KMG CHEMICALS INC - FORM 8-K - EX-99.1

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8-K - 8-K - KMG CHEMICALS INC	d738909d8k.htm

Exhibit 99.1

KMG Chemicals, Inc.

9555 W. Sam Houston Parkway South

Suite 600

Houston, TX 77099

USA

KMG Reports Third Quarter 2014 Financial Results

HOUSTON, Texas—(BUSINESS WIRE)—June 6, 2014—KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals to select markets, today announced financial results for the fiscal 2014 third quarter ended April 30, 2014.

2014 Third Quarter Financial Review

•

Net sales were $84.4 million, an increase of 40.9% from last year’s third quarter. The sales increase reflected the addition of the Ultra Pure Chemicals (UPC) business, acquired in May 2013.

•

Adjusted EBITDA¹ was $7.6 million, compared to $6.3 million last year. Third quarter fiscal 2014 adjusted EBITDA excludes $1.4 million of restructuring charges and integration expenses.

•

Adjusted diluted EPS², which excludes restructuring charges and integration expenses, was $0.20, as compared to $0.25 in last year’s third quarter.

•

GAAP earnings per share was $0.11 vs. EPS of $0.25 reported in the same period a year ago.

Chris Fraser, KMG chairman and chief executive officer, said, “In our third quarter we continued to make progress on the integration of the UPC business and strategic manufacturing realignment of our global Electronic Chemicals operations. Most notably, we ceased manufacturing at the Fremont, California facility and successfully shifted production to our other North American locations. Meanwhile, the consolidation of our European operations remains on schedule and we are working closely with our customers on the necessary product qualifications and approvals as we transition production to alternate sites in Europe. We continue to expect these initiatives will generate enduring operating efficiencies and will strengthen our position as the world’s leading supplier of high purity process chemicals to the global semiconductor industry.

Mr. Fraser continued, “Although our Electronic Chemicals sales were somewhat lower than we expected in the third quarter, I am pleased with the improvement in the profitability of our Wood Treating Chemicals segment relative to the second quarter. While our creosote business continues to face challenging market dynamics, we are responding by lowering our supply chain costs and continually looking to reduce operating expenses. As a result, our adjusted earnings per share improved to $0.20, from $0.12 in the second quarter.”

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

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

Phone: 713-600-3800 • Fax: 713-600-3850

www.kmgchemicals.com • NYSE: KMG

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Third Quarter Results


Dollars in thousands, except EPS	Fiscal 2014						Fiscal 2013
(unaudited)
	Adjusted			As Reported			Adjusted			As Reported
	(non-GAAP)			(GAAP)			(non-GAAP)			(GAAP)
Net Sales	$	84,437		$	84,437		$	59,929		$	59,929
Operating Income		4,333			2,914			4,435			4,355
Operating Margin		5.1	%		3.5	%		7.4	%		7.3	%
Net Income		2,388			1,226			2,917			2,865
Diluted EPS	$	0.20		$	0.11		$	0.25		$	0.25

Electronic Chemicals

Third Quarter Results


Dollars in thousands	Fiscal 2014						Fiscal 2013
	Adjusted			As Reported			As Reported
	(non-GAAP)			(GAAP)			(GAAP)
Net Sales	$	61,542		$	61,542		$	36,333
Operating Income		3,429			3,175			2,978
Operating Margin		5.6	%		5.2	%		8.2	%

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

•

Sales of $61.5 million, up from $36.3 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 $6.5 million, compared to $4.7 million last year.

•

Depreciation and amortization expense of $3.2 million, compared to $1.7 million last year.

•

Adjusted operating income⁴ of $3.4 million vs. $3.0 million in the same period of fiscal 2013. Fiscal 2014 third quarter adjusted operating income excludes $254,000 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 5.2% vs. 8.2% in the previous year. Excluding the impact of integration expenses, adjusted operating margin was 5.6%. The difference from the prior year was primarily due to increased depreciation and amortization expenses.

³	Non-U.S. GAAP measure. See Table 1 for reconciliation.

⁴	Non-U.S. GAAP measure. See Table 2 for reconciliation.

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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Wood Treating Chemicals

Third Quarter Results


Dollars in thousands	Fiscal 2014			Fiscal 2013
	As Reported			As Reported
	(GAAP)			(GAAP)
Net Sales	$	22,851		$	23,525
Operating Income		2,092			2,546
Operating Margin		9.2	%		10.8	%

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

•

Sales of $22.9 million, down 2.9% from $23.5 million in the same period a year ago. Sales declined primarily due to lower penta sales volume, partially offset by an increase in sales to the rail tie treating market. Wood Treating Chemicals sales represented 27% of consolidated third quarter sales.

•

EBITDA⁵ of $2.2 million, down from $2.7 million last year.

•

Operating income of $2.1 million, or 9.2% of sales, compared to $2.5 million, or 10.8% of sales, last year. The decrease in operating income was due to lower sales and a less favorable product mix.

Outlook

•

Fiscal 2014 consolidated net sales are forecast to approximate $350 million, benefiting from the acquisition of the UPC business.

