KMG Reports Second Quarter 2018 Financial Results


FORT WORTH, Texas, March 08, 2018 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals and performance materials, today announced financial results for the fiscal 2018 second quarter ended January 31, 2018.

2018 Second Quarter Financial Highlights

  • Sales increased 44% from the second quarter of last year to a record $113.9 million.
  • GAAP diluted earnings per share increased 200% to $1.59 from $0.53 per diluted share in the second quarter of fiscal 2017.
  • Adjusted diluted earnings per share1 were a record $1.04 compared to $0.57 per share reported in the second quarter of last year. Among other items, adjusted EPS exclude an $11.0 million benefit from recent U.S. tax reform.
  • GAAP net income increased to a record $25.3 million, compared to $6.5 million in the second quarter of last year.
  • Adjusted EBITDA2 was a record $29.4 million, up 124% from $13.1 million in the second quarter of fiscal 2017.

“KMG’s record second quarter results reflect broad-based growth across our businesses, significant contributions from recent acquisitions and our disciplined focus on execution,” said Chris Fraser, KMG chairman and CEO. “Supported by our continued strong financial performance and reduction in leverage from our recent equity offering, we successfully repriced our outstanding debt during the second quarter, generating substantial interest expense savings.”

Mr. Fraser continued, “Second quarter sales in our electronic chemicals segment increased 6% year-over-year to a record $73.9 million, driven by growth in each of our major geographic regions. Segment operating income and margins also reached record levels in the second quarter, reflecting a favorable product mix and gains in operational efficiency.

“Our performance materials segment generated record sales and operating income in the second quarter, fueled by contributions from Flowchem and Sealweld, as well as growth in our industrial lubricants and wood treating chemicals businesses. Addressing key growth opportunities in the pipeline and energy markets, our pipeline performance business benefited from growing demand for our value-added products and services that enhance pipeline integrity and safety, as well as optimize pipeline throughput and performance. Our wood treating chemicals business also performed well, aided in part by the need to replace storm-damaged utility poles.”

Mr. Fraser concluded, “Considering our solid financial performance in the first half of fiscal 2018, as well as our expectations for continued growth in the second half of the year, we are increasing our fiscal 2018 sales forecast to $445-455 million, from $435-450 million previously, and increasing our fiscal 2018 adjusted EBITDA guidance to $114-118 million, from $110-115 million.”

Consolidated results

    
Second quarter
Dollars in thousands, except EPS
Fiscal 2018 Fiscal 2017
 As ReportedAdjustedAs ReportedAdjusted
 (GAAP)(non-GAAP)3(GAAP)(non-GAAP)4
Net sales$113,851 $113,851 $79,071 $79,071 
Operating income  21,730  25,635  9,040    9,857 
Operating margin 19.1% 22.5%   11.4%   12.5%
Net income  25,337  16,618   6,486  7,017 
Diluted earnings per share$1.59 $1.04 $ 0.53 $0.57 
             


    
Six months ended January 31
Dollars in thousands, except EPS
Fiscal 2018 YTD Fiscal 2017 YTD
 As ReportedAdjustedAs ReportedAdjusted
 (GAAP)(non-GAAP)5(GAAP)(non-GAAP)6
Net sales$224,515 $224,515 $155,566 $155,566 
Operating income 41,810  49,126   17,720    18,670 
Operating margin 18.6%   21.9%   11.4%   12.0%
Net income  31,187  27,746    12,227   12,844 
Diluted earnings per share$  2.18 $  1.94 $  1.00 $ 1.05 
             

Business segment results

      
Electronic ChemicalsSecond QuarterSecond Quarter First HalfFirst Half
Dollars in thousandsFiscal 2018Fiscal 2017Fiscal 2018Fiscal 2017
 As ReportedAs ReportedAs ReportedAs Reported
 (GAAP)(GAAP)(GAAP)(GAAP)
Net sales$73,924 $69,766 $147,732 $136,688 
Operating income   12,730    9,583    23,988     17,644 
Operating margin   17.2%   13.7%   16.2%   12.9%
             

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

  • Sales of $73.9 million, up 6% from the second quarter of fiscal 2017. Sales grew in each geographic region.
  • Operating income of $12.7 million, up 32.8% from $9.6 million in the same period of fiscal 2017. Operating income increased due to higher sales, product mix and operational efficiencies. Operating margin improved to 17.2% compared to 13.7% in the prior-year period.
  • Adjusted EBITDA7 of $15.0 million compared to $12.2 million last year.

