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| 8-K - 8-K - KEMET CORP | a2018_q1x8kxinvestorxrodma.htm |
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Rodman & Renshaw
19th Annual Global Investment Conference
Presenters:
Per Loof – Chief Executive Officer
William Lowe – 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
27
Manufacturing
Plants*
15,000
Employees*
44 billion
Components
Shipped per year*
Ship to
97
Countries
Founded
1919
$ $1.1B*
* Includes TOKIN
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
✓ Noise Suppression sheets
• Sensors & Actuators
✓ Piezoelectric Actuators
✓ Current & Temperature Sensors
Who is ?
5
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)
REMAINDER $ -
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”
Refinanced Debt
Fund redemption of all outstanding
10.5% Senior notes due 2018
• $345M US$
• Rate = LIBOR + 600 bps
• $13M / year savings
• 5% annual principle amortization
• Matures April 28, 2024
Sales Summary - Q1 FY2018
(Unaudited)
7
8
© KEMET Electronics. All Rights Reserved.
KEMET Market Share
Pro forma
Panasonic
35%
KEMET
42%
Others
23%
Tantalum Capacitors (est. $1.7B)**Polymer Capacitors (est. $0.6B)*
AVX
30%
KEMET
33%
Panasonic
12%
Vishay
9%
Rohm
4%
Samsung
3%
Others
9%
Market Share (FY17E)
* Management Estimates
**Paumanok Publications. Passive Electronics Components: World Market Outlook: 2017-2022
Asia & Japan
55%
Americas
22%
EMEA
23%
ASIA is HUGE for KEMET
Mission critical electronics High-performance
power management
Where failure is
not an option
Breakthrough technology Unparalleled borderless service Smart people
Innovative products that solve
customer challenges
Market Trends
Why Digital?
67%
Design Engineers start their research
on the manufacturer’s web site
2016 UBM Tech Annual Mind of Engineer Survey
“
”
Quote & Price
Management
Mobile Apps
kemet.com3.0
Next Level
website
ENGINNERING
CENTER
Search Engine &
selection tool
Simulation Tools
Digital Engagement
Platform
Improved
Design Tools
FY18
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
Energy Efficiency & State of the Art
PEOPLE
ADJACENCY 2.0
M&A
ATOMS & BITS
Summary Financial
Information
Financial Trends
Quarterly Sales Summary U.S. GAAP (Unaudited)
21
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.
3. Proforma sales information assuming TOKIN was owned for the entire quarter.
Financial Trends
Cash and Cash Equivalents U.S. GAAP (Unaudited)
22
1. TOKIN results exclude the EMD business which was sold on April 14, 2017.
LTM Operating Income Margins
U.S. GAAP (Unaudited)
23
LTM Adjusted EBITDA Margins
Non-GAAP (Unaudited)
24
FY18 Q1, FY17 Q4 & FY17 Q1 Comparison
U.S. GAAP (Unaudited)
25
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Gross margin $ 76,676 $ 49,839 $ 42,752
Gross margin as a percentage of net sales 28.0% 25.2% 23.1%
Selling, general and administrative $ 37,870 $ 29,317 $ 25,756
SG&A as a percentage of net sales 13.8% 14.8% 13.9%
Operating income (loss) $ 27,784 $ 8,742 $ 9,298
Net income (loss) from continuing operations (1) $ 220,606 $ 52,914 $ (12,205)
Per Basic and Diluted Share Data:
Net income (loss) per basic share $ 4.66 $ 1.13 $ (0.26)
Net income (loss) per diluted share $ 3.82 $ 0.93 $ (0.26)
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 46,349
(1) Includes acquisition gains and equity income from equity method investments of $135.6 million and $75.4 million, respectively for the quarter ended June 30, 2017.
