KEMET Reports Preliminary Fiscal 2018 First Quarter Results

 
  • Pro forma quarterly sales for the Company and TOKIN of $291 million
  • GAAP Gross margin of 28.0% up 280 basis points over prior quarter ending March 31, 2017
  • GAAP EPS of $3.84 per diluted share and NON-GAAP EPS of $0.33 per diluted share
  • Cash Balance of $225.6 million at June 30, 2017
  • September 30, 2017 quarter sales forecast of $295 million to $305 million

GREENVILLE, S.C., Aug. 02, 2017 (GLOBE NEWSWIRE) -- KEMET Corporation (the “Company”) (NYSE:KEM), a leading global supplier of passive electronic components, today reported preliminary results for our first fiscal quarter ended June 30, 2017.

Net sales of $274.0 million for the quarter ended June 30, 2017 increased $76.5 million from net sales of $197.5 million for the prior quarter ended March 31, 2017. TOKIN Corporation ("TOKIN") sales included in total revenue from the period April 19, 2017 to June 30, 2017 were $71.4 million. Pro forma sales for the Company and TOKIN as if the acquisition occurred on April 1, 2017 were $291 million.  Net sales for the quarter ended June 30, 2017 increased $89.1 million from net sales of $184.9 million for the quarter ended June 30, 2016, driven primarily by TOKIN net sales of $71.4 million.

U.S. GAAP net income was $221.4 million or $3.84 per diluted share for the quarter ended June 30, 2017. This compares to net income of $52.9 million or $0.93 per diluted share for the quarter ended March 31, 2017. For the quarter ended June 30, 2016, the Company reported a net loss of $12.2 million or $0.26 per basic and diluted share.  Net income for the quarter ended June 30, 2017 includes a $75.4 million gain from the equity investment in TOKIN for the period from April 1, 2017 to April 18, 2017, primarily related to KEMET's thirty-four percent interest in TOKIN's gain on the sale of its electro-mechanical devices (“EMD”) business. Additionally, as part of the acquisition of TOKIN, KEMET recorded acquisition gains totaling $136.4 million, consisting of the following: a preliminary gain of $72.7 million to mark its thirty-four percent interest in TOKIN to fair value and a $63.7 million preliminary gain on the acquisition of TOKIN for the quarter ended June 30, 2017. The Company continues to evaluate the calculation of acquisition related gains and, as such, these preliminary numbers may change in the future.

Non-U.S. GAAP adjusted net income was $19.2 million or $0.33 per diluted share for the quarter ended June 30, 2017, as compared to non-U.S. GAAP adjusted net income of $7.8 million or $0.14 per diluted share for the quarter ended March 31, 2017. For the quarter ended June 30, 2016, the Company reported non-U.S. GAAP adjusted net income of $3.3 million or $0.06 per diluted share.

“In our first fiscal quarter of this year we completed all three of our key objectives of closing the TOKIN acquisition, refinancing our long-term debt, and the acquisition being accretive out of the starting gate,” stated Per Loof, the Company’s Chief Executive Officer.  “We are extremely pleased with the first quarter financial results combining KEMET with TOKIN and the value creation for all of our stakeholders.  The work to extract the synergies from the combination is just beginning but is expected to be additive to our financial results this fiscal year,” continued Loof.

Net income (loss) for the quarters ended June 30, 2017, March 31, 2017 and June 30, 2016 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 October 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 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.

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.


KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 
     Quarters Ended June 30,  
  2017   2016
Net sales $ 274,000     $ 184,935  
Operating costs and expenses:      
Cost of sales 197,324     142,412  
Selling, general and administrative expenses 37,870     25,914  
Research and development 9,390     6,932  
Restructuring charges 1,613     688  
Net (gain) loss on sales and disposals of assets 19     91  
Total operating costs and expenses 246,216     176,037  
Operating income (loss) 27,784     8,898  
Non-operating (income) expense:      
Interest income (66 )   (3 )
Interest expense 10,960     9,923  
Acquisition gains (136,386 )    
Change in value of TOKIN option     12,000  
Other (income) expense, net 6,139     (2,394 )
Income (loss) before income taxes and equity income (loss) from TOKIN       147,137     (10,628 )
Income tax expense (benefit) 1,150     1,800  
Income (loss) before equity income (loss) from TOKIN 145,987     (12,428 )
Equity income (loss) from equity method investments 75,417     223  
Net income (loss) $ 221,404     $ (12,205 )
       
