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

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.

2014 First Quarter Financial Review

  • Net sales were $93.6 million, an increase of 43.3% from the comparable quarter in fiscal 2013. The sales increase reflected the addition of OM Group’s Ultra Pure Chemicals (UPC) business, acquired in May 2013.
  • Adjusted EBITDA1 of $8.0 million, compared to $9.3 million last year. First quarter fiscal 2014 adjusted EBITDA excludes $500,000 of integration expenses and $1.28 million of CEO transition expense, while first quarter fiscal 2013 adjusted EBITDA excludes $577,000 in acquisition expenses.
  • GAAP diluted earnings per share was $0.12 vs. $0.36 reported in the same period a year ago. First quarter EPS was adversely impacted by an increase of $960,000 in audit, tax and other professional service fees.
  • Adjusted (non-GAAP) diluted EPS, which excludes integration expenses and CEO transition expense, was $0.22.

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.”


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%



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

  • Sales of $64.5 million, up from $39.5 million in the same period a year ago. The increase in sales reflected the addition of the UPC business. Electronic Chemicals sales represented 69% of consolidated first quarter sales.
  • Adjusted operating income of $3.8 million, vs. $5.1 million last year. Including integration expenses of $500,000, operating income was $3.3 million.
  • Adjusted operating margin of 6.0% vs. 12.8% in the previous year. Including the impact of integration expenses, operating margin was 5.2%.
  • Depreciation and amortization expense of $3.2 million, compared to $1.6 million last year. Depreciation and amortization increased due to the acquisition of UPC assets.

[Table omitted]


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

  • Sales of $29.1 million, up 13.1% from 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 31% of consolidated first quarter sales.
  • Operating profit of $2.5 million, or 8.6% of sales, compared to $3.4 million, or 13.1% of sales, last year. The decrease in operating profit reflected a less favorable product mix.

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 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 $2 million are expected to be incurred to accomplish these plans.
  • Depreciation and amortization expense of approximately $15 million, up approximately $7 million from fiscal 2013.
  • GAAP net income to decline from the level reported in fiscal 2013.

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.

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



Source: KMG Chemicals, Inc.

KMG Chemicals, Inc.
Eric Glover, 713-600-3865
Investor Relations Manager
eglover@kmgchemicals.com

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