KMG Chemicals, Inc.

9555 W. Sam Houston Parkway South

Suite 600

Houston, TX 77099

USA

·

Consolidated net sales were $90.8 million, a 3% decrease from last year’s first quarter. Sales declined due to lower creosote volume in the Wood Treating Chemicals segment.

·

Adjusted EBITDA¹ was $8.8 million, up 10% from $8.0 million in last year’s first quarter.

·

Adjusted diluted EPS² was $0.24, a 9% gain from $0.22 per share reported in the prior year’s first quarter.

·

GAAP earnings per share was $0.10 vs. $0.12 per share in the first quarter of fiscal 2014.

·

Cash flow from operations totaled $9.6 million vs. $4.0 million in last year’s first quarter.

¹ 

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

² 

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

Dollars in thousands, except EPS

Fiscal 2015

Fiscal 2014

Adjusted

As Reported

Adjusted

As Reported

(non-GAAP)

(GAAP)

(non-GAAP)

(GAAP)

Net sales

$

90,779

$

90,779

$

93,560

$

93,560

Operating income

5,392

2,819

4,835

3,055

Operating margin

5.9

% 

3.1

% 

5.2

% 

3.3

% 

Net income

2,857

1,185

2,511

1,352

Diluted earnings per share

$

0.24

$

0.10

$

0.22

$

0.12

Dollars in thousands

Fiscal 2015

Fiscal 2014

As Reported

(GAAP)

Adjusted

(non-GAAP)

As Reported

(GAAP)

Net sales

$

66,323

$

64,452

$

64,452

Operating income

4,121

3,838

3,338

Operating margin

6.2

% 

6.0

% 

5.2

% 

·

Sales of $66.3 million, up 2.9% from $64.5 million in the same period a year ago. The increase reflects higher sales volume for high purity process chemicals, especially in North America and Asia. Electronic Chemicals sales represented 73% of consolidated first quarter sales.

·

Adjusted EBITDA³ of $7.4 million, compared to $6.8 million last year.

·

GAAP operating income of $4.1 million vs. $3.3 million in the same period of fiscal 2014. Operating income improved due to increased sales volumes, as well as restructuring-related benefits arising from the closure of the Fremont, California facility.

³ 

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

Dollars in thousands

Fiscal 2015
As Reported
(GAAP)

Fiscal 2014
As Reported
(GAAP)

Net sales

$

24,427

$

29,064

Operating income

2,585

2,505

Operating margin

10.6

% 

8.6

% 

·

Sales of $24.4 million, down 16.0% from $29.1 million in the same period a year ago. Sales declined primarily due to lower creosote sales volume. Wood Treating Chemicals sales represented 27% of consolidated first quarter sales.

·

EBITDA⁴ of $2.7 million, up from $2.6 million last year.

·

Operating income of $2.6 million, or 10.6% of sales, compared to $2.5 million, or 8.6% of sales, last year. The increase in operating income and margin was due to lower supply chain costs and a more favorable product mix.

·

We expect fiscal 2015 Electronic Chemicals segment sales to increase compared to the level reported in fiscal 2014, but lower creosote sales in the Wood Treating Chemicals segment are likely to cause fiscal 2015 consolidated net sales to decline from last year.

·

We continue to forecast that fiscal 2015 adjusted EBITDA will be $32-35 million.

·

Fiscal 2015 depreciation and amortization expense is forecast at approximately $16 million, excluding restructuring and realignment charges.

·

Fiscal 2015 capital expenditures are forecast to be $14-16 million, including expenses related to our ERP system implementation and UPC integration.

⁴ 

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

Three Months Ended

October 31,

2014

2013

Net sales

$

90,779

$

93,560

Cost of sales

63,188

67,993

Gross profit

27,591

25,567

Distribution expenses

12,999

12,112

Selling, general and administrative expenses

9,200

10,400

Restructuring charges

577

—

Realignment charges

1,996

—

Operating income

2,819

3,055

Other income (expense)

Interest expense, net

(803

) 

(663

) 

Other, net

(28

) 

(315

) 

Total other expense, net

(831

) 

(978

) 

Income before income taxes

1,988

2,077

Provision for income taxes

(803

) 

(725

) 

Net income

$

1,185

$

1,352

Earnings per share:

Net income per common share basic

$

0.10

$

0.12

Net income per common share diluted

$

0.10

$

0.12

Weighted average shares outstanding:

Basic

11,658

11,575

Diluted

11,696

11,610

October 31,

July 31,

2014

2014

(Unaudited)