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

      
Performance MaterialsSecond QuarterSecond Quarter First HalfFirst Half
Dollars in thousandsFiscal 2018Fiscal 2017Fiscal 2018Fiscal 2017
 As ReportedAs ReportedAs ReportedAs Reported
 (GAAP)(GAAP)(GAAP)(GAAP)
Net sales$39,927 $9,305 $76,783 $18,878 
Operating income   12,810    3,023    24,394    6,704 
Operating margin   32.1%   32.5%   31.8%   35.5%
             

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

  • Sales of $39.9 million versus $9.3 million in the same period a year ago. Sales growth reflected contributions from Flowchem and Sealweld, as well as product volume growth in both industrial lubricants and wood treating chemicals.
  • Operating income of $12.8 million compared to $3.0 million last year. The increase in operating income reflected contributions from Flowchem and Sealweld, as well as product volume growth in both industrial lubricants and wood treating chemicals. Segment operating margins were 32.1%, compared to 32.5% in the second quarter of 2017, primarily due to higher depreciation and amortization expense related to the acquisitions of Flowchem and Sealweld.   
  • Adjusted EBITDA8 of $17.1 million versus $3.2 million last year.

Fiscal 2018 Outlook

  • Sales: We increase our fiscal 2018 consolidated net sales forecast to $445-455 million, from our prior guidance of $435-450 million.
  • Adjusted EBITDA: We increase our adjusted EBITDA forecast to $114-118 million, from our prior guidance of $110-115 million, reflecting stronger growth expectations in both our electronic chemicals and performance materials segments. Our revised fiscal 2018 adjusted EBITDA forecast includes approximately $8.0 million in stock-based compensation expense, compared to our prior estimate of approximately $6.5 million.
  • Depreciation and Amortization: Depreciation and amortization expense is forecast to be approximately $31 million.
  • Capital Expenditures: Capital expenditures are forecast to be approximately $29 million, in line with our prior estimate, and include a portion of our planned capital investment in Singapore.

With respect to the Company’s full year guidance of Adjusted EBITDA, the Company is not able to provide a reconciliation of these fiscal 2018 non-GAAP financial measures to the most comparable GAAP measure without unreasonable efforts; certain items that are included have not yet occurred and cannot be reasonably predicted, and, accordingly, the probable significance of such items cannot be determined at this time. The most comparable GAAP measure and reconciling information that is unavailable, or not reasonably predictable, would include restructuring and realignment charges and acquisition and integration-related expenses.

Conference call
Date: Thursday March 8, 2018
Time: 5:00 p.m. ET
Dial in: 844-316-8066 or 703-736-7353
Conference ID: 1178959

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 March 8, 2018. To access the call, dial 855-859-2056 (domestic) or 404-537-3406 (international) using conference ID 1178959.

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 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 1 and 1A for reconciliation.

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

    
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
    
 Three Months Ended Six Months Ended
 January 31, January 31,
  2018   2017   2018   2017 
Net sales  $113,851  $79,071  $224,515  $  155,566 
Cost of sales  64,597   47,869   128,780   94,681 
Gross profit   49,254   31,202   95,735   60,885 
        
Distribution expenses  8,680   9,770   18,122   18,872 
Selling, general and administrative expenses 14,999   11,867   28,338   23,233 
Amortization of intangible assets 3,885   525   7,396   1,060 
Restructuring charges (40)     69    
Operating income   21,730   9,040   41,810   17,720 
Other (expense) income        
Interest expense, net  (5,086)    (172)  (13,180)  (349)
Loss on the extinguishment of debt  (1,916)     (6,091)   
Derivative fair value gain  3,024      3,873    
Other, net  (596)    (285)  (777)    (55)
Total other (expense) income, net  (4,574)  (457)  (16,175)  (404)
        
Income before income taxes  17,156   8,583   25,635   17,316 
Provision for income taxes   8,181   (2,097)  5,552   (5,089)
Net income$25,337  $6,486  $31,187  $12,227 
Earnings per share:       
Net income per common share basic $1.64  $0.55  $2.24  $1.03 
Net income per common share diluted $1.59  $0.53  $2.18  $1.00 
        
