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KMG Reports Second Quarter 2017 Financial Results

FORT WORTH, Texas, March 13, 2017 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals, today announced financial results for the fiscal 2017 second quarter ended January 31, 2017.

2017 Second Quarter Financial Highlights

  • GAAP diluted earnings per share increased 61% to $0.53 from $0.33 per diluted share in the second quarter of fiscal 2016.
  • Adjusted diluted earnings per share1 reached a record $0.57 compared to $0.40 per share reported in the second quarter of last year.
  • GAAP net income increased 63% year-over-year to a record $6.5 million.
  • Adjusted EBITDA2 was a record $13.1 million, up 18% from $11.0 million in the second quarter of fiscal 2016.

Chris Fraser, KMG chairman and chief executive officer, said, “Driven by broad-based strength across our global operations, KMG achieved outstanding results in the second quarter of fiscal 2017. In what is typically a slower seasonal quarter, KMG’s sales grew 3% sequentially and 12% year-over-year to $79.1 million, and GAAP net income increased 63% year-over-year to $6.5 million. As a result, adjusted EBITDA grew 18% from the prior-year period to $13.1 million and adjusted earnings per share was a record $0.57.”

Mr. Fraser continued, “Second quarter sales in our electronic chemicals segment grew 12% year-over-year to a record $69.8 million, as we experienced robust shipment volumes in each of our major geographic regions. Strengthened global silicon wafer production, coupled with our expanded participation in higher growth semiconductor end markets and global distribution capabilities, drove strong segment sales growth. Additionally, segment operating income and margins both reached record levels in the second quarter, underscoring our enhanced operational efficiency and continued focus on cost improvements.

“Our other chemicals segment reported 12% year-over-year sales growth to $9.3 million, primarily reflecting stronger demand for industrial lubricants against a backdrop of improving fundamentals within the energy industry.

“Considering our strong performance in the first half of fiscal 2017, as well as our expectations for continued growth in the second half, we are raising our fiscal 2017 adjusted EBITDA guidance to $51-53 million, up from our prior guidance of $47-49 million.”

Mr. Fraser concluded, “Our recent acquisition of Sealweld, a premier supplier of high-performance products and services to global pipeline operators, significantly expands our presence and customer reach in the industrial lubricants market and will be accretive to KMG’s financial results starting in the third quarter. We remain excited about the long-term growth opportunity in industrial lubricants and continue to evaluate additional value-creating acquisition opportunities that will further enhance our presence and capabilities in this market.”

Consolidated results

Second quarter
Dollars in thousands, except EPS
Fiscal 2017 Fiscal 2016
As ReportedAdjustedAs ReportedAdjusted
(GAAP)(non-GAAP)3(GAAP)(non-GAAP)4
Net sales$ 79,071 $ 79,071 $ 70,859 $ 70,859
Operating income 9,040 9,857 6,137 7,421
Operating margin 11.4% 12.5% 8.7% 10.5%
Net income 6,486 7,017 3,979 4,814
Diluted earnings per share$ 0.53 $ 0.57 $ 0.33 $0.40


Six months ended January 31
Dollars in thousands, except EPS
Fiscal 2017 YTD Fiscal 2016 YTD
As ReportedAdjustedAs ReportedAdjusted
(GAAP)(non-GAAP)5(GAAP)(non-GAAP)6
Net sales $ 155,566 $ 155,566 $ 147,509 $ 147,509
Operating income 17,720 18,670 13,457 15,337
Operating margin 11.4% 12.0% 9.1% 10.4%
Net income 12,227 12,844 8,570 9,792
Diluted earnings per share$ 1.00 $ 1.05 $ 0.72 $ 0.82

Business segment results

Electronic Chemicals Second Quarter Second Quarter First HalfFirst Half
Dollars in thousandsFiscal 2017Fiscal 2016Fiscal 2017Fiscal 2016
As ReportedAs Reported As Reported As Reported
(GAAP)(GAAP)(GAAP)(GAAP)
Net sales$ 69,766 $ 62,521 $ 136,688 $ 128,603
Operating income 9,583 8,470 17,644 15,744
Operating margin 13.7% 13.5% 12.9% 12.2%

