450 (988 )
Diluted EPS $ 1.21 $ 1.03 $ 0.81 $ (0.09 )

Business segment results

Electronic Chemicals

     

Fourth Quarter Results

Dollars in thousandsFiscal 2015Fiscal 2014
As ReportedAdjustedAs Reported
(GAAP)(non-GAAP)  (GAAP)
 
Net Sales $ 66,302 $ 66,332 $ 66,332
Operating Income 5,452 4,552 4,581
Operating Margin 8.2 % 6.9 % 6.9 %

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

  • Sales of $66.3 million, unchanged from the same period a year ago. The strong U.S. dollar reduced fourth quarter fiscal 2015 sales by $3.9 million as compared to the prior year. Sales volume for high purity process chemicals grew significantly in North America, but was partially offset by softness primarily in Europe and to a lesser extent in Asia.
  • Adjusted EBITDA3 of $8.4 million, compared to $7.8 million last year. Foreign currency translation reduced fourth quarter fiscal 2015 adjusted EBITDA by $400,000.
  • GAAP operating income of $5.5 million vs. $4.6 million in the same period of fiscal 2014. Operating income improved due to volume growth in North America, as well as benefits from the restructuring and realignment of our electronic chemicals operations.
     

Electronic Chemicals

Full Year Results
Dollars in thousandsFiscal 2015Fiscal 2014
As ReportedAdjustedAs Reported
(GAAP)(non-GAAP)  (GAAP)
 
Net Sales $ 265,608 $ 253,754 $ 253,754
Operating Income 21,787 14,974 14,089
Operating Margin 8.2 % 5.9 % 5.6 %

For the fiscal 2015 year, the Electronic Chemicals segment reported:

  • Sales of $265.6 million, up 5% from the prior year. The strong U.S. dollar reduced fiscal 2015 sales by $10.6 million as compared to the prior year.
  • Adjusted EBITDA4 of $34.0 million, a 23% gain from the prior year. Foreign currency translation reduced fiscal 2015 adjusted EBITDA by $900,000.
  • GAAP operating income of $21.8 million, an increase of 55% compared to the prior year. Operating income improved due to higher sales volume, as well as benefits from the restructuring and realignment of our electronic chemicals operations.

Other Chemicals

Following the acquisition of Val-Tex in the fourth quarter of fiscal 2015, wood treating chemicals was combined with the newly acquired industrial valve lubricants and sealants business to form the Other Chemicals segment. As of May 1, 2015, the Other Chemicals segment includes the pentachlorophenol (“penta”) business and the recently acquired Val-Tex business.

     
Other Chemicals
Fourth Quarter Results

Dollars in thousands

Fiscal 2015Fiscal 2014
AdjustedAs ReportedAs Reported
(non-GAAP)  (GAAP)(GAAP)
Net Sales $ 9,691 $ 9,691 $ 24,804
Operating Income 2,342 2,279 2,682
Operating Margin 24.2 % 23.5 % 10.8 %

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

  • Sales of $9.7 million compared to $24.8 million in the same period a year ago. The sales decline reflects the divestiture of the creosote product line in January 2015.
  • Adjusted EBITDA5 of $2.7 million, compared to $2.9 million last year.
  • GAAP operating income of $2.3 million, or 23.5% of sales, versus $2.7 million, or 10.8% of sales, last year. Despite a positive contribution from the industrial lubricants business, operating income decreased as penta shipment volume declined from unusually strong levels in the fourth quarter of fiscal 2014. Operating margin improved due to the contribution from the industrial lubricants business and the absence of lower margin creosote sales.
     
Other Chemicals
Full Year Results
Dollars in thousandsFiscal 2015Fiscal 2014
AdjustedAs ReportedAs Reported
(non-GAAP)  (GAAP)(GAAP)
Net Sales $ 54,820 $ 54,820 $ 99,514
Operating Income 8,798 8,735 8,390
Operating Margin 16.0 % 15.9 % 8.4 %

For the fiscal 2015 year, the Other Chemicals segment reported:

  • Sales of $54.8 million compared to $99.5 million in fiscal 2014. Sales declined due to the divestiture of the creosote business in January 2015.
  • Adjusted EBITDA6 of $9.3 million, up 5% from $8.9 million in fiscal 2014. Adjusted EBITDA increased primarily due to the contribution from the industrial lubricants business.
  • GAAP operating income of $8.7 million, a gain of 4% from $8.4 million in fiscal 2014. Operating income increased due to higher penta sales, lower penta raw materials costs and the contribution from the industrial lubricants business. Operating margin improved primarily due to the contribution from the industrial lubricants business and the absence of creosote sales.

