KEMET Announces Preliminary First Quarter Results Exceed Guidance

 

FORT LAUDERDALE, Fla., Aug. 01, 2019 (GLOBE NEWSWIRE) -- KEMET Corporation (“KEMET” or the “Company”) (NYSE: KEM), a leading global supplier of passive electronic components, today reported preliminary results for its first fiscal quarter ended June 30, 2019.

First Quarter Highlights

•  Net sales of $345.2 million up 5.4% versus prior year first fiscal quarter
•  GAAP Diluted EPS up 13% versus prior year first fiscal quarter
•  GAAP EPS of $0.68 per diluted share
•  Non-GAAP EPS of $0.82 per diluted share up 49% versus prior year first fiscal quarter
•  GAAP Gross margin of 35.2% up 630 basis points versus prior year first fiscal quarter

Chief Executive Officer, William M. Lowe Jr. stated, “We started out this fiscal year with another great quarter with revenue at $345.2 million, up 5.4% compared to the prior year first fiscal quarter. We continue to separate ourselves from others in the industry with our consolidated gross margin continuing to grow to 35.2%. While we are not immune to many of the factors affecting the passive component space, we are insulated to some degree by our Ceramics product line that focuses on high capacitance large case ceramics where the market remains tight, and by our growing Polymer product line. Polymer now represents approximately 70.0% of our tantalum revenue including automotive grade polymer solutions. Gross profit of $121.6 million was up 28.3% compared to the same quarter last year and is reflective of the structural transformation within our cost structure and specialty focus over the past several years. As we look forward to the rest of our fiscal year, we expect adjusting inventory levels in the distribution channel, a slowdown in the automotive segment and Europe in general. However, going forward we expect to hold our gross margin in a similar range to this quarter from 33.5% to 35.0%, supported by our structural changes.”

GAAP operating income for the quarter ended June 30, 2019 was up 66.0% to $58.4 million compared to $35.2 million for the quarter ended June 30, 2018.

GAAP net income was $40.3 million or $0.68 per diluted share for the quarter ended June 30, 2019, compared to GAAP net income of $35.2 million or $0.60 per diluted share for the quarter ended June 30, 2018. Non-GAAP adjusted net income was $48.2 million or $0.82 per diluted share for the quarter ended June 30, 2019, compared to non-GAAP adjusted net income of $32.3 million or $0.55 per diluted share for the quarter ended June 30, 2018.

Greg Thompson, Chief Financial Officer stated, “Our balance sheet remains strong with cash and investments of approximately $217.3 million and net debt of $94.8 million as of June 30, 2019. Combined with the low-cost financing of our debt, our financial position will allow us to execute on our long-term growth strategy for the Company and provide the ability to return capital to our shareholders.”

Net income for the quarters ended June 30, 2019, March 31, 2019 and June 30, 2018 include various items affecting comparability as denoted in the GAAP to non-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 offers our customers the broadest selection of capacitor technologies in the industry, along with an expanding range of sensors, actuators, and electromagnetic compatibility solutions. KEMET operates manufacturing facilities and sales and distribution centers around the world. Additional information about KEMET can be found at http://www.kemet.com.

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" or other similar expressions and future or conditional verbs such as “will,” “should,” “would,” and “could” 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 could 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 Company’s restructuring plans; (vii) acquisitions and other strategic transactions expose us to a variety of risks, including the ability to successfully integrate and maintain adequate internal controls over financial reporting in compliance with applicable regulations; (viii) our acquisition of TOKIN Corporation 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, data protection, cyber security and privacy; (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) default or failure of one or more of our counterparty financial institutions could cause us to incur significant losses; (xviii) the need to reduce the total costs of our products to remain competitive; (xix) potential limitation on the use of net operating losses to offset possible future taxable income; (xx) restrictions in our debt agreements that could limit our flexibility in operating our business; (xxi) failure to maintain effective internal controls over financial reporting; (xxii) service interruption, misappropriation of data, or breaches of security as it relates to our information systems could cause a disruption in our operations, financial losses, and damage to our reputation; (xxiii) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (xxiv) fluctuation in distributor sales could adversely affect our results of operations; (xxv) earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations; and (xxvi) volatility in our stock price.

KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

 
 Quarters Ended June 30,
 2019 2018
Net sales$345,242  $327,616 
Operating costs and expenses:   
Cost of sales223,614  232,795 
Selling, general and administrative expenses47,885  48,542 
Research and development12,175  10,688 
Restructuring charges2,208  (96)
(Gain) loss on write down and disposal of long-lived assets960  511 
Total operating costs and expenses286,842  292,440 
  Operating income58,400  35,176 
Non-operating (income) expense   
Interest income(809) (378)
Interest expense2,545  7,036 
Other (income) expense, net(726) (11,371)
Income before income taxes and equity income (loss) from equity method investments57,390  39,889 
Income tax expense (benefit)16,800  4,600 
Income before equity income (loss) from equity method investments40,590  35,289 
Equity income (loss) from equity method investments(250) (69)
Net income$40,340  $35,220 
    
Net income per basic share$0.69  $0.61 
Net income per diluted share$0.68  $0.60 
    
Dividends declared per share$0.05  $ 
    
Weighted-average shares outstanding:   
Basic58,350  57,339 
Diluted59,055  59,038 


KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)

 June 30, 2019 March 31, 2019
ASSETS   
Current assets:   
Cash and cash equivalents$217,307  $207,918 
Accounts receivable, net154,522  154,059 
Inventories, net256,140  241,129 
Prepaid expenses and other current assets48,187  38,947 
Total current assets676,156  642,053 
Property, plant and equipment, net of accumulated depreciation of $889,142 and $880,451 as of June 30, 2019 and March 31, 2019, respectively518,310  495,280 
Goodwill40,294  40,294 
Intangible assets, net53,448  53,749 
Equity method investments14,238  12,925 
Deferred income taxes44,544  57,024 
Other assets44,216  16,770 
Total assets$1,391,206  $1,318,095 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$29,225  $28,430 
Accounts payable161,853  153,287 
Accrued expenses79,173  93,761 
Income taxes payable808  2,995 
Total current liabilities271,059  278,473 
Long-term debt282,871  266,041 
Other non-current obligations149,267  125,360 
Deferred income taxes11,214  8,806 
Total liabilities714,411  678,680 
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 58,018 and 57,822 shares at June 30, 2019 and March 31, 2019, respectively580  578 
Additional paid-in capital466,704  465,366 
Retained earnings241,635  204,195 
Accumulated other comprehensive income (loss)(32,124) (30,724)
Total stockholders’ equity676,795  639,415 
Total liabilities and stockholders’ equity$1,391,206  $1,318,095 


KEMET CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

 Quarters Ended June 30,
Operating Activities:2019 2018
Net income$40,340  $35,220 
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effect of acquisitions:   
Depreciation and amortization14,259  13,097 
Equity (income) loss from equity method investments250  69 
Non-cash debt and financing costs894  229 
(Gain) loss on derivative instruments designated as hedges(8,264)  
Stock-based compensation expense2,725  4,060 
Rent receivable  3,077 
(Gain) loss on write down and disposal of long-lived assets960  511 
Pension and other post-retirement benefits1,341  1,274 
Change in deferred income taxes14,895  951 
Change in operating assets(15,626) (24,520)
Change in operating liabilities(18,004) (49,330)
Other(57) (488)
    Net cash provided by (used in) operating activities33,713  (15,850)
Investing activities:   
Capital expenditures(37,112) (16,021)
Proceeds from dividend433  772 
Contributions to equity method investments(2,000)  
    Net cash provided by (used in) investing activities(38,679) (15,249)
Financing activities:   
Payments of long-term debt  (4,313)
Proceeds from long term debt12,541   
Proceeds from termination of derivative instruments6,476   
Principal payments on finance leases(367)  
Proceeds from exercise of stock options30  275 
Payment of dividends(2,900)  
   Net cash provided by (used in) financing activities15,780  (4,038)
      Net increase (decrease) in cash, cash equivalents and restricted cash10,814  (35,137)
Effect of foreign currency fluctuations on cash, cash equivalents and restricted cash1,150  (7,061)
Cash, cash equivalents, and restricted cash, at beginning of fiscal period207,918  286,846 
Cash, cash equivalents, and restricted cash, at end of fiscal period219,882  244,648 
Less: Restricted cash at end of period2,575   
Cash and cash equivalents at end of period$217,307  $244,648 

