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| 8-K - 8-K - KEMET CORP | fy2017_q4x8kxinvestorpres.htm |
Stifel
2017 Technology, Internet & Media Conference
June 6, 2017
Presenters: Per Loof – Chief Executive Officer
William M. Lowe, Jr. – EVP & Chief
Financial Officer
Cautionary Statement
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about KEMET Corporation's (the "Company") financial
condition and results of operations that are based on management's current expectations, estimates and projections about the markets in which the Company operates, as
well as management's beliefs and assumptions. Words such as "expects," "anticipates," "believes," "estimates," variations of such words and other similar expressions are
intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions,
which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The
Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not
necessarily limited to, the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such
conditions could adversely affect our liquidity and ability to continue to operate and cause a write down of long-lived assets or goodwill; (ii) an increase in the cost or a
decrease in the availability of our principal or single-sourced purchased raw materials; (iii) changes in the competitive environment; (iv) uncertainty of the timing of customer
product qualifications in heavily regulated industries; (v) economic, political, or regulatory changes in the countries in which we operate; (vi) difficulties, delays or unexpected
costs in completing the restructuring plans; (vii) acquisitions and other strategic transactions expose us to a variety of risks; (viii) acquisition of TOKIN may not achieve all of
the anticipated results; (ix) our business could be negatively impacted by increased regulatory scrutiny and litigation; (x) difficulties associated with retaining, attracting and
training effective employees and management; (xi) the need to develop innovative products to maintain customer relationships and offset potential price erosion in older
products; (xii) exposure to claims alleging product defects; (xiii) the impact of laws and regulations that apply to our business, including those relating to environmental
matters; (xiv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xv) changes impacting international trade and corporate tax
provisions related to the global manufacturing and sales of our products may have an adverse effect on our financial condition and results of operations; (xvi) volatility of
financial and credit markets affecting our access to capital; (xvii) the need to reduce the total costs of our products to remain competitive; (xviii) potential limitation on the use
of net operating losses to offset possible future taxable income; (xix) restrictions in our debt agreements that could limit our flexibility in operating our business; (xx) disruption
to our information technology systems to function properly or control unauthorized access to our systems may cause business disruptions; (xxi) additional exercise of the
warrant by K Equity, LLC which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions; (xxii) fluctuation in
distributor sales could adversely affect our results of operations, (xxiii) earthquakes and other natural disasters could disrupt our operations and have a material adverse
effect on our financial condition and results of operations.
2
TOKIN Acquisition Closure
4
Allocation from sale of EMD (relay) BU
Selling price $ 422.0 (US $)
NEC loan $ (222.4)
Fees & Taxes (estimated) $ (10.6)
BALANCE $ 189.0
50% to NEC $ (94.5)
50% to KEMET & TOKIN $ (94.5)
KEMET purchase of remaining NT shares from NEC
Purchase of shares (KEMET cash) $ 52.5
50% of net proceeds $ 94.5
TOTAL $ 147.0
Excess cash to KEMET & TOKIN
EMD proceeds $ 94.5
Purchase of shares (KEMET cash) $ (52.5)
$ 42.0
“The Deal”
Cost of acquiring TOKIN
$104M
o $50M in 2013
o $54M now
100% of TOKIN cash
$165M
Used $52.5 to pay down debt post closing
Combined cash after closing, refinance & debt reduction
$217M
“The Deal”
6
“So on a net basis, it basically
seems like it’s costing you nothing
to acquire the company”
Matt Sheerin, Stifel Analyst
Deal of
the Century?