Outlook

  • Fiscal 2016 consolidated net sales are forecast to be approximately $300 million, reflecting lower sales in the Other Chemicals segment due to the divestiture of the creosote business and a foreign currency impact, which are partially offset by growth in the Electronic Chemicals segment and the addition of the industrial lubricants business.
  • Excluding restructuring charges, fiscal 2016 adjusted EBITDA is forecast to be approximately $40-42 million.
  • Fiscal 2016 depreciation and amortization expense is forecast to be $14-16 million.
  • Fiscal 2016 capital expenditures are forecast to be approximately $15 million. Capital expenditures include expenses related to our ERP system implementation, UPC integration and asset investments to support increased shipment volume in our Electronic Chemicals business.

Conference call

Date: Wednesday, October 14, 2015

Time: 5:00 p.m. ET

Dial in:877-789-6981 or 541-797-2420

Conference ID: 52859261

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 October 14, 2015. To access the replay, call 855-859-2056 or 404-537-3406 using conference ID 52859261.

Form 10-K filing

We anticipate filing our annual report on form 10-K in the next two weeks.

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.

 

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 
 Three Months Ended  Year Ended
July 31,July 31,
 2015    2014  2015    2014
Net sales $ 75,993 $ 91,156 $ 320,498 $ 353,406
Cost of sales   49,477   63,179   211,021   249,907
Gross profit   26,516   27,977   109,477   103,499

Distribution expenses

10,802 13,272 48,523 50,251
Selling, general and administrative expenses 9,297 9,336 37,461 38,421
Restructuring charges 379 1,267 1,279 6,359
Realignment charges   196   4,517   5,625   4,517
Operating income   5,842   (415)   16,589   3,951

Other income (expense)

Interest expense, net (309 ) (604 ) (1,407 ) (2,854 )
Gain (loss) on sale of creosote distribution business, net

5,448

Other non-operating expense

(1,250 )

Other, net   2   (291 )   (496 )   (831 )
Total other income (expense), net   (307 )   (895 )   2,295   (3,685 )

Income before income taxes

5,535

(1,310

) 18,884 266
Provision for income taxes   (2,207 )   488   (6,746 )   (1,254 )
Net income (loss) $ 3,328 $ (822 ) $ 12,138 $ (988 )

Earnings per share

Net income (loss) per common share basic $ 0.28 $ (0.07) $ 1.04 $ (0.09 )
Net income (loss) per common share diluted $ 0.28 $ (0.07) $ 1.03 $ (0.09 )
Weighted average shares outstanding
Basic 11,685 11,641 11,673 11,615
Diluted 11,845 11,641 11,779 11,615
 

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
 July 31,  July 31,
20152014
 
Assets
Current assets
Cash and cash equivalents $ 7,517 $ 19,252
Accounts receivable
Trade, net of allowances of $144 at July 31, 2015 and $272

at July 31, 2014

36,887 40,176
Other 3,668 1,904
Inventories, net 42,082 45,268
Current deferred tax assets 2,953 1,577
Prepaid expenses and other   3,738   3,476
Total current assets   96,845   111,653
Property, plant and equipment, net 80,589 92,450
Deferred tax assets 131 442
Goodwill 22,408 12,595
Intangible assets, net 36,560 28,353
Restricted cash 1,000 1,000
Other assets, net   4,826   4,365
Total assets $ 242,359 $ 250,858

Liabilities and stockholders’ equity

Current liabilities
Accounts payable $ 35,980 $ 36,690
Accrued liabilities 9,602 16,986
Employee incentive accrual   4,852   4,575
Total current liabilities   50,434   58,251
Long-term debt 53,000 60,000
Deferred tax liabilities 13,075 9,881
Other long-term liabilities   2,429   2,520
Total liabilities   118,938   130,652
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,
11,690,439 shares issued and outstanding at July 31, 2015 and
11,649,001 shares issued and outstanding at July 31, 2014

117 116
Additional paid-in capital 31,676 28,886
Accumulated other comprehensive income/(loss) (9,667 ) 645
Retained earnings   101,295   90,559
Total stockholders’ equity   123,421   120,206
Total liabilities and stockholders’ equity $ 242,359 $ 250,858
 

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
 2015    2014
Cash flows from operating activities
Net income (loss) $ 12,138 $ (988 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization 13,531 14,117
Depreciation related to restructuring and realignment 5,640 4,210
Non-cash impairment charges

