KMG Reports First Quarter 2018 Financial Results

FORT WORTH, Texas, Dec. 11, 2017 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals and performance materials, today announced financial results for the fiscal 2018 first quarter ended October 31, 2017.

2018 First Quarter Financial Highlights

  • Sales increased 45% from the first quarter of last year to a record $110.7 million.
  • GAAP diluted earnings per share was $0.46 compared to $0.47 per diluted share in the first quarter of fiscal 2017. First quarter 2018 GAAP EPS included $2.9 million in amortization expense for Flowchem intangible assets and $4.2 million in debt extinguishment expense that reduced earnings by $0.36 per diluted share.
  • Adjusted diluted earnings per share1 increased to a record $0.83 compared to $0.48 per share reported in the first quarter of fiscal 2017.
  • GAAP net income was $5.8 million compared to $5.7 million in last year’s first quarter.
  • Adjusted EBITDA2 more than doubled to a record $27.5 million, from $12.6 million in the first quarter of fiscal 2017.
  • Cash flow generated by operations was $20.5 million compared to $10.9 million in last year’s first quarter.

“KMG achieved a milestone in the first quarter of fiscal 2018, with quarterly sales exceeding $100 million for the first time in our history,” said Chris Fraser, KMG chairman and CEO. “Strong organic growth within our existing businesses, as well as contributions from our two most recent acquisitions — Sealweld and Flowchem — drove our performance in the first quarter, which included quarterly records in adjusted EBITDA and adjusted earnings per share.”

Mr. Fraser continued, “First quarter performance materials segment sales more than tripled from the same period last year to a record $36.9 million. Benefiting from increased oil production in the U.S., Flowchem performed well and contributed substantially to our results. Our industrial lubricants business continued to generate robust year-over-year growth, aided by strengthening demand and the contribution from Sealweld. In addition, sales in our wood treating chemicals business improved from the prior year.

“Electronic chemicals segment sales reached a record $73.8 million in the first quarter, an increase of 10% from the prior year, reflecting broad-based demand for KMG’s high-purity process chemicals throughout the global semiconductor manufacturing sector. Segment operating income grew 40% from last year’s first quarter due to strong product volume growth, while segment operating margins increased to a record 15.3% on enhanced operating leverage and greater efficiency.

“In October, we raised net proceeds of approximately $176 million from a successful common stock offering, reducing our interest expense and significantly reducing our debt leverage,” Mr. Fraser concluded.

Consolidated results

Dollars in thousands, except EPSQ1 Fiscal 2018 Q1 Fiscal 2017
As ReportedAdjustedAs ReportedAdjusted
(GAAP)(non-GAAP)3(GAAP)(non-GAAP)4
Net sales $110,664 $110,664 $76,495 $76,495
Operating income 20,080 23,491 8,681 8,814
Operating margin 18.1% 21.2% 11.3% 11.5%
Net income 5,850 10,549 5,742 5,828
Diluted earnings per share $0.46 $0.83 $0.47 $0.48

Business segment results

Electronic Chemicals

Dollars in thousandsQ1 Fiscal 2018 Q1 Fiscal 2017
As ReportedAs Reported
(GAAP)(GAAP)
Net sales $73,808 $66,921
Operating income 11,258 8,062
Operating margin 15.3% 12.0%

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

  • Sales of $73.8 million, up 10% from the first quarter of fiscal 2017. Product volume growth primarily drove the sales increase.
  • Operating income of $11.3 million, up 40% from $8.1 million in the same period of fiscal 2017. Operating income increased due to product volume growth and operating efficiencies. Operating margin improved to 15.3% compared to 12.0% in the prior-year period.
  • Adjusted EBITDA5 of $14.0 million compared to $11.2 million last year.

