KMG Chemicals' fiscal Q1 net income slips to US$1.4M from US$4.1M a year ago on higher-than-anticipated audit, fees related to timing of closure of UPC acquisition, fiscal year-end filing; sales up 43.3% to US$93.6M
Allison Oesterle
HOUSTON
,
December 10, 2013
(press release)
–
KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals to select markets, today announced financial results for the fiscal 2014 first quarter ended October 31, 2013.
First 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 $93,560 $93,560 $65,336 $65,336 Operating Income 4,835 3,055 7,681 7,104 Operating Margin 5.2% 3.3% 11.8% 10.9% Net Income 2,511 1,352 4,507 4,142 Diluted EPS $0.22 $0.12 $0.39 $0.36 Electronic Chemicals First Quarter Results Dollars in thousands Fiscal 2014 Fiscal 2013 As As Adjusted Reported Reported (non-GAAP) (GAAP) (GAAP) Net Sales $64,452 $64,452 $39,507 Operating Income $3,838 3,338 5,072 Operating Margin 6.0% 5.2% 12.8% KMG CHEMICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except for per share amounts) Three Months Ended October 31, 2013 2012 Net sales $ 93,560 $ 65,336 Cost of sales 67,993 45,248 Gross profit 25,567 20,088 Distribution expenses 12,112 7,053 Selling, general and administrative expenses 10,400 5,931 Operating income 3,055 7,104 Other income (expense) Interest expense, net (663 ) (411 ) Other, net (315 ) (50 ) Total other expense, net (978 ) (461 ) Income from continuing operations before income taxes 2,077 6,643 Provision for income taxes (725 ) (2,435 ) Income from continuing operations 1,352 4,208 Discontinued operations Loss from discontinued operations, before income taxes ― (102 ) Income tax benefit ― 36 Loss from discontinued operations ― (66 ) Net income $ 1,352 $ 4,142 Earnings per share: Basic Income from continuing operations $ 0.12 $ 0.36 Loss from discontinued operations ― ― Net income $ 0.12 $ 0.36 Diluted Income from continuing operations $ 0.12 $ 0.36 Loss from discontinued operations ― ― Net income $ 0.12 $ 0.36 Weighted average shares outstanding: Basic 11,575 11,436 Diluted 11,610 11,564 KMG CHEMICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share amounts) October 31, July 31, 2013 2013 (Unaudited) Assets Current assets Cash and cash equivalents $ 13,410 $ 13,949 Accounts receivable Trade, net of allowances of $244 at October 31, 2013 and $224 at July 31, 2013 43,608 41,935 Other 3,227 4,210 Inventories, net 48,875 53,387 Current deferred tax assets 615 1,400 Prepaid expenses and other 2,920 3,955 Total current assets 112,655 118,836 Property, plant and equipment, net 97,822 96,688 Deferred tax assets 981 1,069 Goodwill 11,181 10,929 Intangible assets, net 29,087 29,261 Restricted cash 1,000 1,000 Other assets, net 4,228 4,232 Total assets $ 256,954 $ 262,015 Liabilities & stockholders’ equity Current liabilities Accounts payable $ 26,469 $ 35,492 Accrued liabilities 10,264 8,362 Employee incentive accrual 3,278 1,989 Total current liabilities 40,011 45,843 Long-term debt, net of current maturities 83,000 85,000 Deferred tax liabilitie 9,946 11,462 Other long-term liabilities 2,490 2,470 Total liabilities 135,447 144,775 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, 11,590,618 shares issued and outstanding at October 31, 2013 and 11,522,321 shares issued and outstanding at July 31, 2013 116 115 Additional paid-in capital 27,810 26,689 Accumulated other comprehensive loss (364 ) (2,504 ) Retained earnings 93,945 92,940 Total stockholders’ equity 121,507 117,240 Total liabilities and stockholders’ equity $ 256,954 $ 262,015 KMG CHEMICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended October 31, 2013 2012 Cash flows from operating activities Net income $ 1,352 $ 4,142 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 3,464 1,757 Amortization of loan costs included in interest expense 15 17 Stock-based compensation expense 1,243 181 Bad debt expense 111 73 Inventory valuation adjustment (41 ) (209 ) Loss on disposal of property 4 9 Loss on sale of animal health business ― 57 Deferred income tax benefit (820 ) (221 ) Tax benefit from stock-based awards (217 ) ― Changes in operating assets and liabilities Accounts receivable — trade (1,182 ) 2,723 Accounts receivable — other 999 (315 ) Inventories 4,890 (5,038 ) Other