FY18 Q1, FY17 Q4 & FY17 Q1 Comparison
Non-GAAP (Unaudited)
26
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Adjusted gross margin $ 76,986 $ 50,230 $ 43,444
Adjusted gross margin as a percentage of net sales 28.1% 25.4% 23.5%
Adjusted selling, general and administrative $ 35,984 $ 25,848 $ 21,822
Adjusted SG&A as a percentage of net sales 13.1% 13.1% 11.8%
Adjusted operating income (loss) $ 31,658 $ 17,912 $ 14,762
Adjusted operating income (loss) as a percentage of net sales 11.6% 9.1% 8.0%
Adjusted net income (loss) $ 19,242 $ 7,845 $ 3,306
Per Basic and Diluted Share Data:
Net income (loss) per basic share $ 0.41 $ 0.17 $ 0.07
Net income (loss) per diluted share $ 0.33 $ 0.14 $ 0.06
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 52,097
Adjusted EBITDA $ 43,291 $ 27,230 $ 24,272
Adjusted EBITDA as a percentage of net sales 15.8% 13.8% 13.1%
Financial Highlights
(Unaudited)
(1)Calculated as accounts receivable, net, plus inventories, net, less accounts payable.
(1)Current quarter's accounts receivable divided by annualized current quarter’s Net sales multiplied by 365.
(1)Current quarter's accounts payable divided by annualized current quarter's cost of goods sold multiplied by 365.
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(Amounts in millions, except DSO and DPO) Jun 2017 Mar 2017 FX Impact
Cash, cash equivalents $ 225.6 $ 109.8 $ 0.9
Capital expenditures $ 7.3 $ 10.6
Short-term debt $ 20.4 $ 2.0
Long-term debt 330.3 387.3
Debt premium and issuance costs (15.6) (1.1)
Total debt $ 335.1 $ 388.2 $ —
Net working capital (1) $ 193.7 $ 170.8 $ (2.4)
Days in receivables (DSO)(2) 46 43
Days in payables (DPO)(3) 63 43
Follow KEMET
Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
30
For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2017 Mar 2017 Jun 2016
Net Sales $ 274,000 $ 197,519 $ 184,935
Gross Margin (U.S. GAAP) $ 76,676 $ 49,839 $ 42,752
Gross margin as a percentage of net sales 28.0% 25.2% 23.1%
Adjustments:
Plant start-up costs — — 308
Stock-based compensation expense 310 391 384
Adjusted Gross margin (non-GAAP) $ 76,986 $ 50,230 $ 43,444
Adjusted gross margin as a percentage of net sales 28.1% 25.4% 23.5%
Adjusted Selling, General & Administrative Expenses
Non-GAAP (Unaudited)
31
For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Selling, general and administrative expenses (U.S. GAAP) $ 37,870 $ 29,317 $ 25,756
Selling, general, and administrative as a percentage of net sales 13.8% 14.8% 13.9%
Less adjustments:
ERP integration/IT transition costs — 1,760 1,768
Legal expenses related to antitrust class actions 1,141 406 1,175
TOKIN investment-related expenses — 497 206
Stock-based compensation expense 745 806 785
Adjusted selling, general and administrative expenses (non-GAAP) $ 35,984 $ 25,848 $ 21,822
Adjusted selling, general, and administrative as a percentage of net sales 13.1% 13.1% 11.8%
Adjusted Operating Income (Loss)
Non-GAAP (Unaudited)
32
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Operating income (loss) (U.S. GAAP) $ 27,784 $ 8,742 $ 9,298
Operating income (loss) as a percentage of net sales 10.1% 4.4% 5.0%
Adjustments:
Write down of long-lived assets — 4,086 —
Restructuring charges 1,613 1,087 688
Stock-based compensation expense 1,101 1,249 1,228
ERP integration/IT transition costs — 1,760 1,768
Legal expenses related to antitrust class actions 1,141 406 1,175
Plant start-up costs — — 308
TOKIN investment-related expenses — 497 206
Net (gain) loss on sales and disposals of assets 19 85 91
Adjusted operating income (loss) (non-GAAP) $ 31,658 $ 17,912 $ 14,762
Adjusted operating income (loss) as a percentage of net sales 11.6% 9.1% 8.0%
Adjusted Net Income (Loss)
Non-GAAP (Unaudited)
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Net income (loss) (U.S. GAAP) $ 220,606 $ 52,914 $ (12,205)
Net income (loss) as a percentage of net sales 80.5% 26.8% (6.6)%
Adjustments:
Write down of long-lived assets — 4,086 —