2,741
Amortization of loan costs included in interest expense 153 60
Stock-based compensation expense 2,766 2,231
Bad debt expense

128
Allowance for excess and obsolete inventory 941 634
Gain on sale of creosote distribution business (5,448 )

Gain on disposal of property

(28 )
Deferred income tax benefit (3,532 ) (2,227 )
Tax benefit from stock-based awards 23 (328 )
 
Changes in operating assets and liabilities, net of effects of acquisition

Accounts receivable – trade

1,265 2,137

Accounts receivable – other

(1,884 ) 746
Inventories (740 ) 7,861
Other current and non-current assets (633 ) 822
Accounts payable 1,234 398
Accrued liabilities and other   (7,886 )   7,844
Net cash provided by operating activities   17,568     40,358  
 
Cash flows from investing activities
Additions to property, plant and equipment (13,821 ) (9,497 )
Disposals of property, plant and equipment 2,572 74
Acquisition of Ultra Pure Chemicals, net of cash acquired

149
Acquisition of Val-Tex (21,938 )

Proceeds from sale of creosote business   14,899  

Net cash used in investing activities   (18,288 )   (9,274 )
Cash flows from financing activities

 

Deferred financing costs (667)

Net payments under revolving loan facility (40,000 ) (25,000 )
Proceeds from borrowing under New Credit Facility 58,000

Net payments under New Credit Facility (5,000 )

Principal payments on borrowings on term loan (20,000 )
Tax benefit from stock-based awards (23 ) 328
Payment of dividends   (1,401 )   (1,393 )
Net cash used in financing activities   (9,091 )   (26,065 )
Effect of exchange rate changes on cash   (1,924 )   284

 

Net (decrease) increase in cash and cash equivalents (11,735 ) 5,303

 

Cash and cash equivalents at beginning of year   19,252   13,949

 

Cash and cash equivalents at end of year $ 7,517 $ 19,252

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)

         
Fourth Quarter Fiscal 2015ElectronicOther
Chemicals  Chemicals  Corporate  Total
 
Operating Income (Loss)$5,452$2,279($1,889)$5,842
Other income (expense) 2 2
Depreciation and amortization   2,946       340       294       3,580  
EBITDA8,3982,619(1,593)9,424
 
Acquisition & integration expenses 63 26 89
Restructuring & realignment charges*               575       575  
Adjusted EBITDA8,3982,682(992)10,088
Corporate allocation   3,588       1,367       (4,955 )      
Adjusted EBITDA excl. corporate allocation$11,986    $4,049    $(5,947)  $10,088  
* Excludes depreciation
 
 
Fiscal Year Ended July 31, 2015ElectronicOther
Chemicals  Chemicals  Corporate  Total
Operating Income (Loss)$21,787$8,735($13,933)$16,589
Other income (expense) (76 ) (90 ) (330 ) (496 )
Depreciation and amortization   12,257       626       6,288       19,171  
EBITDA33,9689,271(7,975)35,264
 
Acquisition & integration expenses 63 467 530
Restructuring & realignment charges*               1,264       1,264  
Adjusted EBITDA33,9689,334(6,244)37,058
Corporate allocation   10,780       4,071       (14,851 )      
Adjusted EBITDA excl. corporate allocation$44,748      13,405      (21,095)  $37,058  
* Excludes depreciation

(Table 1 continued)

       
Fourth Quarter Fiscal 2014ElectronicWood Treating
Chemicals  Chemicals  Corporate  Total
 
Operating Income (Loss)$4,581$2,682($7,678)($415)
Other income (expense) (212 ) 123 (202 ) (291 )
Depreciation and amortization   3,446       100   2,639       6,185  
EBITDA7,8152,905(5,241)5,479
 
 
Impairment charges 2,741 2,741
Integration expenses (29 ) 260 231
Restructuring charges*           553       553  
Adjusted EBITDA7,7862,905(1,687)9,004
Corporate allocation   2,259       1,218   (3,477 )      
Adjusted EBITDA excl. corporate allocation$10,045    $4,123  (5,164)  $9,004  
* Excludes depreciation
       
Fiscal Year Ended July 31, 2014ElectronicWood Treating
Chemicals  Chemicals  Corporate  Total
 
Operating Income (Loss)$14,089$8,390($18,528)$3,951
Other income (expense) (597 ) 116 (350 ) (831 )
Depreciation and amortization   13,240       400   4,687       18,327  
EBITDA26,7328,906(14,191)21,447
 