current and non-current assets 1,910 310 Accounts payable (9,806 ) 1,901 Accrued liabilities and other 2,068 945 Net cash provided by operating activities 3,990 6,332 Cash flows from investing activities Additions to property, plant and equipment (2,665 ) (1,523 ) Net cash used in investing activities (2,665 ) (1,523 ) Cash flows from financing activities Net payments under revolving credit agreement (2,000 ) (2,000 ) Tax benefit from stock-based awards 217 ― Payment of dividends (347 ) (342 ) Net cash used in financing activities (2,130 ) (2,342 ) Effect of exchange rate changes of cash 266 80 Net increase (decrease) in cash and cash equivalents (539 ) 2,547 Cash and cash equivalents at beginning of period 13,949 1,633 Cash and cash equivalents at end of period $ 13,410 $ 4,180 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 of OM Group’s Ultra Pure Chemicals 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. Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures First Quarter Fiscal 2014 Dollars in thousands, except EPS KMG Chemicals, Inc. Diluted Operating Net Earnings Income Margin Income Per Share Non-GAAP measure $ 4,835 5.2% $ 2,511 $ 0.22 Acquisition & integration expenses (500 ) (0.5%) (326 ) ($0.03 ) CEO transition costs (1,280 ) (1.4%) (833 ) ($0.07 ) GAAP measure $ 3,055 3.3% $ 1,352 $ 0.12 Electronic Chemicals Wood Treating Chemicals Operating Operating Income Margin Income Margin Non-GAAP measure $ 3,838 6.0% - - Integration expenses (500 ) (0.8%) - - GAAP measure $ 3,338 5.2% $ 2,505 8.6 % Table 1 UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA (In thousands) Three months ended October 31, 2013 2012 GAAP net income $ 1,352 $ 4,142 Interest expense 663 411 Depreciation and amortization 3,464 1,757 Income tax provision 725 2,399 Discontinued operations ― ― EBITDA 6,204 8,709 Unusual items impacting net income Acquisition and integration expenses 500 577 CEO transition costs 1,280 ― Adjusted EBITDA $ 7,984 $ 9,286
2014 First Quarter Financial Review
1 Non-U.S. GAAP measure. See Table 1 for reconciliation.
Chris Fraser, KMG chairman and chief executive officer, said, “KMG achieved record quarterly revenue of $93.6 million in the first quarter, driven by our newly acquired UPC business. We have been pleased with the integration of the UPC business into our existing Electronic Chemicals business, and we continue to focus intensely on this initiative to ensure a seamless transition for our numerous customers in the global semiconductor industry.
“During the first quarter we announced a strategic manufacturing realignment of our global Electronic Chemicals business. Currently we are in the process of transferring production from the Fremont, California site primarily to our larger facilities in the U.S. In addition, we recently announced a consolidation plan for our European operations, involving the transfer of production from our Milan, Italy site to our other European facilities. We are confident these actions will yield enduring operating efficiencies for our global Electronic Chemicals business.”
Mr. Fraser continued, “In the first quarter, consolidated net income was negatively impacted by higher than anticipated audit, tax and professional service fees due to the coincident timing of the close of the UPC acquisition and our fiscal year-end filing. For the fiscal 2014 year, overall corporate overhead expense will be higher than last year’s level, reflecting the increased size and scope of our global operations.”
For the first fiscal quarter, the Electronic Chemicals segment reported:
[Table omitted]
For the first fiscal quarter, the Wood Treating Chemicals segment reported:
Outlook
For fiscal 2014, the company issued the following forecast:
Conference call
Date: Tuesday, December 10, 2013
Time: 10:00 am ET
Dial in: 800-901-5241 or 617-786-2963
Conference ID: 96194428
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 December 10, 2013. To access the call, dial 888-286-8010 or 617-801-6888 using participant passcode 74745279.
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.
Source: KMG Chemicals, Inc.
KMG Chemicals, Inc.
Eric Glover, 713-600-3865
Investor Relations Manager
eglover@kmgchemicals.com
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