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

  • Sales of $69.8 million, up 11.6% from the second quarter of fiscal 2016. Excluding a foreign currency translation impact of $1.1 million, sales increased 13.0% year-over-year to $70.9 million. Strong product volume growth across all geographic regions drove the Q2 sales increase.
  • Operating income of $9.6 million, up 12.9% from $8.5 million in the same period of fiscal 2016. Operating income increased primarily due to product volume growth. Operating margin improved to 13.7% compared to 13.5% in the prior-year period.
  • Adjusted EBITDA7 of $12.2 million compared to $11.5 million last year.

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

Other Chemicals Second Quarter Second Quarter First HalfFirst Half
Dollars in thousands Fiscal 2017Fiscal 2016Fiscal 2017Fiscal 2016
As ReportedAs Reported As Reported As Reported
(GAAP)(GAAP)(GAAP)(GAAP)
Net sales$ 9,305 $ 8,338 $ 18,878 $ 18,906
Operating income 3,023 2,804 6,704 6,568
Operating margin 32.5% 33.6% 35.5% 34.7%

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

  • Sales of $9.3 million versus $8.3 million in the same period a year ago, primarily reflecting improved sales of industrial lubricants.
  • Operating income of $3.0 million, or 32.5% of sales, compared to $2.8 million, or 33.6% of sales, last year. The increase in operating income was primarily due to improved sales in the industrial lubricants business. Segment operating margins declined 110 basis points, reflecting product sales mix and higher raw materials costs.
  • Adjusted EBITDA8 of $3.2 million versus $3.1 million last year.

Fiscal 2017 Outlook

  • Sales: Fiscal 2017 consolidated net sales are forecast to be approximately $315-320 million, an increase from our prior forecast of $300-305 million. This revised sales forecast includes a projected negative foreign currency impact of approximately $4.5 million, unchanged from our prior estimate.
  • Adjusted EBITDA: We forecast adjusted EBITDA of $51-53 million, an increase from our prior guidance of $47-49 million, reflecting stronger growth expectations in both our electronic chemicals other chemicals segments. Additionally, we anticipate a positive impact in the second half of the fiscal year from recently acquired Sealweld in our other chemicals segment. Our revised fiscal 2017 adjusted EBITDA forecast includes approximately $6.5 million in stock-based compensation expense, compared to our prior estimate of approximately $5 million, and a negative foreign currency impact of approximately $700,000, unchanged from prior guidance.
  • Depreciation and Amortization: Depreciation and amortization expense is forecast to be approximately $15 million.
  • Capital Expenditures: Capital expenditures are forecast to be approximately $21 million, in line with our prior estimate, and includes 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 2017 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: Monday, March 13, 2017
Time: 5:00 p.m. ET
Dial in: 877-789-6981 or 541-797-2420
Participant passcode: 73076000

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 13, 2017. To access the call, dial 855-859-2056 (domestic) or 404-537-3406 (international) using participant passcode 73076000.

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 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,
2017 2016 2017 2016
Net sales $ 79,071 $ 70,859 $ 155,566 $ 147,509
Cost of sales 47,869 42,626 94,681 90,016
Gross profit 31,202 28,233 60,885 57,493
Distribution expenses 9,770 8,819 18,872 18,948
Selling, general and administrative expenses 12,392 12,722 24,293 23,937
Restructuring charges 555 1,021
Realignment charges 130
Operating income 9,040 6,137 17,720 13,457
Other (expense) income
Interest expense, net (172) (252) (349) (404)
Other, net (285) 149 (55) 132
Total other (expense) income, net (457) (103) (404) (272)
Income before income taxes 8,583 6,034 17,316 13,185
Provision for income taxes (2,097) (2,055) (5,089) (4,615)
Net income$6,486 $3,979 12,227 $8,570
Earnings per share:
Net income per common share basic$0.55 $0.34 $1.03 $0.73
Net income per common share diluted$0.53 $0.33 $1.00 $0.72
Weighted average shares outstanding:
Basic 11,882 11,717 11,881 11,707
Diluted 12,293 11,915 12,203 11,890


KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
January 31,July 31,
2017 2016
(Unaudited)
Assets
Current assets
Cash and cash equivalents$ 30,587 $ 12,428
Restricted cash 1,000
Accounts receivable
Trade, net of allowances of $118 at January 31, 2017 and $210 at July 31, 2016 35,309 33,324
Other 4,465 5,572
Inventories, net 35,870 37,401
Prepaid expenses and other 6,260 6,623
Total current assets 113,491 95,348
Property, plant and equipment, net 76,863 79,739
Goodwill 22,013 22,228
Intangible assets, net 32,542 33,906
Restricted cash 1,000
Other assets, net 5,010 4,807
Total assets$249,919 $237,028
Liabilities & stockholders’ equity
Current liabilities
Accounts payable$ 26,734 $ 26,418
Accrued liabilities 10,680 11,252
Employee incentive accrual 3,150 5,999
Total current liabilities 40,564 43,669
Long-term debt 41,000 35,800
Deferred tax liabilities 9,058 9,948
Other long-term liabilities 4,450 4,422
Total liabilities 95,072 93,839
Commitments and contingencies
Stockholders’ equity
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Common stock, $.01 par value, 40,000,000 shares authorized, 11,887,513 shares issued and outstanding at January 31, 2017
and 11,877,282 shares issued and outstanding at July 31, 2016
119 19
Additional paid-in capital 39,364 36,553
Accumulated other comprehensive loss (14,718) (12,047)
Retained earnings 130,082 118,564
Total stockholders’ equity 154,847 143,189
Total liabilities and stockholders’ equity$ 249,919 $ 237,028


KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
January, 31
2017
2016
Cash flows from operating activities
Net income $12,227 $8,570
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 7,048 7,024
Non-cash restructuring and realignment charges 105
Stock-based compensation expense 3,087 2,297
Deferred income tax expense (821) (1,334)
Excess tax benefit from stock-based awards (685)
Other 53 204
Changes in operating assets and liabilities
Accounts receivable — trade (2,585) 894
Accounts receivable — other 2,531 (1,816)
Inventories 1,002 1,159
Other current and noncurrent assets (302) 3,291
Accounts payable 951 (5,805)
Accrued liabilities and other (3,083) (492)
Net cash provided by operating activities 19,423 14,097
Cash flows from investing activities
Additions to property, plant and equipment (5,310) (6,001)
Proceeds − insurance claim 250
Net cash used in investing activities (5,060) (6,001)
Cash flows from financing activities
Borrowings under credit facility 17,000
Payments under credit facility (11,800) (6,000)
Excess tax benefit from stock-based awards (15)
Payment of dividends (709) (703)
Cash payments related to tax withholdings from stock-based awards (277)
Net cash provided by (used in) financing activities 4,214 (6,688)
Effect of exchange rate changes on cash (418) (25)
Net increase in cash, cash equivalents and restricted cash 18,159 1,383
Cash, cash equivalents and restricted cash at beginning of period 13,428 8,517
Cash, cash equivalents and restricted cash at end of period $ 31,587 $ 9,900

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 2017
Second Quarter
Fiscal 2016
Consolidated GAAP net income$ 6,486$3,979
Add back:
Interest expense 172 252
Income taxes 2,097 2,055
Depreciation & amortization* 3,496 3,479
Acquisition & integration expenses 501
Corporate relocation expense 316 729
Restructuring charges, excluding accelerated depreciation 555
Consolidated adjusted EBITDA$13,068$11,049
*Includes depreciation related to restructuring and realignment included in non-cash restructuring and realignment charges on the statement of cash flows.


Six Months Ended
Jan. 31, 2017
Six Months Ended
Jan. 31, 2016
Consolidated GAAP net income12,2278,570
Add back:
Interest expense349404
Income taxes5,0894,615
Depreciation & amortization*7,0487,129
Acquisition & integration expenses584
Corporate relocation expense366729
Restructuring & realignment charges, excluding accelerated depreciation1,046
Consolidated adjusted EBITDA25,66322,493
*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.

