KEMET Reports Preliminary Fiscal 2017 Third Quarter Results
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GREENVILLE, SC -- (Marketwired) -- 02/02/17 -- KEMET Corporation (the "Company") (NYSE: KEM), a leading global supplier of passive electronic components, today reported preliminary results for our third fiscal quarter ended December 31, 2016.
Net sales of $188.0 million for the quarter ended December 31, 2016 increased 0.4% from net sales of $187.3 million for the prior quarter ended September 30, 2016 and increased 6.1% from net sales of $177.2 million for the quarter ended December 31, 2015.
U.S. GAAP net income was $12.3 million or $0.22 per diluted share for the quarter ended December 31, 2016. This compares to a net loss of $5.0 million or $0.11 per basic and diluted share for the quarter ended September 30, 2016. For the quarter ended December 31, 2015, the Company reported net loss of $8.6 million or $0.19 per basic and diluted share.
Non-U.S. GAAP adjusted net income was $5.8 million or $0.11 per diluted share for the quarter ended December 31, 2016, as compared to non-U.S. GAAP adjusted net income of $7.0 million or $0.13 per diluted share in the quarter ended September 30, 2016. For the quarter ended December 31, 2015, the Company reported non-U.S. GAAP adjusted net income of $2.2 million or $0.04 per diluted share.
"This quarter is the fourth quarter of sequential growth and the highest revenue since our first quarter in fiscal 2016," stated Per Loof KEMET's Chief Executive Officer. "Global initiatives in the sales development process that targeted specific segments and product technologies supported this growth. These initiatives, coupled with a defined strategy and a target market that was shared across Sales, Business Groups and Technical Marketing boosted the overall quarter performance," continued Loof.
Net income (loss) for the quarters ended December 31, 2016, September 30, 2016 and December 31, 2015 includes various items affecting comparability as denoted in the U.S. GAAP to Non-U.S. GAAP reconciliation table included hereafter.
About KEMET
The Company's common stock is listed on the NYSE under the ticker symbol "KEM" (NYSE: KEM). At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company. KEMET applies world class service and quality to deliver industry leading, high performance capacitance solutions to its customers around the world and offers the world's most complete line of surface mount and through hole capacitor technologies across tantalum, ceramic, film, aluminum, electrolytic, and paper dielectrics. Additional information about KEMET can be found at http://www.kemet.com.
QUIET PERIOD
Beginning April 1, 2017, we will observe a quiet period during which the information provided in this news release and quarterly report on Form 10-Q will no longer constitute our current expectations. During the quiet period, this information should be considered to be historical, applying prior to the quiet period only and not subject to update by management. The quiet period will extend until the day when our next quarterly earnings release is published.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company's 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; (ii) continued net losses could impact our ability to realize current operating plans and could materially adversely affect our liquidity and our ability to continue to operate; (iii) adverse economic conditions could cause the write down of long-lived assets or goodwill; (iv) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased materials; (v) changes in the competitive environment; (vi) uncertainty of the timing of customer product qualifications in heavily regulated industries; (vii) economic, political, or regulatory changes in the countries in which we operate; (viii) difficulties, delays or unexpected costs in completing the restructuring plans; (ix) equity method investment in NEC TOKIN exposes us to a variety of risks; (x) acquisitions and other strategic transactions expose us to a variety of risks; (xi) possible acquisition of NEC TOKIN may not achieve all of the anticipated results; (xii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiii) inability to attract, train and retain effective employees and management; (xiv) inability to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xv) exposure to claims alleging product defects; (xvi) the impact of laws and regulations that apply to our business, including those relating to environmental matters; (xvii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) the need to reduce the total costs of our products to remain competitive; (xx) potential limitation on the use of net operating losses to offset possible future taxable income; (xxi) restrictions in our debt agreements that limit our flexibility in operating our business; (xxii) failure of our information technology systems to function properly or our failure to control unauthorized access to our systems may cause business disruptions; (xxiii) additional exercise of the warrant by K Equity which could potentially result in the existence of a significant stockholder who could seek to influence our corporate decisions; (xxiv) fluctuation in distributor sales could adversely affect our results of operations; and (xxv) changes impacting international trade and corporate tax provisions may have an adverse effect on our financial condition and results of operations.