•

Fiscal 2014 depreciation and amortization expense is forecast at less than $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.

•

Excluding non-cash accelerated depreciation expense, cumulative restructuring charges in fiscal 2014 and fiscal 2015 are forecast to total $7-9 million. Starting in fiscal 2015, benefits to operating income resulting from the restructuring of $6-8 million on an annualized basis are forecast. In addition, incremental capital expenditures of approximately $2 million are expected to be incurred to accomplish these plans.

⁵	Non-U.S. GAAP measure. See Table 1 for reconciliation.

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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Conference call

Date: Friday, June 6, 2014

Time: 10:00 am EDT

Dial in: 877-546-5019 or 857-244-7551

Participant passcode: 84116909

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. EDT on June 6, 2014. To access the call, dial 888-286-8010 or 617-801-6888 using participant passcode 95516291.

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.

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except for per share amounts)


	Three Months Ended
	April 30,
	2014			2013
Net sales	$	84,437		$	59,929
Cost of sales		59,672			43,596

Gross profit		24,765			16,333

Distribution expenses		11,975			6,399
Selling, general and administrative expenses		8,815			5,579
Restructuring charges¹		1,061			—

Operating income		2,914			4,355
Other income (expense)
Interest expense, net		(926	)		(388	)
Other, net		(105	)		(49	)

Total other expense, net		(1,031	)		(437	)

Income from continuing operations before income taxes		1,883			3,918
Provision for income taxes		(657	)		(1,026	)

Income from continuing operations		1,226			2,892

Discontinued operations
Loss from discontinued operations, before income taxes		—			(33	)
Income tax benefit		—			6

Loss from discontinued operations		—			(27	)
Net income	$	1,226		$	2,865

Earnings per share:
Basic
Income from continuing operations	$	0.11		$	0.25
Loss from discontinued operations		—			—

Net income	$	0.11		$	0.25

Diluted
Income from continuing operations	$	0.11		$	0.25
Loss from discontinued operations		—			—

Net income	$	0.11		$	0.25

Weighted average shares outstanding:
Basic		11,634			11,513
Diluted		11,673			11,580

¹	Restructuring charges include $949,000 of accelerated depreciation expense related to the closure of the Fremont facility and cessation of manufacturing in Milan.

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)


	April 30,		July 31,
	2014		2013
	(Unaudited)
*Assets*
Current assets
Cash and cash equivalents	$	19,402	$	13,949
Accounts receivable
Trade, net of allowances of $211 at April 30, 2014 and $224 at July 31, 2013		40,651		41,935
Other		3,832		4,210
Inventories, net		46,636		53,387
Current deferred tax assets		631		1,400
Prepaid expenses and other		3,406		3,955

Total current assets		114,558		118,836

Property, plant and equipment, net		95,175		96,688
Deferred tax assets		991		1,069
Goodwill		11,110		10,929
Intangible assets, net		28,803		29,261
Restricted cash		1,000		1,000
Other assets, net		4,419		4,232

Total assets	$	256,056	$	262,015

*Liabilities & stockholders’ equity*
Current liabilities
Accounts payable	$	32,052	$	35,492
Accrued liabilities		16,540		10,351
Current maturities of long-term debt		20,000		—

Total current liabilities		68,592		45,843

Long-term debt, net of current maturities		52,000		85,000
Deferred tax liabilities		10,683		11,462
Other long-term liabilities		2,666		2,470

Total liabilities		133,941		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, 11,635,636 shares issued and outstanding at April 30, 2014 and 11,522,321 shares issued and outstanding at July 31, 2013		116		115
Additional paid-in capital		28,492		26,689
Accumulated other comprehensive income (loss)		1,776		(2,504	)
Retained earnings		91,731		92,940

Total stockholders’ equity		122,115		117,240

Total liabilities and stockholders’ equity	$	256,056	$	262,015

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended
	April 30,
	2014			2013
Cash flows from operating activities
Net income (loss)	$	(166	)	$	8,625
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		10,422			5,407
Non-cash restructuring charges		1,720			—
Amortization of loan costs included in interest expense		45			34
Stock-based compensation expense		1,777			455
Bad debt expense		89			78
Allowance for excess and obsolete inventory		33			(340	)
(Gain)/loss on disposal of property		(14	)		59
Loss on sale of animal health business		—			57
Deferred income taxes		751			783
Tax benefit from stock-based awards		(328	)		(569	)
Changes in operating assets and liabilities
Accounts receivable — trade		1,906			2,229
Accounts receivable — other		538			(3,339	)
Inventories		7,277			(3,268	)
Other current and non-current assets		389			(1,819	)
Accounts payable		(3,916	)		1,309
Accrued liabilities and other		5,383			(158	)

Net cash provided by operating activities		25,906			9,543

Cash flows from investing activities
Additions to property, plant and equipment		(7,133	)		(3,785	)
Disposals of property, plant and equipment		39			—

Net cash used in investing activities		(7,094	)		(3,785	)

Cash flows from financing activities
Net payments under revolving credit agreement		(13,000	)		(2,000	)
Proceeds from exercise of stock options		—			70
Tax benefit from stock-based awards		328			569
Payment of dividends		(1,043	)		(1,032	)

