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 ReportedAdjustedAs ReportedAdjusted
 (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 ReportedAdjustedAs ReportedAdjusted
 (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 ChemicalsThird QuarterThird Quarter Nine MonthsNine Months
Dollars in thousandsFiscal 2017Fiscal 2016Fiscal 2017Fiscal 2016
 As ReportedAs ReportedAs ReportedAs 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 QuarterThird Quarter Nine MonthsNine Months
Dollars in thousandsFiscal 2017Fiscal 2016Fiscal 2017Fiscal 2016
 As ReportedAs ReportedAs ReportedAs 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 2017Electronic Performance  
(in thousands)ChemicalsMaterialsCorporateTotal
Operating Income (Loss)$8,5094,224(3,366)9,367
Other income (expense) 993312 144
Depreciation and amortization 2,857549411 3,817
Acquisition & integration expenses562 562
Restructuring charges70 70
Corporate relocation expense2 2
Adjusted EBITDA  11,4654,806(2,309)13,962
Corporate allocation 3,329842(4,171)
Adjusted EBITDA excl. corporate allocation 14,7945,648(6,480)13,962
 


Nine Months Ended April 30, 2017Electronic Performance  
(in thousands)ChemicalsMaterialsCorporateTotal
Operating Income (Loss)26,153 10,927(9,993)27,087
Other income (expense)(88)66110 88
Depreciation and amortization8,502 1,1211,241 10,864
Acquisition & integration expenses1,145 1,145
Restructuring charges70 70
Corporate relocation expense369 369
Adjusted EBITDA 34,567 12,114(7,058)39,623
Corporate allocation9,987 2,527(12,514)
Adjusted EBITDA excl. corporate allocation44,554 14,641(19,572)39,623
 


Third Quarter Fiscal 2016Electronic Performance  
(in thousands)ChemicalsMaterialsCorporateTotal
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, 2016Electronic Performance  
(in thousands)ChemicalsMaterialsCorporateTotal
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 2017KMG 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 2016KMG 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 



            

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