KMG Reports Second Quarter 2014 Financial Results

Business Wire

HOUSTON--(BUSINESS WIRE)--

KMG Chemicals, Inc. (KMG), a global provider of specialty chemicals to select markets, today announced financial results for the fiscal 2014 second quarter ended January 31, 2014.

2014 Second Quarter Financial Review

  • Net sales were $84.3 million, an increase of 47.9% from last year’s second quarter. The sales increase reflected the addition of the Ultra Pure Chemicals (UPC) business, acquired in May 2013.
  • Adjusted EBITDA1 was $6.0 million, compared to $5.6 million last year. Second quarter fiscal 2014 adjusted EBITDA excludes $3.2 million of restructuring charges, while second quarter fiscal 2013 adjusted EBITDA excludes $743,000 in acquisition expenses.
  • Adjusted diluted EPS2, which excludes restructuring charges, was $0.12, as compared to $0.18 in last year’s second quarter. The decrease in adjusted EPS was primarily due to $1.8 million in depreciation and amortization expense, or approximately $0.10 per diluted share, related to the UPC acquisition.
  • GAAP net loss per share was $(0.24) vs. EPS of $0.14 reported in the same period a year ago. The 2014 loss per share was entirely due to restructuring charges.

Chris Fraser, KMG chairman and chief executive officer, said, “During our second quarter we moved aggressively to integrate the UPC business and capture initial synergies from this key acquisition, which positions KMG as the leading global supplier of high purity process chemicals to the semiconductor industry. The strategic manufacturing realignment of our global Electronic Chemicals business is progressing on schedule, as we continued the closing of our Fremont, California, facility and initiated the consolidation of our manufacturing footprint in Europe. We remain confident these actions will generate significant operating efficiencies as they are completed in 2014 and 2015.

“Our second quarter financial results were in line with our expectations, as we experienced seasonal softness in our Electronic Chemicals and Wood Treating Chemicals businesses. In addition, conditions in the rail tie treating market remained challenging. Although seasonality in our Electronic Chemicals business was a headwind during the quarter, this segment’s performance benefited from volume growth at key customers, ongoing cost controls and the realization of supply chain efficiencies. Overall, second quarter adjusted earnings per share was $0.12, down from $0.18 last year, in part due to increased depreciation and amortization expenses resulting from the UPC acquisition as well as higher audit and tax service fees.”

 

Second Quarter Results

Dollars in thousands, except EPS   Fiscal 2014   Fiscal 2013
(unaudited)   As   As
Adjusted Reported Adjusted Reported
(non-GAAP) (GAAP) (non-GAAP)   (GAAP)
 
Net Sales $ 84,253 $ 84,253 $ 56,959 $ 56,959
Operating Income (Loss) 2,588 (1,603) 3,939 3,196
Operating Margin 3.1% (1.9%) 6.9% 5.6%
Net Income (Loss) 1,396 (2,744) 2,100 1,618
Diluted EPS

 

$0.12

($0.24)

 

$0.18

 

$0.14

 
 
Electronic Chemicals

Second Quarter Results

Dollars in thousands Fiscal 2014   Fiscal 2013
  As As
Adjusted Reported Reported
(non-GAAP) (GAAP) (GAAP)
 
Net Sales $ 61,428 $ 61,428 $ 35,647
Operating Income 3,155 2,995 2,429
Operating Margin 5.1% 4.9% 6.8%
 

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

  • Sales of $61.4 million, up from $35.6 million in the same period a year ago. The increase in sales reflected the addition of the UPC business. Electronic Chemicals sales represented 73% of consolidated second quarter sales.
  • Adjusted EBITDA3 of $6.4 million, compared to $3.9 million last year.
  • Depreciation and amortization expense of $3.3 million, compared to $1.5 million last year.
  • Adjusted operating income4 of $3.2 million, up from $2.4 million in the same period of fiscal 2013. Fiscal 2014 second quarter adjusted operating income excludes $160,000 of integration expenses. Electronic Chemicals segment adjusted operating income also excludes restructuring expenses, which are included under corporate operating income (loss).
  • GAAP operating margin of 4.9% vs. 6.8% in the previous year. Excluding the impact of integration expenses, adjusted operating margin was 5.1%. The difference from the prior year was primarily due to increased depreciation and amortization expenses.
 