Weighted average shares outstanding:       
Basic   15,495   11,882   13,923   11,881 
Diluted   15,903   12,293   14,285   12,203 
                 


   
KMG CHEMICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except for share and per share amounts)
   
  January 31,  July 31, 
  2018  2017 
 (Unaudited) 
Assets  
Current assets  
Cash and cash equivalents $  21,966 $  20,708 
Accounts receivable  
Trade, net of allowances of $237 at January 31, 2018 and $263 at July 31, 2017  54,339   

51,168
 
Other  4,721  6,168 
Inventories, net 49,534  46,482 
Prepaid expenses and other  7,751  8,617 
Total current assets 138,311  133,143 
   
Property, plant and equipment, net 108,954  105,435 
Goodwill 230,214  224,391 
Intangible assets, net 307,528  320,401 
Other assets, net 11,176  9,061 
Total assets$796,183 $792,431 
   
Liabilities & stockholders’ equity  
Current liabilities  
Accounts payable$  32,496 $  29,570 
Accrued liabilities  10,686  12,456 
Employee incentive accrual 3,679  7,713 
Current portion of long-term debt   3,167 
Total current liabilities 46,861  52,906 
   
Long-term debt 337,048  523,102 
Deferred tax liabilities 22,852  37,944 
Other long-term liabilities 5,350  4,763 
Total liabilities 412,111  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, 15,503,290 shares issued and outstanding at January 31, 2018 and 11,889,649 shares issued and outstanding at July 31, 2017  

 

155
   

 

119
 
Additional paid-in capital 218,001  42,535 
Accumulated other comprehensive loss (5,222) (9,712)
Retained earnings 171,138  140,774 
Total stockholders’ equity 384,072  173,716 
Total liabilities and stockholders’ equity$  796,183 $  792,431 
       


    
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
    
  Six Months Ended 
  January, 31 
  2018  2017 
Cash flows from operating activities        
Net income $31,187  $12,227 
Adjustments to reconcile net income to net cash provided by
operating activities
        
Depreciation and amortization  14,695   7,048 
Loss on extinguishment of debt  6,091    
Stock-based compensation expense  3,593   3,087 
Amortization of debt discounts and financing costs
included in interest expense
  828    
Debt repricing transaction costs  602    
Deferred income tax expense  (11,780)  (821)
Derivative fair value gain  (3,873)   
Other  (77)  53 
Changes in operating assets and liabilities        
Accounts receivable — trade  (2,041)  (2,585)
Accounts receivable — other  1,554   1,846 
Inventories  (2,272)  1,002 
Other current and noncurrent assets  442   (302)
Accounts payable  2,579   951 
Accrued liabilities and other  (5,293)  (3,083)
Net cash provided by operating activities  36,235   19,423 
         
Cash flows from investing activities        
Additions to property, plant and equipment  (9,030)  (5,310)
Other investing activities  (1,262)    
Proceeds − insurance claim     250 
Net cash used in investing activities  (10,292)  (5,060)
         
Cash flows from financing activities        
Proceeds from sale of common stock, net of issuance costs  175,669    
Borrowings under credit facility     17,000 
Payments under credit facility     (11,800)
Principal payments on borrowings on term loan  (196,000)   
Debt repricing transaction costs  (602)   
Payment of dividends  (822)  (709)
Cash payments related to tax withholdings from stock-based awards  (3,729)  (277)
Net cash provided by (used in) financing activities  (25,484)  4,214 
         
Effect of exchange rate changes on cash  799   (418)
         
Net increase in cash, cash equivalents and restricted cash  1,258   18,159 
Cash, cash equivalents and restricted cash at beginning of period  20,708   13,428 
Cash, cash equivalents and restricted cash at end of period $21,966  $31,587 
         

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)
Second Quarter
Fiscal 2018
Second Quarter
Fiscal 2017
Consolidated GAAP net income$25,337 $  6,486
Add back:  
Interest expense, net 5,086  172
Income taxes  (8,181) 2,097
Depreciation & amortization 7,586  3,496
Loss on the extinguishment of debt 1,916  
Derivative fair value gain (3,024) 
Debt repricing transaction costs 602  
Acquisition & integration expenses 119  501
Corporate relocation expense   316
Restructuring charges, excluding accelerated depreciation (40)
Consolidated adjusted EBITDA$29,401 $13,068
 