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Quarters Ended
December 31,
---------------------
2016 2015
---------- ----------
Net sales $ 188,029 $ 177,184
Operating costs and expenses:
Cost of sales 140,692 138,436
Selling, general and administrative expenses 26,665 22,278
Research and development 7,059 6,134
Restructuring charges (369) 1,714
Net (gain) loss on sales and disposals of assets 132 129
---------- ----------
Total operating costs and expenses 174,179 168,691
---------- ----------
Operating income (loss) 13,850 8,493
Non-operating (income) expense:
Interest income (5) (4)
Interest expense 9,918 9,852
Change in value of NEC TOKIN option (6,900) (700)
Other (income) expense, net (3,384) (1,320)
---------- ----------
Income (loss) before income taxes and equity
income (loss) from NEC TOKIN 14,221 665
Income tax expense (benefit) 1,810 2,760
---------- ----------
Income (loss) before equity income (loss) from
NEC TOKIN 12,411 (2,095)
Equity income (loss) from NEC TOKIN (133) (6,505)
---------- ----------
Net income (loss) $ 12,278 $ (8,600)
========== ==========
---------- ----------
Net income (loss) per basic share $ 0.26 $ (0.19)
========== ==========
---------- ----------
Net income (loss) per diluted share $ 0.22 $ (0.19)
========== ==========
Weighted-average shares outstanding:
Basic 46,606 46,081
Diluted 55,296 46,081
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
December 31, March 31,
2016 2016
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 87,356 $ 65,004
Accounts receivable, net 82,519 93,168
Inventories, net 154,519 168,879
Prepaid expenses and other 24,035 25,496
------------ ------------
Total current assets 348,429 352,547
------------ ------------
Property, plant and equipment, net of
accumulated depreciation of $817,605 and
$815,338 as of December 31, 2016 and March 31,
2016, respectively 211,927 241,839
Goodwill 40,294 40,294
Intangible assets, net 30,204 33,301
Investment in NEC TOKIN 21,202 20,334
Deferred income taxes 7,768 8,397
Other assets (1) 2,712 3,068
------------ ------------
Total assets (1) $ 662,536 $ 699,780
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 2,000
Accounts payable 62,347 70,981
Accrued expenses 46,418 50,320
Income taxes payable 1,068 453
------------ ------------
Total current liabilities 109,833 123,754
Long-term debt, less current portion (1) 386,226 385,833
Other non-current obligations 72,704 74,892
Deferred income taxes 3,326 2,820
Stockholders' equity:
Preferred stock, par value $0.01, authorized
10,000 shares, none issued - -
Common stock, par value $0.01, authorized
175,000 shares, issued 46,508 shares at
December 31, 2016 and March 31, 2016 465 465
Additional paid-in capital 445,950 452,821
Retained deficit (304,565) (299,510)
Accumulated other comprehensive income (51,024) (31,425)
Treasury stock, at cost (67 and 611 shares at
December 31, 2016 and March 31, 2016,
respectively) (379) (9,870)
------------ ------------
Total stockholders' equity 90,447 112,481
------------ ------------
Total liabilities and stockholders' equity (1) $ 662,536 $ 699,780
============ ============
(1) March 31, 2016 adjusted due to the adoption of Accounting Standards
Update ("ASU") No. 2015-03, Interest - Imputation of Interest
KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine-Month Periods
Ended
December 31,
-----------------------
2016 2015
----------- -----------
Net income (loss) $ (4,925) $ (38,456)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 27,971 28,856
Equity (income) loss from NEC TOKIN (271) 4,758
Non-cash debt and financing costs 561 649
Stock-based compensation expense 3,471 3,761
Receivable write down 64 24
Change in value of NEC TOKIN option 3,500 26,300
Net (gain) loss on sales and disposals of assets 307 (233)
Write down of long-lived assets 6,193 -
Pension and other post-retirement benefits 2,096 652
Change in deferred income taxes 819 735
Change in operating assets 21,459 4,762
Change in operating liabilities (18,918) (32,891)
Other (183) 526
----------- -----------
Net cash provided by (used in) operating
activities 42,144 (557)
Investing activities:
Capital expenditures (15,011) (14,120)
Acquisitions, net of cash received - (2,892)