Assets

Current assets

Cash and cash equivalents

$

19,731

$

19,252

Accounts receivable

Trade, net of allowances of $270 at October 31, 2014 and $272 at July 31, 2014

41,768

40,176

Other

2,245

1,904

Inventories, net

45,143

45,268

Current deferred tax assets

1,485

1,577

Prepaid expenses and other

2,946

3,476

Total current assets

113,318

111,653

Property, plant and equipment, net

88,524

92,450

Deferred tax assets

442

442

Goodwill

12,235

12,595

Intangible assets, net

27,416

28,353

Restricted cash

1,000

1,000

Other assets, net

4,976

4,365

Total assets

$

247,911

$

250,858

Liabilities & stockholders’ equity

Current liabilities

Accounts payable

$

40,321

$

36,690

Accrued liabilities

17,128

16,986

Employee incentive accrual

5,972

4,575

Total current liabilities

63,421

58,251

Long-term debt

56,000

60,000

Deferred tax liabilities

8,570

9,881

Other long-term liabilities

2,425

2,520

Total liabilities

130,416

130,652

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, 11,659,001 shares issued and outstanding at October 31, 2014 and 11,649,001 shares issued and outstanding at July 31, 2014

116

116

Additional paid-in capital

29,314

28,886

Accumulated other comprehensive income/(loss)

(3,329

) 

645

Retained earnings

91,394

90,559

Total stockholders’ equity

117,495

120,206

Total liabilities and stockholders’ equity

$

247,911

$

250,858

Three Months Ended

October 31,

2014

2013

Cash flows from operating activities

Net income

$

1,185

$

1,352

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

3,430

3,464

Depreciation related to restructuring and realignment

2,589

—

Amortization of loan costs included in interest expense

27

15

Stock-based compensation expense

436

1,243

Bad debt expense

—

111

Allowance for excess and obsolete inventory

221

(41

) 

(Gain)/loss on disposal of property

(2

) 

4

Deferred income taxes

(1,141

) 

(820

) 

Tax benefit from stock-based awards

(9

) 

(217

) 

Changes in operating assets and liabilities

Accounts receivable — trade

(2,398

) 

(1,182

) 

Accounts receivable — other

(373

) 

999

Inventories

(826

) 

4,890

Other current and noncurrent assets

(139

) 

1,910

Accounts payable

4,486

(9,806

) 

Accrued liabilities and other

2,099

2,068

Net cash provided by operating activities

9,585

3,990

Cash flows from investing activities

Additions to property, plant and equipment

(4,184

) 

(2,665

) 

Disposals of property, plant and equipment

10

—

Net cash used in investing activities

(4,174

) 

(2,665

) 

Cash flows from financing activities

Net payments under revolving credit agreement

(43,100

) 

(2,000

) 

Principal payments on term loan

(20,000

) 

—

Borrowings under new credit facility

59,100

—

Tax benefit from stock-based awards

9

217

Payment of dividends

(349

) 

(347

) 

Net cash used in financing activities

(4,340

) 

(2,130

) 

Effect of exchange rate changes on cash

(592

) 

266

Net increase (decrease) in cash and cash equivalents

479

(539

) 

Cash and cash equivalents at beginning of period

19,252

13,949

Cash and cash equivalents at end of period

$

19,731

$

13,410

Electronic

Wood
Treating

First Quarter Fiscal 2015

Chemicals

Chemicals

Corporate

Total

Operating Income

$

4,121

$

2,585

($3,887

) 

$

2,819

Other income (expense)

120

(10

) 

(138

) 

(28

) 

Depreciation and amortization

3,202

96

2,721

6,019

EBITDA

7,443

2,671

(1,304

) 

8,810

Restructuring charges*

—

—

(54

) 

(54

) 

Realignment charges*

—

—

38

38

Adjusted EBITDA

$

7,443

$

2,671

($1,320

) 

$

8,794

*

Excludes depreciation

Electronic

Wood
Treating

First Quarter Fiscal 2014

Chemicals

Chemicals

Corporate

Total

Operating Income

$

3,338

$

2,505

($

2,788

) 

$

3,055

Other income (expense)

(249

) 

(21

) 

(45

) 

(315

) 

Depreciation and amortization

3,247

98

119

3,464

EBITDA

6,336

2,582

(2,714

) 

6,204

Integration expenses

500

—

—

500

CEO transition costs

—

—

1,280

1,280

Adjusted EBITDA

$

6,836

$

2,582

($

1,434

) 

$

7,984

Dollars in thousands, except EPS 

KMG Chemicals, Inc.

Operating

Net

Diluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure

$

5,392

5.9

% 

$

2,857

$

0.24

Restructuring charges

(577

) 

(0.6

)% 

 (375

) 

(0.03

) 

Realignment charges

(1,996

) 

(2.2

)% 

(1,297

) 

(0.11

) 

GAAP measure

$

2,819

3.1

% 

$

1,185

$

0.10

Dollars in thousands, except EPS 

KMG Chemicals, Inc.

Operating

Net

Diluted Earnings

Income

Margin

Income

Per Share

Non-GAAP measure

$

4,835

5.2

% 

$

2,511

$

0.22

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

% 

$

2,505

8.6

% 

Integration expenses

(500

) 

(0.8

)% 

—

—

GAAP measure

$

3,338

5.2

% 

$

2,505

8.6

%