Non-GAAP Financial Measures

The Company utilizes certain Non-GAAP financial measures, including “Adjusted gross margin,” “Adjusted operating income,” “Adjusted net income,” “Adjusted net income per basic and diluted 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. The Company also has presented above non-GAAP adjusted gross margin as projected for the second quarter of fiscal year 2020. A reconciliation of GAAP to non-GAAP adjusted gross margin is not provided because the Company does not forecast GAAP gross margin as it cannot, without unreasonable effort, estimate or predict with certainty various components of such measure.

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 GAAP.

 The following table provides a reconciliation from non-GAAP Adjusted Gross margin to GAAP Adjusted gross margin, the most directly comparable GAAP measure (amounts in thousands, except percentages):

 Quarters Ended
 (Unaudited)
 June 30, 2019 March 31, 2019 June 30, 2018
Net sales$345,242  $355,794  $327,616 
Cost of sales223,614  229,388  232,795 
Gross margin (GAAP)121,628  126,406  94,821 
Gross margin as a % of net sales35.2% 35.5% 28.9%
Non-GAAP adjustments:     
Stock-based compensation expense874  815  589 
Plant start-up costs34  (3,346) 753 
Adjusted gross margin (non-GAAP)$122,536  $123,875  $96,163 
Adjusted gross margin as a % of net sales (non-GAAP)35.5% 34.8% 29.4%

Adjusted SG&A Expenses

Adjusted SG&A expenses represents SG&A expenses excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses Adjusted SG&A expenses to facilitate our analysis and understanding of our business operations by excluding these items 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 SG&A expenses is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted SG&A expenses should not be considered as an alternative to SG&A expenses or any other performance measure derived in accordance with GAAP.

The following table provides a reconciliation from non-GAAP Adjusted SG&A to GAAP SG&A, the most directly comparable GAAP measure (amounts in thousands, except percentages):

 Quarters Ended
 (Unaudited)
 June 30, 2019 March 31, 2019 June 30, 2018
SG&A expenses (GAAP)$47,885  $53,571  $48,542 
Non-GAAP adjustments:     
ERP integration costs/IT transition costs1,215  3,117  1,650 
Stock-based compensation expense1,735  1,935  3,402 
Legal expenses related to antitrust class actions2,559  901  1,286 
Adjusted SG&A expenses (non-GAAP)$42,376  $47,618  $42,204 

Adjusted Operating Income

Adjusted operating income represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided below. We use Adjusted operating income 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 operating income 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 income should not be considered as an alternative to operating income or any other performance measure derived in accordance with GAAP.

The following table provides a reconciliation from non-GAAP Adjusted Operating income to GAAP Operating income, the most directly comparable GAAP measure (amounts in thousands, except percentages):

 Quarters Ended
 (Unaudited)
 June 30, 2019 March 31, 2019 June 30, 2018
Operating income (GAAP)$58,400  $54,057  $35,176 
Non-GAAP adjustments:     
Restructuring charges2,208  7,157  (96)
ERP integration/IT transition costs1,215  3,117  1,650 
Stock-based compensation expense2,725  2,855  4,060 
Legal expenses related to antitrust class actions2,559  901  1,286 
Plant start-up costs34  (3,346) 753 
(Gain) loss on write down and disposal of long-lived assets960  49  511 
Adjusted operating income (non-GAAP)$68,101  $64,790  $43,340 

