KEMET Reports Preliminary Fiscal 2019 Second Quarter Results

 

•         Net sales of $349.2 million up 15.8% versus prior year second fiscal quarter
•         GAAP Diluted EPS up approximately 3X versus prior year second fiscal quarter
•         GAAP EPS of $0.63 per diluted share and Non-GAAP Adjusted EPS of $0.87 per diluted share
•         11th consecutive quarter over quarter revenue growth
•         GAAP Gross margin of 32.5% up 430 basis points versus same quarter prior year
•         Board approves instituting a quarterly dividend to shareholders of record as of November 16, 2018

FORT LAUDERDALE, Fla., Oct. 30, 2018 (GLOBE NEWSWIRE) -- KEMET Corporation (“KEMET” or the “Company”) (NYSE: KEM), a leading global supplier of passive electronic components, today reported preliminary results for its second fiscal quarter ended September 30, 2018.

Net sales of $349.2 million for the quarter ended September 30, 2018 increased $21.6 million, or 6.6%, from net sales of $327.6 million for the prior quarter ended June 30, 2018. Net sales increased $47.7 million, or 15.8% from net sales of $301.6 million for the quarter ended September 30, 2017.

“Margin expansion continued in all three of our business segments compared to the prior quarter, with the Solid Capacitor Group leading the way. Expectations are that we will see additional margin expansion in our next quarter ending this December and continue with another consecutive quarter over quarter revenue growth. Customer agreements on ceramics products have also been signed that establish ten-year commitments related to capacity expansion that will enable the Company to continue to grow and have committed utilization well into the future,” stated Per Loof, the Company's Chief Executive Officer. “We continue to be bullish on calendar year 2019 with continued demand in the MLCC space driving volume for both MLCC's and our Tantalum Polymer business. Given our financial strength, we are pleased to reward our shareholders with an additional return on their investment by announcing a dividend program today,” continued Loof.

U.S. GAAP net income was $37.1 million or $0.63 per diluted share for the quarter ended September 30, 2018, compared to U.S. GAAP net income of $35.2 million or $0.60 per diluted share for the quarter ended June 30, 2018. For the quarter ended September 30, 2017, the Company reported a U.S. GAAP net income of $12.8 million or $0.22 per diluted share.

Non-GAAP adjusted net income was $51.3 million or $0.87 per diluted share for the quarter ended September 30, 2018, compared to non-GAAP adjusted net income of $32.5 million or $0.55 per diluted share for the quarter ended June 30, 2018. For the quarter ended September 30, 2017, the Company reported non-GAAP adjusted net income of $26.4 million or $0.45 per diluted share.

Net income (loss) for the quarters ended September 30, 2018, June 30, 2018 and September 30, 2017 include various items affecting comparability as denoted in the U.S. 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 electromechanical devices, electromagnetic compatibility solutions and supercapacitors.  Our vision is to be the preferred supplier of electronic component solutions demanding the highest standards of quality, delivery and service.  Additional information about KEMET can be found at http://www.kemet.com.

Quiet Period

Beginning January 1, 2019, 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” 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) 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) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (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; and (xxiv) volatility in our stock price.

 

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

 
  Quarters Ended September 30,
  2018   2017
Net sales (1) $ 349,233     $ 301,568  
Operating costs and expenses:      
Cost of sales (1) 235,668     216,664  
Selling, general and administrative expenses 52,258     42,417  
Research and development (1) 10,995     9,536  
Restructuring charges     1,393  
(Gain) loss on write down and disposal of long-lived assets 312     (39 )
Total operating costs and expenses (1) 299,233     269,971  
Operating income (loss) (1) 50,000     31,597  
Non-operating (income) expense:      
Interest income (375 )   (95 )
Interest expense 7,287     7,365  
Acquisition (gain) loss     (1,285 )
Other (income) expense, net 4,011     10,153  
Income (loss) before income taxes and equity income (loss) from equity method investments (1) 39,077     15,459  
Income tax expense (benefit) (1) 2,000     2,864  
Income (loss) before equity income (loss) from equity method investments (1) 37,077     12,595  
Equity income (loss) from equity method investments 64     224  
Net income (loss) (1) $ 37,141     $ 12,819  
       
Net income (loss) per basic share $ 0.64     $ 0.26  
Net income (loss) per diluted share $ 0.63     $ 0.22  
       
Weighted-average shares outstanding:      
Basic 57,799     49,819  
Diluted 59,197     58,409  
           

_________________
(1) Quarter ended September 30, 2017 adjusted due to the adoption of ASC 606, Revenue from Contracts with Customers ("ASC 606").