Wood Treating Chemicals

Second Quarter Results

Dollars in thousands Fiscal 2014   Fiscal 2013
As As
Reported Reported
(GAAP) (GAAP)
 
Net Sales $ 22,795 $ 21,183
Operating Income 1,111 2,220
Operating Margin 4.9% 10.5%
 

For the second fiscal quarter, the Wood Treating Chemicals segment reported:

  • Sales of $22.8 million, up 7.6% from $21.2 million in the same period a year ago. The sales increase was due to higher volumes to the rail tie treating market. Wood Treating Chemicals sales represented 27% of consolidated second quarter sales.
  • EBITDA5 of $1.2 million, down from $2.3 million last year.
  • Operating income of $1.1 million, or 4.9% of sales, compared to $2.2 million, or 10.5% of sales, last year. The decrease in operating income was due to lower creosote sales prices and a less favorable product mix. Operating income was also negatively impacted by barge cleaning costs in our creosote business.

Outlook

For fiscal 2014, the company issued the following forecast:

  • Consistent with prior guidance, consolidated net sales are forecast to exceed $350 million, benefiting from the acquisition of the UPC business.
  • Projected restructuring charges (excluding accelerated depreciation) remain targeted at $4-5 million, partially offset by an estimated $2-3 million of restructuring-related synergies and commercial benefits. In addition, incremental capital expenditures of approximately $2 million are expected to be incurred to accomplish these plans.
  • Depreciation and amortization expense of approximately $15 million. In addition to this amount, the company expects to incur approximately $3 million in non-cash restructuring charges, representing accelerated depreciation expense related to the closure of the Fremont facility and cessation of manufacturing operations in Milan.

Conference call

Date: Wednesday, March 12, 2014

Time: 10:00 am ET

Dial in: 877-280-4959 or 857-244-7316

Conference ID: 21431991

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 2:00 p.m. ET on March 12, 2014. To access the call, dial 888-286-8010 or 617-801-6888 using participant passcode 77568317.

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. Its current operations are focused on the electronic and industrial wood treatment chemical 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 Table 1 for reconciliation.

3 Non-U.S. GAAP measure. See Table 2 for reconciliation.

4 Non-U.S. GAAP measure. See Table 1 for reconciliation.

5 Non-U.S. GAAP measure. See Table 2 for reconciliation.

 
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(In thousands, except for per share amounts)
     
Three Months Ended
January 31,

2014

2013
 
 
Net sales $ 84,253 $ 56,959
Cost of sales   59,063     41,238  
Gross profit   25,190     15,721  
 
Distribution expenses 12,892 5,922
Selling, general and administrative expenses 9,870 6,603
Restructuring charges1   4,031    
Operating income (loss) (1,603 ) 3,196
 
Other income (expense)
Interest expense, net (661 ) (395 )
Other, net   (120 )   (76 )
Total other expense, net   (781 )   (471 )
 
Income (loss) from continuing operations before income taxes (2,384 ) 2,725
Provision for income taxes   (360 )   (1,070 )
Income (loss) from continuing operations   (2,744 )   1,655  
 
Discontinued operations
Loss from discontinued operations, before income taxes (52 )
Income tax benefit     15  
Loss from discontinued operations (37 )
 
Net income (loss) $ (2,744 ) $ 1,618  
 
Earnings per share:
Basic
Income (loss) from continuing operations $ (0.24 ) $ 0.14
Loss from discontinued operations    
Net income (loss) $ (0.24 ) $ 0.14  
 
Diluted
Income (loss) from continuing operations $ (0.24 ) $ 0.14
Loss from discontinued operations    
Net income (loss) $ (0.24 ) $ 0.14  
 
Weighted average shares outstanding:
Basic 11,613 11,480
Diluted 11,613 11,578
 

1 Restructuring charges include $771,000 of accelerated depreciation expense related to the planned closure of the Fremont facility and stoppage of manufacturing operations in Milan.