   
 

(in thousands)
Six Months Ended
Jan. 31, 2018
Six Months Ended
Jan. 31, 2017
Consolidated GAAP net income$31,187 $12,227
Add back:  
Interest expense, net 13,180  349
Income taxes (5,552) 5,089
Depreciation & amortization 14,695  7,048
Loss on the extinguishment of debt 6,091  
Derivative fair value gain (3,873) 
Debt repricing transaction costs 602  
Acquisition & integration expenses 530  584
Corporate relocation expense   366
Restructuring charges, excluding accelerated depreciation 69 
Consolidated adjusted EBITDA$56,929 $25,663
 

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.

     
Second Quarter Fiscal 2018Electronic
 Performance
   
(in thousands)Chemicals
 Materials
 Corporate
 Total
 
Operating Income (Loss)$12,730 $12,810 $(3,810)$21,730 
Other income (expense) (434) (23) (139) (596)
Depreciation and amortization 2,760  4,287  539  7,586 
Acquisition & integration expenses   36  83  119 
Debt repricing costs     602  602 
Restructuring charges (40)     (40)
Adjusted EBITDA  15,016  17,110  (2,725) 29,401 
Corporate allocation 3,150  1,982  (5,132)  
Adjusted EBITDA excl. corporate allocation$18,166 $19,092 $(7,857)$29,401 
     


     
Six Months Ended January 31, 2018Electronic
 Performance
 
 
(in thousands)Chemicals
 Materials
Corporate
 Total
 
Operating Income (Loss)$23,988 $24,394$(6,572)$41,810 
Other income (expense) (583) 55 (249) (777)
Depreciation and amortization 5,554  8,168 973  14,695 
Acquisition & integration expenses   97 433  530 
Debt repricing transaction costs    602  602 
Restructuring charges 69     69 
Adjusted EBITDA  29,028  32,714 (4,813) 56,929 
Corporate allocation 6,069  3,929 (9,998)  
Adjusted EBITDA excl. corporate allocation$35,097 $36,643$(14,811)$56,929 
 


       
Second Quarter Fiscal 2017Electronic
 Performance
   
(in thousands)Chemicals
 Materials
 Corporate
 Total
 
Operating Income (Loss)$9,583 $3,023 $(3,566)$9,040 
Other income (expense) (148) (75) (62) (285)
Depreciation and amortization 2,793  285  418  3,496 
Acquisition & integration expenses     501  501 
Corporate relocation expense     316  316 
Adjusted EBITDA  12,228  3,233  (2,393) 13,068 
Corporate allocation 3,329  842  (4,171)  
Adjusted EBITDA excl. corporate allocation$15,557 $4,075 $(6,564)$13,068 
     


      
Six Months Ended January 31, 2017Electronic Performance
   
(in thousands)ChemicalsMaterials
 Corporate
 Total
 
Operating Income (Loss)$17,644$6,704 $(6,628)$17,720 
Other income (expense) 163 (99) (119) (55)
Depreciation and amortization 5,645 572  831  7,048 
Acquisition & integration expenses    584  584 
Corporate relocation expense    366  366 
Adjusted EBITDA  23,452 7,177  (4,966) 25,663 
Corporate allocation 6,658 1,684  (8,342)  
Adjusted EBITDA excl. corporate allocation$30,110$8,861 $(13,308)$25,663 
            

Table 2
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
(in thousands)

  
 Three Months Ended
 January 31,
  2018   2017 
Net income$25,337  $6,486 
Items impacting pre-tax income:         
Impact of the Tax Cuts and Jobs Act (11,005)   
Acquisition & integration expenses 119   501 
Corporate relocation expense    316 
Restructuring charges (40)   
Derivative fair value gain (3,024)   
Amortization of Flowchem intangible assets 3,224    
Loss on the extinguishment of debt 1,916    
Debt repricing transaction costs 602    
Amortization of debt discounts and financing costs 335    
Income taxes* (846)  (286)
Adjusted net income$16,618  $7,017 
Adjusted diluted earnings per share$  1.04  $0.57 
Weighted average diluted shares outstanding   15,903   12,293 
        
* For the three months ended January 31, 2018, represents the aggregate tax-effect assuming a 27% tax rate of the items impacting pre-tax income, which is our estimated U.S. statutory federal tax rate for fiscal year 2018 following the enactment of the Tax Cuts and Jobs Act in December 2017. For the three months ended January 31, 2017, represents the aggregate tax-effect assuming a 35% tax rate of items impacting pre-tax income.
   