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

Dollars in thousandsQ1 Fiscal 2018 Q1 Fiscal 2017
As Reported As Reported
(GAAP) (GAAP)
Net sales $36,856 $9,574
Operating income 11,584 3,681
Operating margin 31.4% 38.4%

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

  • Sales of $36.9 million compared to $9.6 million in the same period a year ago. Sales growth reflected contributions from Sealweld and Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals.
  • Operating income of $11.6 million, or 31.4% of sales, compared to $3.7 million, or 38.4% of sales, in last year’s first quarter. The increase in operating income reflected contributions from the Sealweld and Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals. Segment operating margins were 31.4%, compared to 38.4% in the first quarter of 2017, primarily due to higher depreciation and amortization expense related to the acquisitions of Sealweld and Flowchem.
  • Adjusted EBITDA6 of $15.6 million compared to $3.9 million last year.

Outlook
Our fiscal 2018 year is off to a strong start. We will review and update our annual financial outlook at our customary time when we report our second quarter results.

Conference call
Date: Monday, December 11, 2017
Time: 5:00 p.m. ET
Dial in: 844-316-8066 or 703-736-7353
Participant passcode: 5178707

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 December 11, 2017. To access the call, dial 855-859-2056 or 404-537-3406 using participant passcode 5178707.

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 1 and 1A for reconciliation.

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

KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
October 31,
2017 2016
Net sales $110,664 $76,495
Cost of sales 64,183 46,811
Gross profit 46,481 29,684
Distribution expenses 9,442 9,102
Selling, general and administrative expenses 13,339 11,366
Amortization of intangible assets 3,511 535
Restructuring charges 109
Operating income 20,080 8,681
Other (expense) income
Interest expense, net (8,094) (177)
Loss on the extinguishment of debt (4,175)
Derivative fair value gain 849
Other, net (181) 230
Total other (expense) income, net (11,601) 53
Income before income taxes 8,479 8,734
Provision for income taxes (2,629) (2,992)
Net income $5,850 $5,742
Earnings per share:
Net income per common share basic $0.47 $0.48
Net income per common share diluted $0.46 $0.47
Weighted average shares outstanding:
Basic 12,410 11,880
Diluted 12,727 12,152


KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
October 31, July 31,
2017 2017
(Unaudited)
Assets
Current assets
Cash and cash equivalents$29,863 $20,708
Accounts receivable
Trade, net of allowances of $214 at October 31, 2017 and $263 at July 31, 2017 51,946 51,168
Other 4,271 6,168
Inventories, net 46,174 46,482
Prepaid expenses and other 8,216 8,617
Total current assets 140,470 133,143
Property, plant and equipment, net 106,747 105,435
Goodwill 229,746 224,391
Intangible assets, net 310,834 320,401
Other assets, net 7,017 9,061
Total assets$794,814 $792,431
Liabilities & stockholders’ equity
Current liabilities
Accounts payable$32,064 $29,570
Accrued liabilities 12,689 12,456
Employee incentive accrual 4,283 7,713
Current portion of long-term debt 3,167
Total current liabilities 49,036 52,906
Long-term debt 352,867 523,102
Deferred tax liabilities 32,934 37,944
Other long-term liabilities 4,964 4,763
Total liabilities 439,801 618,715
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, 15,365,646 shares issued and
outstanding at October 31, 2017 and 11,889,649 shares issued and outstanding at July 31, 2017
154 119
Additional paid-in capital 218,927 42,535
Accumulated other comprehensive loss (10,334) (9,712)
Retained earnings 146,266 140,774
Total stockholders’ equity 355,013 173,716
Total liabilities and stockholders’ equity$794,814 $792,431


KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
October 31,
2017 2016
Cash flows from operating activities
Net income $5,850 $5,742
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 7,109 3,552
Loss on extinguishment of debt 4,175
Stock-based compensation expense 1,608 1,425
Amortization of debt discounts and financing costs included in interest expense 493
Deferred income tax benefit (1,185) 188
Other (195) 182
Changes in operating assets and liabilities
Accounts receivable — trade (292) (1,657)
Accounts receivable — other 2,013 1,240
Inventories 150 2,092
Other current and noncurrent assets 276 (153)
Accounts payable 3,247 1,359
Accrued liabilities and other (2,711) (3,064)
Net cash provided by operating activities 20,538 10,906
Cash flows from investing activities
Additions to property, plant and equipment (5,803) (2,634)
Other investing activities (898)
Proceeds — insurance claim 250
Net cash used in investing activities (6,701) (2,384)
Cash flows from financing activities
Proceeds from sale of common stock, net of issuance costs 175,669
Payments under credit facility (2,500)
Principal payments on borrowings on term loans (178,000)
Derivative fair value gain (849)
Excess tax benefit from stock-based awards (57)
Payment of dividends (357) (353)
Cash payments related to tax withholdings from stock-based awards (850)
Net cash used in financing activities (4,387) (2,910)
Effect of exchange rate changes on cash (295) (434)
Net increase in cash, cash equivalents and restricted cash 9,155 5,178
Cash, cash equivalents and restricted cash at beginning of period 20,708 13,428
Cash, cash equivalents and restricted cash at end of period $29,863 $18,606