Proceeds from sale of assets - 898
----------- -----------
Net cash provided by (used in) investing
activities (15,011) (16,114)
Financing activities:
Proceeds from revolving line of credit - 10,000
Payments on revolving line of credit - (5,500)
Payments on long-term obligations (2,428) (481)
Purchase of treasury stock (1,052) (691)
Proceeds from exercise of stock options 69 -
----------- -----------
Net cash provided by (used in) financing
activities (3,411) 3,328
----------- -----------
Net increase (decrease) in cash and cash
equivalents 23,722 (13,343)
Effect of foreign currency fluctuations on cash (1,370) 139
Cash and cash equivalents at beginning of fiscal
period 65,004 56,362
----------- -----------
Cash and cash equivalents at end of fiscal period $ 87,356 $ 43,158
=========== ===========
Non-U.S. GAAP Financial Measures
The Company utilizes certain Non-U.S. GAAP financial measures, including "Adjusted gross margin", "Adjusted operating income (loss)", "Adjusted net income (loss)", "Adjusted net income (loss) per share" and "Adjusted EBITDA". Management believes that investors may find it useful to review the Company's financial results as adjusted to exclude items as determined by management as further 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 below. 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 below 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 U.S. GAAP.
The following table provides reconciliation from U.S. GAAP Gross margin to Non-U.S. GAAP adjusted gross margin (amounts in thousands):
Quarters Ended
(Unaudited)
-----------------------------------------
December 31, September 30, December 31,
2016 2016 2015
------------- ------------- -------------
Net sales $ 188,029 $ 187,308 $ 177,184
Cost of sales 140,692 140,895 138,436
------------- ------------- -------------
Gross margin (U.S. GAAP) 47,337 46,413 38,748
Gross margin as a % of net sales 25.2% 24.8% 21.9%
Non-U.S. GAAP adjustments:
Stock-based compensation expense 308 301 268
Plant start-up costs - 119 160
Plant shut-down costs - - 231
------------- ------------- -------------
Adjusted gross margin (non-U.S.
GAAP) $ 47,645 $ 46,833 $ 39,407
=========================================
Adjusted gross margin as a % of
net sales 25.3% 25.0% 22.2%
Adjusted Operating Income (Loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses adjusted operating income (loss) 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 (loss) is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. Adjusted operating loss should not be considered as an alternative to operating income (loss) or any other performance measure derived in accordance with U.S. GAAP.
Adjusted operating income (loss) is calculated as follows (amounts in thousands):
Quarters Ended
(Unaudited)
------------------------------------------
December 31, September 30, December 31,
2016 2016 2015
-------------- ------------- -------------
Operating income (loss) (U.S.
GAAP) $ 13,850 $ 3,050 $ 8,493
Adjustments:
ERP integration/IT transition
costs 1,734 1,783 167
Stock-based compensation expense 1,139 1,104 1,154
Restructuring charges (369) 3,998 1,714
Legal expenses related to
antitrust class actions 293 766 1,300
NEC TOKIN investment-related
expenses 204 194 225
Net (gain) loss on sales and
disposals of assets 132 84 129
Write down of long-lived assets - 6,193 -
Plant start-up costs - 119 160
Plant shut-down costs - - 231
-------------- ------------- -------------
Adjusted operating income (loss)
(non-GAAP) $ 16,983 $ 17,291 $ 13,573
============== ============= =============
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share
"Adjusted net income (loss)" and "Adjusted net income (loss) per basic and diluted share" represent net income (loss) and net income (loss) per basic and diluted share excluding adjustments which are outlined in the quantitative reconciliation provided below. The Company believes that these Non-U.S. GAAP financial measures 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. Management uses these Non-U.S. GAAP financial measures to evaluate 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. Non-U.S. GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. GAAP.
