Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - KEMET CORP | fy2018_q2xex991xearningsre.htm |
| 8-K - 8-K - KEMET CORP | fy2018_q2x8kxearningsrelea.htm |
Second Quarter
Earnings Conference Call
November 2, 2017
Quarter Ended September 30, 2017
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) fluctuation in distributor sales could adversely affect our results of operations; and (xxii)
earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
Our acquisition accounting, including the acquisition gains, are preliminary as management continues to evaluate the fair value of the net assets
acquired and consideration transferred. In addition, the allocation of the purchase price is based on estimates and assumption that are subject to
change with the measurement period.
2
Income Statement Highlights
U.S. GAAP (Unaudited)
3
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Sep 2017 Jun 2017 Sep 2016
Net sales $ 301,471 $ 274,000 $ 187,308
Gross margin (1),(2) $ 85,076 $ 74,437 $ 46,516
Gross margin as a percentage of net sales 28.2% 27.2% 24.8%
Selling, general and administrative (1),(2) $ 42,417 $ 35,631 $ 25,843
SG&A as a percentage of net sales 14.1% 13.0% 13.8%
Operating income (loss) (1) $ 31,643 $ 27,784 $ 3,374
Net income (loss) $ 12,849 $ 220,606 $ (4,998)
Per basic and diluted share data:
Net income (loss) per basic share $ 0.26 $ 4.66 $ (0.11)
Net income (loss) per diluted share 0.22 3.82 (0.11)
Weighted avg. shares - basic 49,819 47,381 46,590
Weighted avg. shares - diluted 58,409 57,731 46,590
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2017-07, Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
(2) Quarter ended June 30, 2017 results have been reclassified to conform to the current period presentation where certain regional
SG&A amounts have been allocated to costs of goods sold.
Income Statement Highlights
Non-GAAP (Unaudited)
4
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Sep 2017 Jun 2017 Sep 2016
Net sales $ 301,471 $ 274,000 $ 187,308
Adjusted gross margin (1)(2) $ 85,418 $ 74,747 $ 46,936
Adjusted gross margin as a percentage of net sales 28.3% 27.3% 25.1%
Adjusted selling, general and administrative (1),(2) $ 38,900 $ 33,745 $ 22,346
Adjusted SG&A as a percentage of net sales 12.9% 12.3% 11.9%
Adjusted operating income (loss) (1) $ 36,902 $ 31,658 $ 17,615
Adjusted net income (loss) $ 26,475 $ 19,242 $ 6,955
Adjusted EBITDA $ 49,918 $ 43,291 $ 26,912
Adjusted EBITDA margin as a percentage of net sales 16.6% 15.8% 14.4%
Per share data:
Adjusted net income (loss) - basic $ 0.53 $ 0.41 $ 0.15
Adjusted net income (loss) - diluted $ 0.45 $ 0.33 $ 0.13
Weighted avg. shares - basic 49,819 47,381 46,590
Weighted avg. shares - diluted 58,409 57,731 53,834
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
(2) Quarter ended June 30, 2017 results have been reclassified to conform to the current period presentation where certain regional SG&A
amounts have been allocated to costs of goods sold.
Financial Highlights
(Unaudited)
(1) Calculated as accounts receivable, net, plus inventories, net, less accounts payable.
(2) Current quarter's accounts receivable divided by annualized current quarter’s Net sales multiplied by 365.
(3) Current quarter's accounts payable divided by annualized current quarter's cost of goods sold multiplied by 365.