Net income (loss) per basic share $ 4.67     $ (0.26 )
       
Net income (loss) per diluted share $ 3.84     $ (0.26 )
       
Weighted-average shares outstanding:      
Basic 47,381     46,349  
Diluted 57,731     46,349  



KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
       
   June 30, 2017     March 31, 2017 
ASSETS      
Current assets:      
Cash and cash equivalents $ 225,644     $ 109,774  
Accounts receivable, net 137,562     92,526  
Inventories, net 192,030     147,955  
Prepaid expenses and other (1) 51,773     28,782  
Total current assets 607,009     379,037  
Property, plant and equipment, net of accumulated depreciation of $1,345,781 and $821,276 as of June 30, 2017 and March 31, 2017, respectively   368,417     209,311  
Goodwill 40,294     40,294  
Intangible assets, net 63,664     29,781  
Equity method investments 12,038     63,416  
Deferred income taxes (1) 10,528     8,367  
Other assets 10,002     4,119  
Total assets (1) $ 1,111,952     $ 734,325  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 20,376     $ 2,000  
Accounts payable 135,474     69,674  
Accrued expenses 88,872     57,752  
Income taxes payable 531     715  
Total current liabilities 245,253     130,141  
Long-term debt, less current portion 315,224     386,211  
Other non-current obligations 152,073     60,131  
Deferred income taxes (1) 12,897     3,370  
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 47,588 and 46,689 shares at June 30, 2017 and March 31, 2017, respectively 476     467  
Additional paid-in capital 447,145     447,671  
Retained deficit (1) (30,103 )   (251,854 )
Accumulated other comprehensive income (31,013 )   (41,812 )
Total stockholders’ equity 386,505     154,472  
Total liabilities and stockholders’ equity (1) $ 1,111,952     $ 734,325  

(1)      March 31, 2017 adjusted due to the adoption of Accounting Standards Update ("ASU") No. 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory



KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
   
     Quarters Ended June 30,  
  2017   2016
Net income (loss) $ 221,404     $ (12,205 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:            
Depreciation and amortization 12,243     9,436  
Equity (income) loss from TOKIN (75,417 )   (223 )
Acquisition gains (136,386 )    
Non-cash debt and financing costs 460     190  
(Gain) loss on early extinguishment of debt 486      
Stock-based compensation expense 1,101     1,228  
Change in value of TOKIN option (9,900 )   12,000  
Net (gain) loss on sales and disposals of assets 19     91  
Pension and other post-retirement benefits 687     709  
Change in deferred income taxes (129 )   1,294  
Change in operating assets 27,986     (2,357 )
Change in operating liabilities (34,672 )   (13,088 )
Other 467     (111 )
    Net cash provided by (used in) operating activities 8,349     (3,036 )
Investing activities:      
Capital expenditures (7,298 )   (6,167 )
Acquisitions, net of cash received 167,129      
    Net cash provided by (used in) investing activities 159,831     (6,167 )
Financing activities:      
Payments on revolving line of credit (33,881 )    
Proceeds from issuance of debt 331,567      
Payments on long-term obligations (353,000 )   (1,870 )
Purchase of treasury stock     (595 )
Proceeds from exercise of stock options 2,063      
    Net cash provided by (used in) financing activities (53,251 )   (2,465 )
        Net increase (decrease) in cash and cash equivalents 114,929     (11,668 )
Effect of foreign currency fluctuations on cash 941     (398 )
Cash and cash equivalents at beginning of fiscal period 109,774     65,004  
Cash and cash equivalents at end of fiscal period $ 225,644     $ 52,938  


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)
  June 30,
2017
  March 31,
2017
  June 30,
2016
Net sales $   274,000     $   197,519     $   184,935  
Cost of sales 197,324     147,680     142,412  
Gross margin (U.S. GAAP) 76,676     49,839     42,523  
Gross margin as a % of net sales 28.0 %   25.2 %   23.0 %
Non-U.S. GAAP adjustments:          
Stock-based compensation expense 310     391     384  
Plant start-up costs         308  
Adjusted gross margin (non-GAAP) $ 76,986     $ 50,230     $ 43,215  
Adjusted gross margin as a % of net sales (non-GAAP)       28.1 %   25.4 %   23.4 %