 Six Months Ended 
 January 31, 
  2018   2017 
Net income$31,187  $12,227 
Items impacting pre-tax income:       
Impact of the Tax Cuts and Jobs Act (11,005)  
 
Acquisition & integration expenses 530     584 
Corporate relocation expense      366 
Restructuring charges 69       
 
Derivative fair value gain (3,873)  
 
Amortization of Flowchem intangible assets 6,115   
 
Loss on the extinguishment of debt 6,091   
 
Debt repricing transaction costs 602   
 
Amortization of debt discounts and financing costs 828   
 
Income taxes* (2,798)    (332
Adjusted net income**$27,746  $12,845 
Adjusted diluted earnings per share **$1.94  $ 1.05 
Weighted average diluted shares outstanding 14,285   12,203 
 * For the six months ended January 31, 2018, represents the aggregate tax-effect assuming a 27% tax rate of the items impacting pre-tax income, which is the estimated blended statutory tax rate for fiscal year 2018. For the six months ended January 31, 2017, represents the aggregate tax-effect assuming a 35% tax rate of items impacting pre-tax income.
** Adjusted net income and adjusted diluted earnings per share for the first quarter of fiscal 2018, which are included in the six months ended January 31, 2018, have been adjusted to reflect the assumed 27% tax rate for fiscal year 2018.
 
  

Table 2A
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

  
Second Quarter Fiscal 2018KMG Chemicals, Inc.
Dollars in thousands, except EPS 
   Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$21,730  19.1% $25,337  $1.59 
Amortization of Flowchem intangible assets 3,224  2.8%  2,354   0.15 
Debt repricing transaction costs 602  0.5%  439   0.03 
Acquisition & integration expenses 119  0.1%  87   0.01 
Restructuring charges (40) (0.0%)  (30)  (0.01)
Impact of the Tax Cuts and Jobs Act      (11,005)  (0.69)
Derivative fair value gain      (2,208)  (0.14)
Loss on the extinguishment of debt      1,399   0.09 
Amortization of debt discounts and financing costs      245   0.01 
Non-GAAP measure$25,635  22.5% $16,618  $1.04 
               


  
Six Months Ended January 31, 2018KMG Chemicals, Inc.
Dollars in thousands, except EPS 
   Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$41,810 18.6% $31,187  $2.18 
Amortization of Flowchem intangible assets 6,115 2.7%  4,464   0.31 
Debt repricing transaction costs 602 0.3%  439   0.03 
Acquisition & integration expenses 530 0.2%  387   0.03 
Restructuring charges 69 0.1%  51   0.01 
Impact of the Tax Cuts and Jobs Act     (11,005)  (0.77)
Loss on the extinguishment of debt     4,446   0.31 
Derivative fair value gain     (2,827)  (0.20)
Amortization of debt discounts and financing costs     604   0.04 
Non-GAAP measure $49,126 21.9% $27,746  $1.94 
              


  
Second Quarter Fiscal 2017KMG Chemicals, Inc.
Dollars in thousands, except EPS 
   Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$ 9,040 11.5% $6,486 $ 0.53
Acquisition & integration expenses   501   0.6%  326    0.02
Corporate relocation expense   316   0.4%  205    0.02
Non-GAAP measure$  9,857 12.5% $7,017 $0.57
            


  
Six Months Ended January 31, 2017 KMG Chemicals, Inc.
Dollars in thousands, except EPS 
   Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$ 17,720 11.4% $12,227 $1.00
Acquisition & integration expenses 584 0.4%  380  0.03
Corporate relocation expense 366 0.2%  238  0.02
Non-GAAP measure$  18,670 12.0% $12,845 $1.05
            


 


            

Contact Data