Restructuring charges 1,613 1,087 688
ERP integration/IT transition costs — 1,760 1,768
Change in value of TOKIN option — (14,200) 12,000
Stock-based compensation expense 1,101 1,249 1,228
Legal expenses related to antitrust class actions 1,141 406 1,175
Net foreign exchange (gain) loss 5,043 1,507 (1,920)
TOKIN investment-related expenses — 497 206
Amortization included in interest expense 460 200 190
Equity (income) loss from TOKIN (75,417) (41,372) (223)
Plant start-up costs — — 308
Acquisition gains (135,588) — —
Net (gain) loss on sales and disposals of assets 19 85 91
Gain (loss) on early extinguishment of debt 486 — —
Income tax effect of non-U.S. GAAP adjustments (1) (222) (374) —
Adjusted net income (loss) (non-GAAP) $ 19,242 $ 7,845 $ 3,306
Adjusted net income (loss) as a percentage of net sales 7.0% 4.0% 1.8%
Adjusted net income (loss) per share - basic $ 0.41 $ 0.17 $ 0.07
Adjusted net income (loss) per share - diluted $ 0.33 $ 0.14 $ 0.06
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 52,097
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(1) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the deferred tax valuation for each applicable jurisdiction.
34
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Quarter Ended LTM
(Amounts in thousands, except percentages) Sep 2015 Dec 2015 Mar 2016 Jun 2016 Jun 2016
Net Sales $ 186,123 $ 177,184 $ 183,926 $ 184,935 $ 732,168
Net income (loss) 7,194 (8,600) (15,173) (12,205) (28,784)
Income tax expense (benefit) 1,438 2,760 2,056 1,800 8,054
Interest expense, net 9,808 9,848 9,925 9,920 39,501
Depreciation and amortization 9,265 9,674 10,160 9,436 38,535
EBITDA 27,705 13,682 6,968 8,951 57,306
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (2,200) (700) — 12,000 9,100
Equity (gain) loss from NEC TOKIN (162) 6,505 11,648 (223) 17,768
Restructuring charges 23 1,714 617 688 3,042
ERP integration costs / IT transition costs 282 167 859 1,768 3,076
Stock-based compensation expense 1,328 1,154 1,013 1,228 4,723
Legal expenses related to antitrust class actions 541 1,300 482 1,175 3,498
Net foreign exchange (gain) loss (3,171) (1,036) 122 (1,920) (6,005)
NEC TOKIN investment-related expenses 186 225 265 206 882
Plant start-up costs 187 160 319 308 974
Plant shut-down costs — 231 141 — 372
Net (gain) loss on sales and disposals of assets (304) 129 608 91 524
Adjusted EBITDA $ 24,415 $ 23,531 $ 23,042 $ 24,272 $ 95,260
Adjusted EBITDA Margin 13.1% 13.3% 12.5% 13.1% 13.0%
Quarter Ended LTM
(Amounts in thousands, except percentages) Dec 2015 Mar 2016 Jun 2016 Sep 2016 Sep 2016
Net Sales $ 177,184 $ 183,926 $ 184,935 $ 187,308 $ 733,353
Net income (loss) (8,600) (15,173) (12,205) (4,998) (40,976)
Income tax expense (benefit) 2,760 2,056 1,800 830 7,446
Interest expense, net 9,848 9,925 9,920 9,904 39,597
Depreciation and amortization 9,674 10,160 9,436 9,440 38,710
EBITDA 13,682 6,968 8,951 15,176 44,777
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (700) — 12,000 (1,600) 9,700
Equity (gain) loss from NEC TOKIN 6,505 11,648 (223) (181) 17,749
Restructuring charges 1,714 617 688 3,998 7,017
ERP integration costs / IT transition costs 167 859 1,768 1,783 4,577
Stock-based compensation expense 1,154 1,013 1,228 1,104 4,499
Legal expenses related to antitrust class actions 1,300 482 1,175 766 3,723
Net foreign exchange (gain) loss (1,036) 122 (1,920) (724) (3,558)
NEC TOKIN investment-related expenses 225 265 206 194 890
Plant start-up costs 160 319 308 119 906
Plant shut-down costs 231 141 — — 372
Net (gain) loss on sales and disposals of assets 129 608 91 84 912
Write down of long-lived assets — — — 6,193 6,193
Adjusted EBITDA $ 23,531 $ 23,042 $ 24,272 $ 26,912 $ 97,757
Adjusted EBITDA Margin 13.3% 12.5% 13.1% 14.4% 13.3%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
35
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Quarter Ended LTM