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)First Quarter
Fiscal 2018
First Quarter
Fiscal 2017
Consolidated GAAP net income $5,850 $5,742
Add back:
Interest expense, net 8,094 177
Provision for income taxes 2,629 2,992
Depreciation & amortization 7,109 3,552
Loss on the extinguishment of debt 4,175
Derivative fair value gain (849)
Acquisition & integration expenses 411 83
Corporate relocation expense 50
Restructuring charges 109
Consolidated adjusted EBITDA $27,528 $12,596

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.

First Quarter Fiscal 2018Electronic Performance
(in thousands)ChemicalsMaterialsCorporateTotal
Operating Income (Loss) $11,258 $11,584 ($2,762) $20,080
Other income (expense), net (148) 77 (110) (181)
Depreciation and amortization 2,794 3,881 434 7,109
Acquisition & integration expenses 61 350 411
Restructuring charges 109 109
Adjusted EBITDA 14,013 15,603 (2,088) 27,528
Corporate allocation 2,919 1,947 (4,866)
Adjusted EBITDA excl. corporate allocation $16,932 $17,550 ($6,954) $27,528


First Quarter Fiscal 2017Electronic Performance
(in thousands)ChemicalsMaterialsCorporateTotal
Operating Income (Loss) $8,062 $3,681 ($3,062) $8,681
Other income (expense) 308 (24) (54) 230
Depreciation and amortization 2,852 287 413 3,552
Acquisition & integration expenses 83 83
Corporate relocation expense 50 50
Adjusted EBITDA 11,222 3,944 (2,570) 12,596
Corporate allocation 3,329 842 (4,171)
Adjusted EBITDA excl. corporate allocation $14,551 $4,786 ($6,741) $12,596

Table 2
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE



(in thousands, except earnings per share)
Three Months Ended
October 31,
2017 2016
Net income $5,850 $5,742
Items impacting pre-tax income:
Acquisition & integration expenses 411 83
Corporate relocation expense 50
Restructuring charges 109
Derivative fair value gain (849)
Amortization of Flowchem intangible assets 2,891
Loss on the extinguishment of debt 4,175
Amortization of debt discounts and financing costs 493
Provision for income taxes* (2,531) (47)
Adjusted net income $10,549 $5,828
Adjusted diluted earnings per share $0.83 $0.48
Weighted average diluted shares outstanding 12,727 12,152
* 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

First Quarter Fiscal 2018KMG Chemicals, Inc.
Dollars in thousands, except EPS
Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure $20,080 18.2% $5,850 $0.46
Acquisition & integration expenses 411 0.4% 267 0.02
Restructuring charges 109 0.1% 71 0.01
Amortization of Flowchem intangible assets 2,891 2.6% 1,879 0.15
Derivative fair value gain 0.0% (552) (0.04)
Loss on the extinguishment of debt 0.0% 2,714 0.21
Amortization of debt discounts and financing costs 0.0% 320 0.02
Non-GAAP measure $23,491 21.2% $10,549 $0.83


First Quarter Fiscal 2017KMG Chemicals, Inc.
Dollars in thousands, except EPS
Operating Net Diluted Earnings
Income Margin Income Per Share
GAAP measure $8,681 11.3% $5,742 $0.47
Acquisition & integration expenses 83 0.1% 54 0.01
Corporate relocation expense 50 0.1% 32 0.00
Non-GAAP measure $8,814 11.5% $5,828 $0.48


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

Source:KMG Chemicals, Inc.