“The Deal”
Founded
April 8, 1938
Employee
5,257 Worldwide
880 in Japan
Manufacturing locations
• Japan (3)
• Thailand
• Vietnam
• China
Capacitors
Tantalum Polymer (NeoCap)
Supercapacitors
Electromagnetic Compatibility (EMC)
Power Inductors
Ferrite Cores
Transformers
Chokes & Filters
Noise Suppression sheets
Sensors & Actuators
Piezoelectric Actuators
Current & Temperature Sensors
TOKIN overview
High-Yield Bonds
Refinanced
1) Fund redemption of all outstanding $353
million 10.5% Senior notes due 2018
2) Repaid outstanding amount on revolver of
$34 million
3) New Term Loan:
$345M US$
Rate = LIBOR + 600 bps
$13M / year interest savings
5% annual principal amortization
Matures April 28, 2024
PRODUCTS
Capacitors
Inductors
Chokes
Filters
Sensors
Actuators
EMI Suppression
PEOPLE
15,000
REVENUE
$1.1 Billion
&
*Forecasted Net
Sales FY18
Dist / Agent
41%
OEM
44%
EMS
15%
Japan
15%
Asia
41%
Americas
22%
EMEA
22%
Telecom
14%
Computer
19%
Consumer
10%
Ind/Light
26%
Automotive
17%
Def/Med
9%
Other
4%
KEMET/TOKIN by segment, region, channel
(Est. Q1FY18 sales)
ChannelSegment
Region Product
Film and
Electrolytics
16.8%
Ceramics
21.5%
Tantalum/Polymer
42.3%
EMC
15.2%
S&A
4.2%
KEMET/TOKIN Market Share
Tantalum / Polymer (est. $1.3B)*
KEMET
27.2%
TOKIN
7.6%
AVX
30.0%
Sanyo
12.0%
Others
23.2%
34.8%
* Management estimates
Market Trends
o Corrections in the distribution channel
have been more pronounced
o After over-correcting in Q3/Q4FY16,
Distributors are now more closely tracking
EMS/OEM
Cycles – Distribution vs OEM/EMS
Cycles – Distribution vs OEM/EMS
$0
$5
$10
$15
$20
$25
$30
$35
$40
FY15Q1 Q2 Q3 Q4 FY16Q1 Q2 Q3 Q4 FY17Q1 Q2 Q3 Q4
M
ill
io
n
s
DISTRIBUTION OEM/EMS
o Inventory over correction in Q2/Q3 FY16
- Stable since
o Inventories are Lean vs. POS and Industry
Lead Times
Distribution
$60
$70
$80
$90
$100
$110
$120
$130
$140
$150
FY15Q1 Q2 Q3 Q4 FY16Q1 Q2 Q3 Q4 FY17Q1 Q2 Q3 Q4
M
illi
on
s
POA Support
(POS – DIST MGN)
Actual POA
(3 Month)
Inventory
Inventory / POS = 3.6
3.6
3.4 3.3 3.2
o POS is trending up since Q4FY16
o POS/POA now closely matched
o - KEMET’s order entry and planning
systems adjusted to actual POS
and Distributor needs
Sales Strategy
Head
50% of Revenue
~ 1,000 Customers
Long Tail
50% of Revenue
~ 180,000 Customers
• Direct engagement
• Solution selling
• Design-in
Sales Strategy
Head
Long Tail
Pipeline
Growth
Head
Long Tail
• Make more products available and
easy to find
• Channel Focus
• ”Use bits to sell atoms”
Sales Strategy
Digital
Engagement
Platform
Sales Strategy
Discovery Decision Close
SearchResearch Pricing
Apps
Digital Engagement Platform
Simulation Tools
Video
Designed by Engineers
for Engineers
Chat
Digital Engagement
Platform
Innovative Search Engine
& Part Selection Tool
6.2M part
numbers
5.7M CAD
models
115 competitors for
cross referencing
Live distributor
pricing and inventory
Data sheets
& Spec sheets
Digital Engagement
Platform
Integrated
BI Software
Multiple
Data Sources
Part
Crossing
SMART
COLLABORATIVE
Flexible
Communication
Smart
Workflows
Chat &
Messaging
Pricing
Assistance
1000x FASTER
1,000 Part Numbers Processed in < 5 Minutes
(>3 PN / Sec)
Digital Engagement
Platform
In Beta Test
Next 10 years
Major Drivers
Computers that Listen and Talk Computers that See
Virtual/Augmented Reality Internet of Things
More Personal
• GaN (Gallium Nitride) • SiC (Silicon Carbide)
Computer Assisted Health Care Autonomous Vehicles
New Semiconductor TechnologiesAutonomous Drones
Smarter Technologies
400 million
servers to support
our 2020 IoT and
technology
demands.
