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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 Reported Adjusted As Reported Adjusted
  (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 Reported Adjusted As Reported Adjusted
  (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 Half First Half
Dollars in thousands Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016
  As Reported As 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 Half First Half
Dollars in thousands   Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016
  As Reported As 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 income 12,227 8,570
Add back:    
Interest expense 349 404
Income taxes 5,089 4,615
Depreciation & amortization* 7,048 7,129
Acquisition & integration expenses 584
Corporate relocation expense 366 729
Restructuring & realignment charges, excluding accelerated depreciation 1,046
Consolidated adjusted EBITDA 25,663 22,493
*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 2017 Electronic 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 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, 2017 Electronic Other      
(in thousands)   Chemicals   Chemicals     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  
 


Second Quarter Fiscal 2016 Electronic 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, 2016 Electronic Other
     
(in thousands) Chemicals Chemicals
  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 expenses 501  
Corporate relocation expense 316   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 outstanding 12,293   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 expenses 584  
Corporate relocation expense 366   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 outstanding 12,203   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 2017 KMG 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 2016 KMG 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

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