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 income (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)
  June 30,
2017
  March 31,
2017
  June 30,
2016
Operating income (loss) (U.S. GAAP) $     27,784     $     8,742     $     8,898  
Adjustments:          
ERP integration/IT transition costs     1,760     1,768  
Stock-based compensation expense 1,101     1,249     1,228  
Restructuring charges 1,613     1,087     688  
Legal expenses related to antitrust class actions       1,141     406     1,175  
TOKIN investment-related expenses     497     206  
Net (gain) loss on sales and disposals of assets 19     85     91  
Write down of long-lived assets     4,086      
Plant start-up costs         308  
Adjusted operating income (loss) (non-GAAP) $ 31,658     $ 17,912     $ 14,362  

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):

  Quarters Ended
  (Unaudited)
  June 30,
2017
  March 31,
2017
  June 30,
2016
U.S. GAAP  
Net sales $   274,000     $   197,519     $   184,935  
Net income (loss) $ 221,404     $ 52,914     $ (12,205 )
           
Net income (loss) per basic share $ 4.67     $ 1.13     $ (0.26 )
           
Net income (loss) per diluted share $ 3.84     $ 0.93     $ (0.26 )
Non-U.S. GAAP          
Net income (loss) $ 221,404     $ 52,914     $ (12,205 )
Adjustments:          
    Change in value of TOKIN option     (14,200 )   12,000  
    Net foreign exchange (gain) loss 5,043     1,507     (1,920 )
   ERP integration/IT transition costs     1,760     1,768  
   Stock-based compensation expense 1,101     1,249     1,228  
   Restructuring charges 1,613     1,087     688  
   Legal expenses related to antitrust class actions 1,141     406     1,175  
   TOKIN investment-related expenses     497     206  
   Amortization included in interest expense 460     200     190  
   Acquisition gains (136,386 )        
   Equity (income) loss from TOKIN (75,417 )   (41,372 )   (223 )
   Net (gain) loss on sales and disposals of assets 19     85     91  
   Write down of long-lived assets     4,086      
   Plant start-up costs         308  
   (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) per basic share (non-GAAP) $ 0.41     $ 0.17     $ 0.07  
Adjusted net income (loss) per diluted share (non-GAAP) $ 0.33     $ 0.14     $ 0.06  
Weighted average shares outstanding:          
Weighted average shares-basic 47,381     46,803     46,349  
Weighted average shares-diluted 57,731     57,130     52,097  

(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):

  Quarters Ended
  (Unaudited)
  June 30,
2017
  March 31,
2017
  June 30,
2016
Net income (loss) (U.S. GAAP) $   221,404     $   52,914     $   (12,205 )
Interest expense, net 10,894     9,994     9,920  
Income tax expense (benefit) 1,150     (150 )   1,800  
Depreciation and amortization 12,243     9,367     9,436  
EBITDA (non-GAAP) 245,691     72,125     8,951  
Excluding the following items:          
Change in value of TOKIN option     (14,200 )   12,000  
Net foreign exchange (gain) loss 5,043     1,507     (1,920 )
Stock-based compensation expense 1,101     1,249     1,228  
ERP integration/IT transition costs     1,760     1,768  
Restructuring charges 1,613     1,087     688  
Legal expenses related to antitrust class actions       1,141     406     1,175  
TOKIN investment-related expenses     497     206  
Acquisition gains (136,386 )        
Equity (income) loss from NEC TOKIN (75,417 )   (41,372 )   (223 )
(Gain) loss on early extinguishment of debt 486          
Net (gain) loss on sales and disposals of assets 19     85     91  
Plant start-up costs         308  
Write down of long-lived assets     4,086      
Adjusted EBITDA (non-GAAP) $ 43,291     $ 27,230     $ 24,272  
Contact:
William M. Lowe, Jr.
Executive Vice President and Chief Financial Officer
williamlowe@kemet.com
864-963-6484

Richard J. Vatinelle
Vice President and Treasurer
richardvatinelle@kemet.com
954-766-2838

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KEMET Corporation