(Amounts in millions, except DSO and DPO) Sep 2017 Jun 2017 FX Impact
Cash, cash equivalents $ 253.7 $ 225.6 $ 0.7
Capital expenditures $ 10.5 $ 7.3
Short-term debt $ 20.4 $ 20.4
Long-term debt 326.4 330.3
Debt (discount)/premium and issuance costs (15.0) (15.5)
Total debt $ 331.8 $ 335.2 $ —
Equity $ 416.1 $ 385.3 $ 8.0
Net working capital (1) $ 200.8 $ 193.7 $ 4.2
Days in receivables (DSO) (2) 42 46
Days in payables (DPO) (3) 58 63
5
LTM Operating Income Margins
U.S. GAAP (Unaudited)
6
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
Sep
2016
Dec
2016
Mar
2017
Jun
2017
Sep
2017
4.0%
4.6% 4.6%
6.3%
8.5%
LTM Adjusted EBITDA Margins
Non-GAAP (Unaudited)
7
16.0%
15.5%
15.0%
14.5%
14.0%
13.5%
13.0%
Sep
2016
Dec
2016
Mar
2017
Jun
2017
Sep
2017
13.3%
13.6%
13.9%
14.7%
15.3%
Adjusted Gross Margin - GAAP Reconciliation
Solid Capacitors (Unaudited)
8
For the Quarters Ended
(Amounts in thousands, except percentages) Sep 2017 Jun 2017 Sep 2016
Net sales $ 191,267 $ 182,119 $ 142,641
Gross margin (U.S. GAAP) (1) 66,408 62,245 44,008
Gross margin as a percentage of net sales 34.7% 34.2 % 30.9%
Adjustments:
Stock-based compensation expense 233 213 221
Adjusted gross margin (non-GAAP) $ 66,641 $ 62,458 $ 44,229
Adjusted gross margin as a percentage of net sales 34.8% 34.3 % 31.0%
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU")
No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost.
Adjusted Gross Margin - GAAP Reconciliation
Film & Electrolytics (Unaudited)
9
For the Quarters Ended
(Amounts in thousands, except percentages) Sep 2017 Jun 2017 Sep 2016
Net sales (1) $ 47,901 $ 47,537 $ 44,667
Gross margin (U.S. GAAP) (1) 3,695 4,957 2,508
Gross margin as a percentage of net sales 7.7% 10.4% 5.6%
Adjustments:
Stock-based compensation expense 109 97 80
Plant start-up costs — — 119
Adjusted gross margin (non-GAAP) $ 3,804 $ 5,054 $ 2,707
Adjusted gross margin as a percentage of net sales 7.9% 10.6% 6.1%
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU")
No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost.
Gross Margin - U.S. GAAP
Electro-magnetic, Sensors & Actuators(1) (Unaudited)
10
For the Quarters Ended
(Amounts in thousands, except percentages) Sep 2017 Jun 2017
Net sales $ 62,303 $ 44,344
Gross margin (2) 14,973 7,235
Gross margin as a percentage of net sales 24.0% 16.3%
(1) Electro-magnetic, Sensors & Actuators ("MSA") is a new segment which is comprised of TOKIN's electro-magnetically compatible
materials and components, Piezo materials and actuators and various types of sensors acquired in connection with the TOKIN acquisition
on April 19, 2017.
(2) Quarter ended June 30, 2017 results have been reclassified to conform to the current period presentation where certain regional SG&A
amounts have been allocated to certain segments. Additionally, a portion of the allocation within the segments was allocated to costs of
goods sold.
Sales Summary - Q2 FY2018
(Unaudited)
11
INDUSTRY
Telecom: 14%
Computer: 21%
Consumer: 15%
Ind/Light: 27%
Automotive: 14%
Def: 4%
Med: 5%
CHANNEL
Distributors: 36%
EMS: 15%
OEM: 49%
PRODUCT LINE
TA: 41%
CE: 22%
F&E: 16%
MSA: 21%
REGION
Americas: 20%
EMEA: 22%
JPKO: 15%
APAC: 43%
Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
13
For the Quarters Ended
(Amounts in thousands, except percentages) Sep 2017 Jun 2017 Sep 2016
Net Sales $ 301,471 $ 274,000 $ 187,308
Gross Margin (U.S. GAAP) (1)(2) $ 85,076 $ 74,437 $ 46,516
Gross margin as a percentage of net sales 28.2% 27.2% 24.8%
Adjustments:
Stock-based compensation expense 342 310 301
Plant start-up costs — — 119
Adjusted gross margin (non-GAAP) $ 85,418 $ 74,747 $ 46,936
Adjusted gross margin as a percentage of net sales 28.3% 27.3% 25.1%
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No.
2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
(2) Quarter ended June 30, 2017 results have been reclassified to conform to the current period presentation where
certain regional SG&A amounts have been allocated to costs of goods sold.