 
 
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
   
January 31, July 31,
2014 2013
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 14,960 $ 13,949
Accounts receivable
Trade, net of allowances of $250 at January 31, 2014 and $224 at July 31, 2013 39,560 41,935
Other 3,366 4,210
Inventories, net 52,120 53,387
Current deferred tax assets 620 1,400
Prepaid expenses and other   2,053   3,955
Total current assets   112,679   118,836
 
Property, plant and equipment, net 96,390 96,688
Deferred tax assets 984 1,069
Goodwill 11,105 10,929
Intangible assets, net 29,006 29,261
Restricted cash 1,000 1,000
Other assets, net   4,376   4,232
Total assets $ 255,540 $ 262,015
 
Liabilities & stockholders’ equity
Current liabilities
Accounts payable $ 30,200 $ 35,492
Accrued liabilities 15,465 10,351
Current maturities of long-term debt   20,000
Total current liabilities   65,665   45,843
 
Long-term debt, net of current maturities 59,000 85,000
Deferred tax liabilities 9,297 11,462
Other long-term liabilities   2,458   2,470
Total liabilities   136,420   144,775
 
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, 11,614,246 shares issued and outstanding at January 31, 2014 and 11,522,321 shares issued and outstanding at July 31, 2013 116 115
Additional paid-in capital 28,151 26,689
Accumulated other comprehensive loss (2,504)
Retained earnings   90,853   92,940
Total stockholders’ equity   119,120   117,240
Total liabilities and stockholders’ equity $ 255,540 $ 262,015
 
 

KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
   
Six Months Ended
January 31,
2014 2013
Cash flows from operating activities
Net income (loss) $ (1,392 ) $ 5,760
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization 7,011 3,504
Non-cash restructuring charges 771
Amortization of loan costs included in interest expense 30 31
Stock-based compensation expense 1,434 297
Bad debt expense 130 77
Allowance for excess and obsolete inventory 38 (301 )
Loss on disposal of property 63 9
Loss on sale of animal health business 57
Deferred income tax benefit 940 (5 )
Tax benefit from stock-based awards (328 ) (436 )
Changes in operating assets and liabilities
Accounts receivable — trade 2,578 4,437
Accounts receivable — other 140 (2,617 )
Inventories 1,733 (1,687 )
Other current and non-current assets 1,812 791
Accounts payable (5,817 ) (742 )
Accrued liabilities and other   2,633     (559 )
Net cash provided by operating activities   11,776     8,616  
 
Cash flows from investing activities
Additions to property, plant and equipment (5,307 ) (2,772 )
Disposals of property, plant and equipment   17  
Net cash used in investing activities   (5,290 )   (2,772 )
 
Cash flows from financing activities
Net payments under revolving credit agreement (6,000 ) (2,000 )
Proceeds from exercise of stock options 70
Tax benefit from stock-based awards 328 436
Payment of dividends   (695 )   (687 )
Net cash used in financing activities   (6,367 )   (2,181 )
 
 
Effect of exchange rate changes of cash   892     191  
 
Net increase (decrease) in cash and cash equivalents 1,011 3,854
 
Cash and cash equivalents at beginning of period   13,949     1,633  
 
Cash and cash equivalents at end of period $ 14,960   $ 5,487  
 

Reconciliation of non-GAAP financial measures to 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. Excluding expenses related to the integration and restructuring of the UPC business and CEO transition expenses from current results will allow for more accurate comparisons of our operating performance. 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 Non-GAAP Financial Measures to GAAP Financial Measures
       
Second Quarter Fiscal 2014
Dollars in thousands, except EPS KMG Chemicals, Inc.
Diluted
Operating Net Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 2,588 3.1% $ 1,396 $0.12
Restructuring charges (4,031 ) (4.8%) (2,624 ) ($0.23)
Restructuring income tax expense1 - 0.0% (1,412 ) ($0.12)
Integration expenses   (160 ) (0.2%)   (104 ) ($0.01)
GAAP measure $ (1,603 ) (1.9%) $ (2,744 ) ($0.24)
 