Second Quarter Fiscal 2017Electronic Other
(in thousands) Chemicals Chemicals Corporate Total
Operating Income (Loss)9,583 3,023 (3,566)9,040
Other income (expense)(148)(75)(62)(285)
Depreciation and amortization2,793 285 418 3,496
Acquisition & integration expenses 501 501
Corporate relocation expense 316 316
Adjusted EBITDA 12,228 3,233 (2,393)13,068
Corporate allocation3,329 842 (4,171)
Adjusted EBITDA excl. corporate allocation 15,557 4,075 (6,564) 13,068


Six Months Ended January 31, 2017Electronic Other
(in thousands) Chemicals Chemicals Corporate Total
Operating Income (Loss)17,6446,704 (6,628) 17,720
Other income (expense)163(99)(119)(55)
Depreciation and amortization5,645572 831 7,048
Acquisition & integration expenses 584 584
Corporate relocation expense 366 366
Adjusted EBITDA 23,4527,177 (4,966)25,663
Corporate allocation6,6581,684 (8,342)
Adjusted EBITDA excl. corporate allocation 30,1108,861 (13,308)25,663


Second Quarter Fiscal 2016Electronic Other
(in thousands) Chemicals Chemicals
Corporate
Total
Operating Income (Loss)$8,470 $2,804 $(5,137)$6,137
Other income (expense) 196 (33) (14) 149
Depreciation and amortization 2,849 286 344 3,479
Restructuring charges* 555 555
Corporate relocation expense 729 729
Adjusted EBITDA 11,515 3,057 (3,523) 11,049
Corporate allocation 2,480 791 (3,271)
Adjusted EBITDA excl. corporate allocation $13,995$3,848 $(6,794)$ 11,049


Six Months Ended January 31, 2016Electronic Other
(in thousands)ChemicalsChemicals
Corporate
Total
Operating Income (Loss)$15,744$6,568 $(8,855)$13,457
Other income (expense) 326 (92) (102) 132
Depreciation and amortization* 5,764 583 782 7,129
Restructuring & realignment charges, excluding accelerated depreciation 1,046 1,046
Corporate relocation expense 729 729
Adjusted EBITDA 21,834 7,059 (6,400) 22,493
Corporate allocation 4,961 1,581 (6,542)
Adjusted EBITDA excl. corporate allocation$26,795$8,640 $(12,942)$22,493
* 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
January 31,
2017 2016
Net income$6,486 $3,979
Items impacting pre-tax income:
Acquisition & integration expenses501
Corporate relocation expense316 729
Restructuring & realignment charges 555
Income taxes*(286) (449)
Adjusted net income$7,017 $4,814
Adjusted diluted earnings per share$0.57 $0.40
Weighted average diluted shares outstanding12,293 11,915
*Represents the aggregate tax-effect of the items impacting pre-tax income utilizing a tax rate of 35%.

Table 2 (continued)
(in thousands)

Six Months Ended
January 31,
2017 2016
Net income$12,227 $8,570
Items impacting pre-tax income:
Acquisition & integration expenses584
Corporate relocation expense366 729
Restructuring & realignment charges 1,151
Income taxes*(332) (658)
Adjusted net income$12,845 $9,792
Adjusted diluted earnings per share$1.05 $0.82
Weighted average diluted shares outstanding12,203 11,890
*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

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


Second Quarter Fiscal 2016KMG Chemicals, Inc.
Dollars in thousands, except EPS
Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$ 6,137 8.7% $ 3,979 $0.33
Restructuring charges 555 0.8% 361 0.03
Corporate relocation expense 729 1.0% 474 0.04
Non-GAAP measure$ 7,421 10.5% $4,814 $0.40


Six Months Ended January 31, 2016 KMG Chemicals, Inc.
Dollars in thousands, except EPS
Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure$ 13,457 9.1% $ 8,570 $0.72
Restructuring & realignment charges 1,151 0.8% 748 0.06
Corporate relocation expense 729 0.5% 474 0.04
Non-GAAP measure$ 15,337 10.4% $ 9,792 $0.82

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

Source:KMG Chemicals