Adjusted Selling, General & Administrative Expenses
Non-GAAP (Unaudited)
14
For the Quarters Ended
(Amounts in thousands, except percentages) Sep 2017 Jun 2017 Sep 2016
Net sales $ 301,471 $ 274,000 $ 187,308
Selling, general and administrative expenses (U.S. GAAP) (1)(2) $ 42,417 $ 35,631 $ 25,843
Selling, general, and administrative as a percentage of net sales 14.1% 13.0% 13.8%
Less adjustments:
ERP integration/IT transition costs — — 1,783
Stock-based compensation expense 1,142 745 754
Legal expenses/fines related to antitrust class actions 2,375 1,141 766
TOKIN investment-related expenses — — 194
Adjusted selling, general and administrative expenses (non-
GAAP) $ 38,900 $ 33,745 $ 22,346
Adjusted selling, general, and administrative as a percentage of net sales 12.9% 12.3% 11.9%
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
(2) Quarter ended June 30, 2017 results have been reclassified to conform to the current period presentation where certain regional SG&A
amounts have been allocated to costs of goods sold.
Adjusted Operating Income (Loss)
Non-GAAP (Unaudited)
15
For the Quarters Ended
(Amounts in thousands) Sep 2017 Jun 2017 Sep 2016
Operating income (loss) (U.S. GAAP) (1) $ 31,643 $ 27,784 $ 3,374
Adjustments:
Restructuring charges 1,393 1,613 3,998
Legal expenses related to antitrust class actions 2,375 1,141 766
Stock-based compensation expense 1,530 1,101 1,104
Write-down and disposal of long-lived assets (39) 19 6,277
ERP integration/IT transition costs — — 1,783
TOKIN investment-related expenses — — 194
Plant start-up costs — — 119
Adjusted operating income (loss) (non-GAAP) $ 36,902 $ 31,658 $ 17,615
(1) Quarter ended September 30, 2016 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2017-07, Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
Adjusted Net Income (Loss)
Non-GAAP (Unaudited)
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Sep 2017 Jun 2017 Sep 2016
Net income (loss) (U.S. GAAP) $ 12,849 $ 220,606 $ (4,998)
Adjustments:
Equity (income) loss from TOKIN (224) (75,417) (181)
Acquisition Gain (1,285) (135,588) —
Net foreign exchange (gain) loss 1,891 5,043 (724)
Restructuring charges 1,393 1,613 3,998
Legal expenses related to antitrust class actions 10,327 1,141 766
Stock-based compensation expense 1,530 1,101 1,104
(Gain) loss on early extinguishment of debt — 486 —
Amortization included in interest expense 664 460 188
Income tax effect of non-U.S. GAAP adjustments (1) (631) (222) 29
Write-down and disposal of long-lived assets (39) 19 6,277
Change in value of TOKIN option — — (1,600)
ERP integration/IT transition costs — — 1,783
TOKIN investment-related expenses — — 194
Plant start-up costs — — 119
Adjusted net income (loss) (non-GAAP) $ 26,475 $ 19,242 $ 6,955
Adjusted net income (loss) per share - basic $ 0.53 $ 0.41 $ 0.15
Adjusted net income (loss) per share - diluted $ 0.45 $ 0.33 $ 0.13
Adjusted EBITDA (non-GAAP) $ 49,918 $ 43,291 $ 26,912
Weighted avg. shares - basic 49,819 47,381 46,590
Weighted avg. shares - diluted 58,409 57,731 53,834
16 (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.