The following table provides reconciliation from U.S. GAAP net income (loss) to Non-U.S. GAAP Adjusted net income (loss) (amounts in thousands):
U.S.GAAP to Non-U.S.GAAP
Reconciliation Quarters Ended
-----------------------------------------
December 31, September 30, December 31,
2016 2016 2015
------------- ------------- -------------
U.S. GAAP (Unaudited)
Net sales $ 188,029 $ 187,308 $ 177,184
============= ============= =============
Net income (loss) $ 12,278 $ (4,998) $ (8,600)
============= ============= =============
Net income (loss) per basic share 0.26 (0.11) (0.19)
============= ============= =============
Net income (loss) per diluted
share 0.22 (0.11) (0.19)
============= ============= =============
Non-U.S. GAAP
Net income (loss) $ 12,278 $ (4,998) $ (8,600)
Adjustments:
Change in value of NEC TOKIN
option (6,900) (1,600) (700)
Net foreign exchange (gain)
loss (2,621) (724) (1,036)
ERP integration/IT
transition costs 1,734 1,783 167
Stock-based compensation
expense 1,139 1,104 1,154
Restructuring charges (369) 3,998 1,714
Legal expenses related to
antitrust class actions 293 766 1,300
NEC TOKIN investment-related
expenses 204 194 225
Amortization included in
interest expense 183 188 212
Equity (income) loss from
NEC TOKIN 133 (181) 6,505
Net (gain) loss on sales and
disposals of assets 132 84 129
Write down of long-lived
assets - 6,193 -
Plant start-up costs - 119 160
Plant shut-down costs - - 231
Income tax effect of non-
U.S. GAAP adjustments (1) (396) 29 710
------------- ------------- -------------
Adjusted net income (loss) $ 5,810 $ 6,955 $ 2,171
============= ============= =============
Adjusted net income (loss) per
basic share $ 0.13 $ 0.15 $ 0.05
============= ============= =============
Adjusted net income (loss) per
diluted share $ 0.11 $ 0.13 $ 0.04
============= ============= =============
Weighted average shares
outstanding:
Weighted Average Shares-Basic 46,606 46,590 46,081
Weighted Average Shares-Diluted 55,296 53,834 51,865
(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
Adjusted EBITDA represents net income (loss) before net interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to exclude certain items which are outlined in the quantitative reconciliation provided herein. We use adjusted EBITDA to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business. 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 adjustments to arrive at 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 noted below. 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 U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with U.S. 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 should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. 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 U.S. GAAP results and using adjusted EBITDA as supplementary information.
The following table provides a reconciliation from U.S. GAAP net income (loss) to Adjusted EBITDA (amounts in thousands):
For the Quarters Ended
(Unaudited)
-----------------------------------------
December 31, September 30, December 31,
2016 2016 2015
------------- ------------- -------------
Net income (loss) (U.S. GAAP) $ 12,278 $ (4,998) $ (8,600)
Interest expense, net 9,913 9,904 9,848
Income tax expense (benefit) 1,810 830 2,760
Depreciation and amortization 9,095 9,440 9,674
------------- ------------- -------------
EBITDA (non-GAAP) 33,096 15,176 13,682
Excluding the following items:
Change in value of NEC TOKIN
option (6,900) (1,600) (700)
Net foreign exchange (gain) loss (2,621) (724) (1,036)
Stock-based compensation expense 1,139 1,104 1,154
ERP integration/IT transition
costs 1,734 1,783 167
Restructuring charges (369) 3,998 1,714
Legal expenses related to
antitrust class actions 293 766 1,300
NEC TOKIN investment-related
expenses 204 194 225
Equity (income) loss from NEC
TOKIN 133 (181) 6,505
Net (gain) loss on sales and
disposals of assets 132 84 129
Plant start-up costs - 119 160
Plant shut-down costs - - 231
Write down of long-lived assets - 6,193 -
------------- ------------- -------------
Adjusted EBITDA (non-GAAP) $ 26,841 $ 26,912 $ 23,531
============= ============= =============
Contact: William M. Lowe, Jr. Executive Vice President and Chief Financial Officer [email protected] 864-963-6484 Richard J. Vatinelle Vice President and Treasurer [email protected] 954-766-2838
Source: KEMET Corporation
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