 
 
Electronic Chemicals Wood Treating Chemicals
Operating Operating

Income

Margin

Income

Margin

Non-GAAP measure $ 3,155 5.1% $ 1,111 4.9%
Integration expenses   (160 ) (0.2%)   -   0.0%
GAAP measure $ 2,995   4.9% $ 1,111  

4.9%

 
 
 
Second Quarter Fiscal 2013
Dollars in thousands, except EPS KMG Chemicals, Inc.
Diluted
Operating Net Earnings

Income

Margin

Income

Per Share

Non-GAAP measure $ 3,939 6.9% $ 2,100 $0.18
Acquisition expenses   (743 ) (1.3%)   (482 ) ($0.04)
GAAP measure $ 3,196   5.6% $ 1,618   $0.14
 
 
 
Electronic Chemicals Wood Treating Chemicals
Operating Operating

Income

Margin

Income

Margin

Non-GAAP measure $ 2,429 6.8% $ 2,220 10.5%
Acquisition expenses   -   0.0%   -   0.0%
GAAP measure $ 2,429   6.8% $ 2,220   10.5%
 
1 The amount represents a valuation allowance taken against a portion of the company's
deferred tax assets as a result of the restructuring.
 
 
Table 2
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(In thousands)
       
Three Months Ended January 31, 2014 Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $ 2,995 $ 1,111 ($5,709 ) ($1,603 )
 
Other (income) expense (55 ) (10 ) (55 ) (120 )
Depreciation and amortization   3,345       98     104       3,547  
EBITDA 6,285 1,199 (5,660 ) 1,824
 
Non-cash restructuring charges 771 771
Acquisition and integration expenses 160 160
Restructuring charges,
excluding accelerated depreciation             3,260     3,260  
Adjusted EBITDA $ 6,445     $ 1,199     ($1,629 )   $ 6,015  
 
 
 
Three Months Ended January 31, 2013 Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $ 2,429 $ 2,220 ($1,453 ) $ 3,196
 
Other (income) expense (35 ) (6 ) (35 ) (76 )
Depreciation and amortization   1,539       105     103       1,747  
EBITDA 3,933 2,319 (1,385 ) 4,867
 
Non-cash restructuring charges -
Acquisition and integration expenses 743 743
Restructuring charges,
excluding accelerated depreciation                   -  
Adjusted EBITDA $ 3,933     $ 2,319     ($642 )   $ 5,610  
 
 
 
Six Months Ended January 31, 2014 Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $ 6,333 $ 3,616 ($8,497 ) $ 1,452
 
Other (income) expense (304 ) (31 ) (100 ) (435 )
Depreciation and amortization   6,592       196     223       7,011  
EBITDA 12,621 3,781 (8,374 ) 8,028
 
Non-cash restructuring charges 771 771
Acquisition and integration expenses 660 660
CEO Transition costs 1,280 1,280
Restructuring charges,
excluding accelerated depreciation                 3,260       3,260  
Adjusted EBITDA $ 13,281     $ 3,781     ($3,063 )   $ 13,999  
 
 
 
Six Months Ended January 31, 2013 Electronic Wood Treating
Chemicals   Chemicals   Corporate   Total
Operating Income (Loss) $ 7,501 $ 5,586 ($2,787 ) $ 10,300
 
Other (income) expense (57 ) (11 ) (58 ) (126 )
Depreciation and amortization   3,089       212     203       3,504  
EBITDA 10,533 5,787 (2,642 ) 13,678
 
Non-cash restructuring charges -
Acquisition and integration expenses 1,320 1,320
Restructuring charges,
excluding accelerated depreciation                         -  
Adjusted EBITDA $ 10,533     $ 5,787     ($1,322 )   $ 14,998  
 

Contact:
KMG Chemicals, Inc.
Eric Glover, 713-600-3865
Investor Relations Manager
eglover@kmgchemicals.com
View Comments (0)