 

KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)

  September 30, 2018   March 31, 2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 263,047     $ 286,846  
Accounts receivable, net (1) 157,013     146,561  
Inventories, net 213,268     204,386  
Prepaid expenses and other current assets 36,320     41,160  
Total current assets  (1) 669,648     678,953  
Property, plant and equipment, net of accumulated depreciation of $857,866 and $866,614 as of September 30, 2018 and March 31, 2018, respectively 408,076     405,316  
Goodwill 40,294     40,294  
Intangible assets, net 55,457     59,907  
Equity method investments 12,215     12,016  
Deferred income taxes 12,124     13,837  
Other assets (1) 11,783     12,600  
Total assets (1) $ 1,209,597     $ 1,222,923  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 20,553     $ 20,540  
Accounts payable 138,253     139,989  
Accrued expenses (1) 96,666     125,119  
Income taxes payable 2,584     2,010  
Total current liabilities (1) 258,056     287,658  
Long-term debt 296,084     304,083  
Other non-current obligations(1) 128,427     152,249  
Deferred income taxes (1) 14,459     15,058  
Total liabilities (1) 697,026     759,048  
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 57,436 and 56,641 shares at September 30, 2018 and March 31, 2018, respectively 574     566  
Additional paid-in capital 465,474     462,737  
Retained earnings (deficit) (1) 75,731     3,370  
Accumulated other comprehensive income (loss) (1) (29,208 )   (2,798 )
Total stockholders’ equity (1) 512,571     463,875  
Total liabilities and stockholders’ equity  (1) $ 1,209,597     $ 1,222,923  

_________________
(1) Year ended March 31, 2018 adjusted due to the adoption of ASC 606.

 

KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

  Six months ended September 30,
  2018   2017
Net income (loss) (1) $ 72,361     $ 233,258  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities, net of effect of acquisitions:      
Depreciation and amortization (1) 25,642     26,013  
Equity (income) loss from equity method investments 5     (75,641 )
Acquisition (gain) loss     (136,873 )
Non-cash debt and financing costs 635     1,124  
(Gain) loss on early extinguishment of debt     486  
Stock-based compensation expense 8,477     2,631  
Receivable write down 81     152  
Rent receivable 817      
(Gain) loss on write down and disposal of long-lived assets 823     (20 )
Pension and other post-retirement benefits 2,549     2,608  
Change in deferred income taxes 578     (126 )
Change in operating assets (1) (22,022 )   20,586  
Change in operating liabilities (1) (56,800 )   (34,639 )
Other (1) (147 )   190  
Net cash provided by (used in) operating activities (1) 32,999     39,749  
Investing activities:      
Capital expenditures (40,478 )   (17,830 )
Acquisitions, net of cash received     167,129  
Proceeds from sale of assets     600  
Proceeds from dividend 776     585  
Investment in joint venture (1,000 )    
Net cash provided by (used in) investing activities (40,702 )   150,484  
Financing activities:      
Payments on revolving line of credit     (33,881 )
Payment of long-term debt (8,625 )   (357,313 )
Proceeds from issuance of debt 510     334,978  
Debt issuance costs     (5,002 )
Proceeds from exercise of stock warrants     8,838  
Proceeds from exercise of stock options 471     4,066  
Net cash provided by (used in) financing activities (7,644 )   (48,314 )
Net increase (decrease) in cash, cash equivalents and restricted cash (15,347 )   141,919  
Effect of foreign currency fluctuations on cash, cash equivalents and restricted cash (1) (8,452 )   1,980  
Cash, cash equivalents, and restricted cash at beginning of fiscal period 286,846     109,774  
Cash, cash equivalents, and restricted cash at end of fiscal period 263,047     253,673  
Less:  Restricted cash at end of period      
Cash and cash equivalents at end of period $ 263,047     $ 253,673  

_________________
(1) Six Months Ended September 30, 2017 adjusted due to the adoption of ASC 606.

 

Non-GAAP Financial Measures

The Company utilizes certain Non-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-GAAP Adjusted gross margin (amounts in thousands, except percentages):

   
  Quarters Ended
  (Unaudited)
  September 30,
2018
  June 30, 2018   September 30,
2017
Net sales (1) $ 349,233     $ 327,616     $ 301,568  
Cost of sales (1) 235,668     232,795     216,664  
Gross margin (U.S. GAAP) (1) 113,565     94,821     84,904  
Gross margin as a % of net sales 32.5 %   28.9 %   28.2 %
Non-GAAP adjustments:          
Stock-based compensation expense 686     589     342  
Plant start-up costs 1,361     753      
Adjusted gross margin (non-GAAP) $ 115,612     $ 96,163     $ 85,246  
Adjusted gross margin as a % of net sales (non-GAAP) 33.1 %   29.4 %   28.3 %
                 

_________________
(1) Quarter ended September 30, 2017 adjusted due to the adoption of ASC 606.

Adjusted Operating Income (Loss)

Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. We use Adjusted operating income (loss) 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 (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)
  September 30,
2018
  June 30, 2018   September 30,
2017
Operating income (loss) (U.S. GAAP) (1) $ 50,000     $ 35,176     $ 31,597  
Non-GAAP adjustments:          
Restructuring charges     (96 )   1,393  
ERP integration/IT transition costs 1,593     1,650      
Stock-based compensation expense 4,417     4,060     1,530  
Legal expenses/fines related to antitrust class actions 1,740     1,286     2,375  
Plant start-up costs 1,361     753      
(Gain) loss on write down and disposal of long-lived assets 312     511     (39 )
Adjusted operating income (loss) (non-GAAP) (1) $ 59,423     $ 43,340     $ 36,856  

_________________
(1) Quarter ended September 30, 2017 adjusted due to the adoption of ASC 606.

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-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 (loss), operating income (loss) 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-GAAP Adjusted net income (loss) (amounts in thousands, except per share data):

  Quarters Ended
  (Unaudited)
  September 30,
2018
  June 30, 2018   September 30,
2017
U.S. GAAP  
Net sales (1) $ 349,233     $ 327,616     $ 301,568  
Net income (loss) (1) $ 37,141     $ 35,220     $ 12,819  
           
Net income (loss) per basic share $ 0.64     $ 0.61     $ 0.26  
Net income (loss) per diluted share $ 0.63     $ 0.60     $ 0.22  
           
Non-GAAP          
Net income (loss) (1) $ 37,141     $ 35,220     $ 12,819  
Adjustments:          
Acquisition (gain) loss         (1,285 )
Restructuring charges     (96 )   1,393  
Research and development grant reimbursement     (4,087 )    
ERP integration/IT transition costs 1,593     1,650      
Stock-based compensation expense 4,417     4,060     1,530  
Legal expenses/fines related to antitrust class actions 6,060     1,248     10,327  
Net foreign exchange (gain) loss 193     (7,521 )   1,891  
Amortization included in interest expense 406     229     664  
Equity (income) loss from equity method investments (64 )   69     (224 )
Plant start-up costs 1,361     753      
(Gain) loss on write down and disposal of long-lived assets 312     511     (39 )
Income tax effect of non-GAAP adjustments (164 )   451     (631 )
Adjusted net income (loss) (non-GAAP) (1) $ 51,255     $ 32,487     $ 26,445  
Adjusted net income (loss) per basic share (non-GAAP) $ 0.89     $ 0.57     $ 0.53  
Adjusted net income (loss) per diluted share (non-GAAP) $ 0.87     $ 0.55     $ 0.45  
Weighted average shares outstanding:          
Weighted average shares-basic 57,799     57,339     49,819  
Weighted average shares-diluted 59,197     59,038     58,409  

_________________
(1) Quarter ended September 30, 2018 adjusted due to the adoption of ASC 606.

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 any income tax expense or benefit, including any potential changes to income tax resulting from The Tax Cuts and Jobs Act enacted on December 22, 2017;
  • 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)
  September 30,
2018
  June 30,
2018
  September 30,
2017
Net income (loss) (U.S. GAAP)(1) $ 37,141     $ 35,220     $ 12,819  
           
Non-GAAP adjustments:          
Interest expense, net 6,912     6,658     7,270  
Income tax expense (benefit) (1) 2,000     4,600     2,864  
Depreciation and amortization(1) 12,545     13,097     13,554  
EBITDA (non-GAAP)(1) 58,598     59,575     36,507  
Excluding the following items:          
Acquisition (gain) loss         (1,285 )
Restructuring charges     (96 )   1,393  
Research and development grant reimbursement     (4,087 )    
ERP integration/IT transition costs 1,593     1,650      
Stock-based compensation expense 4,417     4,060     1,530  
Legal expenses/fines related to antitrust class actions 6,060     1,248     10,327  
Net foreign exchange (gain) loss 193     (7,521 )   1,891  
Equity (income) loss from equity method investments (64 )   69     (224 )
Plant start-up costs 1,361     753      
(Gain) loss on write down and disposal of long-lived assets 312     511     (39 )
Adjusted EBITDA (non-GAAP) (1) $ 72,470     $ 56,162     $ 50,100  

_________________
(1) Quarters ended September 30, 2017 adjusted due to the adoption of ASC 606.

Contact: William M. Lowe, Jr. Robin Blackwell
  Executive Vice President and Vice President Corporate Communications
  Chief Financial Officer and Investor Relations
  williamlowe@kemet.com robinblackwell@kemet.com
  864-963-6484 954-245-8742

 

KEMET-Logo-PressRelease.jpg

 

Source: KEMET Corporation