(Amounts in thousands, except percentages) Mar 2016 Jun 2016 Sep 2016 Dec 2016 Dec 2016
Net Sales $ 183,926 $ 184,935 $ 187,308 $ 188,029 $ 744,198
Net income (loss) (15,173) (12,205) (4,998) 12,278 (20,098)
Income tax expense (benefit) 2,056 1,800 830 1,810 6,496
Interest expense, net 9,925 9,920 9,904 9,913 39,662
Depreciation and amortization 10,160 9,436 9,440 9,095 38,131
EBITDA 6,968 8,951 15,176 33,096 64,191
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options — 12,000 (1,600) (6,900) 3,500
Equity (gain) loss from NEC TOKIN 11,648 (223) (181) 133 11,377
Restructuring charges 617 688 3,998 (369) 4,934
ERP integration costs / IT transition costs 859 1,768 1,783 1,734 6,144
Stock-based compensation expense 1,013 1,228 1,104 1,139 4,484
Legal expenses related to antitrust class actions 482 1,175 766 293 2,716
Net foreign exchange (gain) loss 122 (1,920) (724) (2,621) (5,143)
NEC TOKIN investment-related expenses 265 206 194 204 869
Plant start-up costs 319 308 119 — 746
Plant shut-down costs 141 — — — 141
Net (gain) loss on sales and disposals of assets 608 91 84 132 915
Write down of long-lived assets — — 6,193 — 6,193
Adjusted EBITDA $ 23,042 $ 24,272 $ 26,912 $ 26,841 $ 101,067
Adjusted EBITDA Margin 12.5% 13.1% 14.4% 14.3% 13.6%
36
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Quarter Ended LTM
(Amounts in thousands, except percentages) Sep 2016 Dec 2016 Mar 2017 Jun 2017 Jun 2017
Net Sales $ 187,308 $ 188,029 $ 197,519 $ 274,000 $ 846,856
Net income (loss) (4,998) 12,278 52,914 220,606 280,800
Income tax expense (benefit) 830 1,810 (150) 1,150 3,640
Interest expense, net 9,904 9,913 9,994 10,894 40,705
Depreciation and amortization 9,440 9,095 9,367 12,243 40,145
EBITDA 15,176 33,096 72,125 244,893 365,290
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (1,600) (6,900) (14,200) — (22,700)
Equity (gain) loss from NEC TOKIN (181) 133 (41,372) (75,417) (116,837)
Acquisition Gain — — — (135,588) (135,588)
Restructuring charges 3,998 (369) 1,087 1,613 6,329
ERP integration costs / IT transition costs 1,783 1,734 1,760 — 5,277
Stock-based compensation expense 1,104 1,139 1,249 1,101 4,593
Legal expenses related to antitrust class actions 766 293 406 1,141 2,606
Net foreign exchange (gain) loss (724) (2,621) 1,507 5,043 3,205
NEC TOKIN investment-related expenses 194 204 497 — 895
Plant start-up costs 119 — — — 119
Net (gain) loss on sales and disposals of assets 84 132 85 19 320
(Gain) loss on early extinguishment of debt — — — 486 486
Write down of long-lived assets 6,193 — 4,086 — 10,279
Adjusted EBITDA (non-GAAP) $ 26,912 $ 26,841 $ 27,230 $ 43,291 $ 124,274
Adjusted EBITDA Margin (non-GAAP) 14.4% 14.3% 13.8% 15.8% 14.7%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
38
Fiscal Year
(Amounts in thousands, except percentages) 2017
Net Sales $ 757,791
Net income (loss) 47,989
Income tax expense (benefit) 4,290
Interest expense, net 39,731
Depreciation and amortization 37,338
EBITDA 129,348
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (10,700)
Equity (gain) loss from NEC TOKIN (41,643)
Write down of long-lived assets 10,279
Restructuring charges 5,404
ERP integration costs / IT transition costs 7,045
Stock-based compensation expense 4,720
Legal expenses related to antitrust class actions 2,640
Net foreign exchange (gain) loss (3,758)
NEC TOKIN investment-related expenses 1,101
Plant start-up costs 427
Net (gain) loss on sales and disposals of assets 392
Adjusted EBITDA $ 105,255
Adjusted EBITDA Margin 13.9%
Non-GAAP Financial Measures
Non-GAAP Financial Measures
Included in this presentation are certain non-GAAP financial measures designed to complement the financial information presented in accordance with generally accepted accounting principles in the United States of America
because management believes such measures are useful to investors for the reasons described below.
Adjusted gross margin
Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted gross margin to
facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of our ongoing
business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the
underlying operating performance of the Company. Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with GAAP.
Adjusted selling, general and administrative expenses
Adjusted selling, general and administrative expenses represents selling, general and administrative expenses excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation.
Management uses Adjusted selling, general and administrative expenses to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier
in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted selling, general and
administrative expenses is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted selling, general and administrative expenses should not be
considered as an alternative to selling, general and administrative expenses or any other performance measure derived in accordance with GAAP.
Adjusted operating income (loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted operating
income to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of
our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted operating income is useful to investors to provide a supplemental way to understand the
underlying operating performance of the Company and monitor and understand changes in our ability to generate income from ongoing business operations. Adjusted operating income should not be considered as an
alternative to operating loss or any other performance measure derived in accordance with GAAP.
Adjusted net income (loss) and Adjusted EPS
Adjusted net income (loss) and Adjusted EPS represent net income (loss) and EPS, excluding adjustments which are more specifically outlined in the quantitative reconciliation provided earlier in this presentation.
Management uses Adjusted net income (loss) and Adjusted EPS to evaluate the Company's operating performance by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which
might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted net income (loss) and Adjusted EPS are useful to
investors because they provide a supplemental way to understand the underlying operating performance of the Company and allows investors to monitor and understand changes in our ability to generate income from ongoing
business operations. Adjusted net income (loss) and Adjusted EPS should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP.
39
Non-GAAP Financial Measures
Continued
Adjusted EBITDA
Adjusted EBITDA represents net loss before income tax expense (benefit), interest expense, net, and depreciation and amortization expense, excluding adjustments which are more specifically outlined in the quantitative
reconciliation provided earlier in this presentation. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA because we believe such
measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to
interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other items excluded from Adjusted EBITDA are excluded in order to
better reflect our continuing operations.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference
that our future results will be unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income,
operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations
are:
• it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
• it does not reflect changes in, or cash requirements for, our working capital needs;
• it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does not
reflect any cash requirements for such replacements;
• it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
• it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
• it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
• other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be
available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.
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