 
Impairment charges 2,741 2,741
Integration expenses 885 364 1,249
CEO transition costs 1,280 1,280
Restructuring charges*           3,925       3,925  
Adjusted EBITDA27,6178,906(5,881)30,642
Corporate allocation   8,751       4,458   (13,209 )      
Adjusted EBITDA excl. corporate allocation$36,368    $13,364  ($19,090)  $30,642  
* Excludes depreciation

Table 2

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

             

Fourth Quarter Fiscal 2015

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

Income

Margin

Income

Per Share

Non-GAAP measure $ 6,506 8.6 % $ 3,759 $ 0.32
Restructuring & realignment charges (575 ) (0.7 %) (374 ) ($0.03 )
Acquisition & integration expenses   (89 ) (0.2 %)   (57 ) ($0.01 )
GAAP measure $ 5,842   7.7 % $ 3,328   $ 0.28  
       
Electronic ChemicalsOther Chemicals
OperatingOperating

Income

   

Margin

Income

   

Margin

Non-GAAP measure $ 5,452 8.2 % $ 2,342 24.2 %
Acquisition & integration expenses  

   

        (63 )     (0.7 %)
GAAP measure $ 5,452 8.2 % $ 2,279   23.5 %
       

Fiscal Year Ended July 31, 2015

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

Income

Margin

Income

Per Share

Non-GAAP measure $ 24,023 7.5 % $ 14,241 $ 1.21
Restructuring & realignment charges (6,904 ) (2.1 %) (4,488 ) ($0.38 )
Acquisition & integration expenses (530 ) (0.2 %) (344 ) ($0.03 )
Gain on sale of creosote business 0.0 % 3,541 $ 0.30
Environmental site cleanup reserve     0.0 %   (812 )   ($0.07 )
GAAP measure $ 16,589   5.2 % $ 12,138   $ 1.03  
     
Electronic ChemicalsOther Chemicals
OperatingOperating

Income

 

Margin

Income

 

Margin

Non-GAAP measure $ 21,787 8.2 % $ 8,798 16.0 %
Acquisition & integration expenses  

 

      (63 )   (0.1 %)
GAAP measure $ 21,787 8.2 % $ 8,735   15.9 %
               

(Table 2 continued)

 

Fourth Quarter Fiscal 2014

Dollars in thousands, except EPSKMG Chemicals, Inc.
Diluted
OperatingNetEarnings/(Loss)

Income/(Loss)

Margin

Income/(Loss)

Per Share

Non-GAAP measure $ 5,600 6.1 % $ 3,163 $ 0.27
Realignment charges (4,517 ) (5.0 )% (2,936 ) (0.25 )
Restructuring charges (1,267 ) (1.4 )% (824 ) (0.07 )
Restructuring income tax expense

(75 ) (0.01 )
Integration expenses   (231 ) (0.2 )%   (150 )   (0.01 )
GAAP measure   ($415 ) (0.5 )%   ($822 )   ($0.07 )
               
Electronic ChemicalsWood Treating Chemicals
OperatingOperating

Income

Margin

Income

Margin

Non-GAAP measure $ 4,552 6.9 % $ 2,682 10.8 %
Integration expenses   29    

       

   

 
GAAP measure $ 4,581 6.9 % $ 2,682 10.8 %
               

Full Year Fiscal 2014

Dollars in thousands, except EPSKMG Chemicals, Inc.
Diluted
OperatingNetEarnings/(Loss)

Income

Margin

Income/(Loss)

Per Share

Non-GAAP measure

$

17,356

4.9 % $ 9,450 $ 0.81
Realignment charges (4,517 ) (1.3 )% (2,936 ) (0.25 )
Restructuring charges (6,359 ) (1.8 )% (4,133 ) (0.36 )
Restructuring income tax expense

0.0 % (1,725 ) (0.15 )
Integration expenses (1,249 ) (0.3 )% (812 ) (0.07 )
CEO transition costs   (1,280 ) (0.4 %)   (832 )   (0.07 )
GAAP measure $ 3,951   1.1 %   ($988 )   ($0.09 )
               
Electronic ChemicalsWood Treating Chemicals
OperatingOperating
IncomeMarginIncomeMargin
Non-GAAP measure $ 14,974 5.9 % $ 8,390 8.4 %
Integration expenses   (885 )     (0.3 )%      

   

 
GAAP measure $ 14,089   5.6 % $ 8,390 8.4 %

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.

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

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

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