Net cash used in financing activities		(13,715	)		(2,393	)

Effect of exchange rate changes of cash		356			100

Net increase (decrease) in cash and cash equivalents		5,453			3,465
Cash and cash equivalents at beginning of period		13,949			1,633

Cash and cash equivalents at end of period	$	19,402		$	5,098

Main: 713-600-3800 — Fax: 713-600-3850

www.kmgchemicals.com — NYSE: KMG

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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 OPERATING INCOME TO EBITDA AND ADJUSTED EBITDA

(In thousands)


	Electronic			Wood Treating
Three Months Ended April 30, 2014	Chemicals			Chemicals			Corporate			Total
Operating Income		3,175			2,092			(2,353	)		2,914
Other income (expense)		(81	)		24			(48	)		(105	)
Depreciation and amortization		3,202			104			104			3,410

EBITDA		6,296			2,220			(2,297	)		6,219
Non-cash restructuring charges		—			—			949			949
Acquisition and integration expenses		254			—			104			358
Restructuring charges, excluding depreciation and amortization		—			—			112			112

Adjusted EBITDA		6,550			2,220			(1,132	)		7,638


	Electronic			Wood Treating
Nine Months Ended April 30, 2014	Chemicals			Chemicals			Corporate			Total
Operating Income		9,508			5,708			(10,850	)		4,366
Other income (expense)		(385	)		(7	)		(148	)		(540	)
Depreciation and amortization		9,794			300			328			10,422

EBITDA		18,917			6,001			(10,670	)		14,248
Non-cash restructuring charges		—			—			1,720			1,720
Acquisition and integration expenses		914			—			104			1,018
CEO Transition costs		—			—			1,280			1,280
Restructuring charges, excluding depreciation and amortization		—			—			3,372			3,372

Adjusted EBITDA		19,831			6,001			(4,194	)		21,638

Main: 713-600-3800 — Fax: 713-600-3850

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Table 1 (continued)

(In thousands)


	Electronic			Wood Treating
Three Months Ended April 30, 2013	Chemicals			Chemicals		Corporate			Total
Operating Income		2,978			2,546		(1,169	)		4,355
Other income (expense)		(38	)		11		(22	)		(49	)
Depreciation and amortization		1,665			102		136			1,903

EBITDA		4,605			2,659		(1,055	)		6,209
Acquisition and integration expenses		80			—		—			80

Adjusted EBITDA		4,685			2,659		(1,055	)		6,289


	Electronic			Wood Treating
Nine Months Ended April 30, 2013	Chemicals			Chemicals		Corporate			Total
Operating Income		10,479			8,132		(3,956	)		14,655
Other income (expense)		(134	)		40		(80	)		(175	)
Depreciation and amortization		4,754			314		339			5,407

EBITDA		15,099			8,486		(3,697	)		19,887
Acquisition and integration expenses		1,400			—		—			1,400

Adjusted EBITDA		16,499			8,486		(3,697	)		21,287

Main: 713-600-3800 — Fax: 713-600-3850

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Table 2

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures


Third Quarter Fiscal 2014
Dollars in thousands, except EPS	KMG Chemicals, Inc.
										Diluted
	Operating						Net			Earnings
	Income			Margin			Income			Per Share
Non-GAAP measure	$	4,333			5.1	%	$	2,388		$	0.20
Restructuring charges		(1,061	)		(1.2	%)		(691	)		($0.06	)
Restructuring income tax expense		—			0.0	%		(238	)		($0.02	)
Acquisition & integration expenses		(358	)		(0.4	%)		(233	)		($0.01	)

GAAP measure	$	2,914			3.5	%	$	1,226		$	0.11


	Electronic Chemicals						Wood Treating Chemicals
	Operating						Operating
	Income			Margin			Income		Margin
Non-GAAP measure	$	3,429			5.6	%	$	2,092		9.2	%
Integration expenses		(254	)		(0.4	%)		—		0.0	%

GAAP measure	$	3,175			5.2	%	$	2,092		9.2	%

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures


Third Quarter Fiscal 2013
Dollars in thousands, except EPS	KMG Chemicals, Inc.
										Diluted
	Operating						Net			Earnings
	Income			Margin			Income			Per Share
Non-GAAP measure	$	4,435			7.4	%	$	2,917		$	0.25
Acquisition expenses		(80	)		(0.1	%)		(52	)		—

GAAP measure	$	4,355			7.3	%	$	2,865		$	0.25


	Electronic Chemicals					Wood Treating Chemicals
	Operating					Operating
	Income		Margin			Income		Margin
Non-GAAP measure	$	2,978		8.2	%	$	2,546		10.8	%
Integration expenses		—		0.0	%		—		0.0	%

GAAP measure	$	2,978		8.2	%	$	2,546		10.8	%

Source: KMG Chemicals, Inc.

KMG Chemicals, Inc.

Eric Glover, 713-600-3865

Investor Relations Manager

eglover@kmgchemicals.com

Main: 713-600-3800 — Fax: 713-600-3850

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