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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


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

Source:KMG Chemicals