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
17
For the Quarters Ended
(Amounts in thousands) Sep 2017 Jun 2017 Sep 2016
Net income (loss) (U.S. GAAP) $ 12,849 $ 220,606 $ (4,998)
Interest expense (income), net 7,270 10,894 9,904
Income tax expense (benefit) 2,880 1,150 830
Depreciation and amortization 13,326 12,243 9,440
EBITDA (non-GAAP) 36,325 244,893 15,176
Excluding the following items:
Equity (income) loss from equity method investments (224) (75,417) (181)
Acquisition Gain (1,285) (135,588) —
Net foreign exchange (gain) loss 1,891 5,043 (724)
Restructuring charges 1,393 1,613 3,998
Legal expenses related to antitrust class actions 10,327 1,141 766
Stock-based compensation expense 1,530 1,101 1,104
(Gain) loss on early extinguishment of debt — 486 —
Write-down and disposal of long-lived assets (39) 19 6,277
Change in value of TOKIN option — — (1,600)
TOKIN investment-related expenses — — 194
Plant start-up costs — — 119
ERP integration/IT transition costs — — 1,783
Adjusted EBITDA (non-GAAP) $ 49,918 $ 43,291 $ 26,912
Quarters 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 TOKIN options (700) — 12,000 (1,600) 9,700
Equity (gain) loss from 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)
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
Write-down and disposal of long-lived assets 129 608 91 6,277 7,105
Adjusted EBITDA (non-GAAP) $ 23,531 $ 23,042 $ 24,272 $ 26,912 $ 97,757
Adjusted EBITDA Margin (non-GAAP) 13.3% 12.5% 13.1% 14.4% 13.3%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
18
Quarters 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 TOKIN options — 12,000 (1,600) (6,900) 3,500
Equity (gain) loss from 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)
TOKIN investment-related expenses 265 206 194 204 869
Plant start-up costs 319 308 119 — 746
Plant shut-down costs 141 — — — 141
Write-down and disposal of long-lived assets 608 91 6,277 132 7,108
Adjusted EBITDA (non-GAAP) $ 23,042 $ 24,272 $ 26,912 $ 26,841 $ 101,067
Adjusted EBITDA Margin (non-GAAP) 12.5% 13.1% 14.4% 14.3% 13.6%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
19
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
20
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 TOKIN options (10,700)
Equity (gain) loss from TOKIN (41,643)
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)
TOKIN investment-related expenses 1,101
Plant start-up costs 427
Write-down and disposal of long-lived assets 10,671
Adjusted EBITDA (non-GAAP) $ 105,255
Adjusted EBITDA Margin (non-GAAP) 13.9%
Quarters 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 TOKIN options (1,600) (6,900) (14,200) — (22,700)
Equity (gain) loss from 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
TOKIN investment-related expenses 194 204 497 — 895
Plant start-up costs 119 — — — 119
Write-down and disposal of long-lived assets 6,277 132 4,171 19 10,599
(Gain) loss on early extinguishment of debt — — — 486 486
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)
21
Quarters Ended LTM
(Amounts in thousands, except percentages) Dec 2016 Mar 2017 Jun 2017 Sep 2017 Sep 2017
Net Sales $ 188,029 $ 197,519 $ 274,000 $ 301,471 $ 961,019
Net income (loss) 12,278 52,914 220,606 12,849 298,647
Income tax expense (benefit) 1,810 (150) 1,150 7,270 10,080
Interest expense, net 9,913 9,994 10,894 2,880 33,681
Depreciation and amortization 9,095 9,367 12,243 13,326 44,031
EBITDA 33,096 72,125 244,893 36,325 386,439
Excluding the following items (Non-GAAP):
Change in value of TOKIN options (6,900) (14,200) — — (21,100)
Equity (gain) loss from TOKIN 133 (41,372) (75,417) (224) (116,880)
Acquisition Gain — — (135,588) (1,285) (136,873)
Restructuring charges (369) 1,087 1,613 1,393 3,724
ERP integration costs / IT transition costs 1,734 1,760 — — 3,494
Stock-based compensation expense 1,139 1,249 1,101 1,530 5,019
Legal expenses related to antitrust class actions 293 406 1,141 10,327 12,167
Net foreign exchange (gain) loss (2,621) 1,507 5,043 1,891 5,820
TOKIN investment-related expenses 204 497 — — 701
Write-down and disposal of long-lived assets 132 4,171 19 (39) 4,283
(Gain) loss on early extinguishment of debt — — 486 — 486
Adjusted EBITDA (non-GAAP) $ 26,841 $ 27,230 $ 43,291 $ 49,918 $ 147,280
Adjusted EBITDA Margin (non-GAAP) 14.3% 13.8% 15.8% 16.6% 15.3%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
22
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.23
Non-GAAP Financial Measures
Continued
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.
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.
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Non-GAAP Financial Measures
Continued
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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