Adjusted Net Income and Adjusted Net Income Per Share

“Adjusted net income” and “Adjusted net income per basic and diluted share” represent net income and net income per basic and diluted share excluding adjustments which are outlined in the quantitative reconciliation provided below. The Company believes that these Non-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-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-GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

The following table provides a reconciliation from non-GAAP Adjusted Net income to GAAP Net income, the most directly comparable GAAP measure (amounts in thousands, except percentages):

 Quarters Ended
 (Unaudited)
 June 30, 2019 March 31, 2019 June 30, 2018
GAAP 
Net sales$345,242  $355,794  $327,616 
Net income$40,340  $93,420  $35,220 
      
Net income per basic share$0.69  $1.60  $0.61 
Net income per diluted share$0.68  $1.58  $0.60 
      
Non-GAAP     
Net income (GAAP)$40,340  $93,420  $35,220 
Non-GAAP adjustments:     
Restructuring charges2,208  7,157  (96)
R&D grant reimbursements and grant income(35) (2) (4,087)
ERP integration/IT transition costs1,215  3,117  1,650 
Stock-based compensation expense2,725  2,855  4,060 
Legal expenses/fines related to antitrust class actions2,559  3,039  1,248 
Net foreign exchange (gain) loss(489) 2,316  (7,521)
Equity (income) loss from equity method investments250  3,003  69 
Plant start-up costs34  (3,346) 753 
(Gain) loss on write down and disposal of long-lived assets960  49  511 
(Gain) loss on early extinguishment of debt  (42)  
Income tax effect of non-GAAP adjustments(1,568) (50,208) 451 
Adjusted net income (non-GAAP)$48,199  $61,358  $32,258 
Adjusted net income per basic share (non-GAAP)$0.83  $1.05  $0.56 
Adjusted net income per diluted share (non-GAAP)$0.82  $1.04  $0.55 
Weighted average shares outstanding:     
Weighted average shares-basic58,350  58,233  57,339 
Weighted average shares-diluted59,055  58,975  59,038 

Adjusted EBITDA

Adjusted EBITDA represents net income 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 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 should not be considered 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 as supplementary information.

The following table provides a reconciliation from non-GAAP Adjusted EBITDA to GAAP Net income, the most directly comparable GAAP measure (amounts in thousands):

 Quarters Ended
 (Unaudited)
 June 30, 2019 March 31, 2019 June 30, 2018
Net income (GAAP)$40,340  $93,420  $35,220 
      
Non-GAAP adjustments:     
Interest expense, net1,736  1,726  6,658 
Income tax expense (benefit)16,800  (48,660) 4,600 
Depreciation and amortization14,259  14,223  13,096 
EBITDA (non-GAAP)73,135  60,709  59,574 
Excluding the following items:     
Restructuring charges2,208  7,157  (96)
R&D grant reimbursements and grant income(35) (2) (4,087)
ERP integration/IT transition costs1,215  3,117  1,650 
Stock-based compensation expense2,725  2,855  4,060 
Legal expenses/fines related to antitrust class actions2,559  3,039  1,248 
Net foreign exchange (gain) loss(489) 2,316  (7,521)
Equity (income) loss from equity method investments250  3,003  69 
(Gain) loss on early extinguishment of debt  (42)  
Plant start-up costs34  (3,346) 753 
(Gain) loss on write down and disposal of long-lived assets960  49  511 
Adjusted EBITDA (non-GAAP)$82,562  $78,855  $56,161 


Contact:Gregory C. ThompsonRichard Vatinelle
 Executive Vice President andVice President and
 Chief Financial OfficerTreasurer
 GregThompson@KEMET.comInvestorRelations@KEMET.com
 954-595-5081954-766-2819