Energy Efficiency & State of the Art
Looking Ahead
TOKIN
Integrate with elegance &
appreciation
• Improve profitability
• Synergy activities
PEOPLE
Creative & globally connected
• Pride & loyalty
• Philanthropic
• Career engagement
• Work-life balance
ADJACENCY 2.0
Technology relevance
Investing in components to
support:
• Green energy
• E-Cars
• Internet of Things
• Wearable medical devices
• Wide Band Gap
• Omnipresent digitalization
M&A
• Not necessarily capacitors
• Relevant technology with
a sustainable revenue
stream
• Asia
ATOMS & BITS
• Using digital to sell physical
• “Creative Disruption”
PEOPLE
ADJACENCY 2.0
M&A
ATOMS & BITS
Summary Financial
Information
Income Statement Highlights
U.S. GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages and per share data) 2017 2016
Net sales $ 757,791 $ 734,823
Gross margin $ 186,112 $ 163,280
Gross margin as a percentage of net sales 24.6% 22.2%
Selling, general and administrative $ 107,868 $ 101,446
SG&A as a percentage of net sales 14.2% 13.8%
Operating income (loss) $ 34,540 $ 32,326
Net income (loss) $ 47,989 $ (53,629)
Per share data:
Adjusted net income (loss) - basic $ 1.03 $ (1.17)
Adjusted net income (loss) - diluted $ 0.87 $ (1.17)
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 46,004
35
Income Statement Highlights
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages and per share data) 2017 2016
Net sales $ 757,791 $ 734,823
Adjusted Gross margin $ 187,923 $ 165,931
Adjusted gross margin as a percentage of net sales 24.8% 22.6%
Adjusted selling, general and administrative $ 93,952 $ 88,354
Adjusted SG&A as a percentage of net sales 12.4% 12.0%
Adjusted operating income (loss) $ 66,548 $ 52,816
Adjusted net income (loss) $ 23,916 $ 8,917
Adjusted EBITDA $ 105,255 $ 91,144
Per share data:
Adjusted net income (loss) - basic $ 0.51 $ 0.19
Adjusted net income (loss) - diluted $ 0.43 $ 0.17
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 51,436
36
Quarterly Financial Summary – Net Sales
U.S. GAAP (Unaudited)
$185 $187 $188
$198
$78 $84 $82
$85
JUN 2016 SEP 2016 DEC 2016 MAR 2017
KEMET TOKIN
1. TOKIN results exclude the EMD business which was sold on April 14, 2017.
2. Net sales include sales between KEMET and TOKIN of $5.0 million, $7.0 million, $7.2 million and $6.2 million for the quarters ended June 30, 2016,
September 30, 2016, December 31, 2016 and March 31, 2017, respectively. Upon acquisition, inter-company sales will be eliminated.
Million
37
Financial Trends
Cash and Cash Equivalents (Unaudited)
$33 $39
$45
$65
$53
$75
$87
$110
$92 $88
$92
$92
$97
$100
$107
$107
$200
Q1FY16 Q2 Q3 Q4 Q1FY17 Q2 Q3 Q4 Q1FY18
KEMET TOKIN KEMET/TOKIN
1. TOKIN results exclude the EMD business which was sold on April 14, 2017.
Million
38
Forecast Assumptions
Net Sales l Total Net Sales projected to grow at a 2.2% CAGR from FY 2017 to FY 2022Forecast does not include increase potential market synergies from cross selling
Gross Margin l Combined Gross Margin projected to expand from 23.6% in FY 2017 to 26.5% in FY 2022
Adjusted
EBITDA
l Total Adjusted EBITDA (excluding unrealized synergies) projected to grow at a 7.8% CAGR from
FY 2017 to FY 2022. Depreciation expense approximately $57 million prior to purchase
accounting effects.
Synergies
l Synergies of $11.3 million, $11.0 million and $8.4 million projected for FY 2018, FY 2019 and
FY 2020, respectively
l One-time equivalent cash costs to achieve projected overhead reductions of $9 million, $7 million
and $4 million in FY 2018, FY 2019 and FY 2020, respectively
Other Cash
Flow Items
l Capital expenditures projected to increase to support increased production capacity to meet
additional demand, primarily for polymer products
l Working capital projected to remain consistent as a percentage of Net Sales
39
Forecasted Financials
KEMET + TOKIN
$1,109
$1,152
$1,207
FY18 FY19 FY20
Net Sales
Sales includes ~ $25M/year of intercompany sales.
Million
40
Forecasted Financials
KEMET + TOKIN
$150
$161
$182
FY18 FY19 FY20
Adjusted EBITDA
Million
41
Forecasted Financials
KEMET + TOKIN
$44 $44 $44
FY18 FY19 FY20
Forecasted CAPEX
Million $
42
Forecasted Credit Statistics
Including TOKIN
43
QUESTIONS?
Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages) 2017 2016
Net sales $ 757,791 $ 734,823
Cost of sales $ 571,679 $ 571,543
Gross margin (U.S. GAAP) $ 186,112 $ 163,280
Gross margin as a percentage of net sales 24.6% 22.2%
Adjustments:
Stock-based compensation expense 1,384 1,418
Plant start-up costs 427 861
Plant shut-down costs — 372
Adjusted gross margin (non-GAAP) $ 187,923 $ 165,931
Adjusted gross margin as a percentage of net sales 24.8% 22.6%
46
Adjusted Selling, General & Administrative Expenses
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands, except percentages) 2017 2016
Net sales $ 757,791 $ 734,823
Selling, general and administrative expenses (U.S. GAAP) $ 107,868 $ 101,446
Selling, general, and administrative as a percentage of net sales 14.2% 13.8%
Less adjustments:
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation expense 3,130 3,162
Legal expenses related to antitrust class actions 2,640 3,041
NEC TOKIN investment related expenses 1,101 900
Pension plan adjustment — 312
Adjusted selling, general and administrative expenses (non-GAAP) $ 93,952 $ 88,354
Adjusted selling, general, and administrative as a percentage of net sales 12.4% 12.0%
47
Adjusted Operating Income
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Operating income (loss) (U.S. GAAP) $ 34,540 $ 32,326
Adjustments:
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation expense 4,720 4,774
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
NEC TOKIN investment related expenses 1,101 900
Net (gain) loss on sales and disposals of assets 392 375
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Write down of long-lived assets 10,279 —
Adjusted operating income (loss) (non-GAAP) $ 66,548 $ 52,816
48
Adjusted Net Income (Loss) and Adjusted EBITDA
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Net income (loss) (U.S. GAAP) $ 47,989 $ (53,629)
Adjustments:
Change in value of TOKIN options (10,700) 26,300
Net foreign exchange (gain) loss (3,758) (3,036)
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation 4,720 4,774
Income tax effect of non-GAAP adjustments (741) 652
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
TOKIN investment related expenses 1,101 900
Amortization included in interest expense 761 859
Equity (gain) loss from TOKIN (41,643) 16,406
Net (gain) loss on sales and disposals of assets 392 375
Write down of long-lived assets 10,279 —
Income tax effect of pension curtailment — 875
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Adjusted net income (loss) (non-GAAP) $ 23,916 $ 8,917
Adjusted net income (loss) per share - basic $ 0.51 $ 0.19
Adjusted net income (loss) per share - diluted $ 0.43 $ 0.17
Adjusted EBITDA (non-GAAP) $ 105,255 $ 91,144
Weighted avg. shares - basic 46,552 46,004
Weighted avg. shares - diluted 55,389 51,43649
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Fiscal Year
(Amounts in thousands) 2017 2016
Net income (loss) (U.S. GAAP) $ 47,989 $ (53,629)
Interest expense, net 39,731 39,591
Income tax expense (benefit) 4,290 6,006
Depreciation and amortization 37,338 39,016
EBITDA (non-GAAP) 129,348 30,984
Excluding the following items
Change in value of TOKIN options (10,700) 26,300
Net foreign exchange (gain) loss (3,758) (3,036)
ERP integration costs/IT transition costs 7,045 5,677
Stock-based compensation 4,720 4,774
Restructuring charges 5,404 4,178
Legal expenses related to antitrust class actions 2,640 3,041
TOKIN investment related expenses 1,101 900
Equity (gain) loss from TOKIN (41,643) 16,406
Net (gain) loss on sales and disposals of assets 392 375
Write down of long-lived assets 10,279 —
Plant start-up costs 427 861
Plant shut-down costs — 372
Pension plan adjustment — 312
Adjusted EBITDA (non-GAAP) $ 105,255 $ 91,144
50
Forecast: Non-GAAP Reconciliation
A reconciliation of net income to Adjusted EBITDA as projected for 2018, 2019 and 2020 is not provided.
KEMET does not forecast net income as we cannot, without unreasonable effort, estimate or predict with
certainty various components of net income. These components include net foreign exchange (gain) loss,
further restructuring and other income or charges incurred in 2018, 2019 or 2020 as well as the related tax
impacts of these items. Additionally, discrete tax items could drive variability in our projected effective tax
rate. All of these components could significantly impact such financial measures. Further, in the future, other
items with similar characteristics to those currently included in Adjusted EBITDA that have a similar impact on
comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA.
51