KEMET Reports Preliminary Fiscal 2019 Third Quarter Results

 
  • Net sales of $350.2 million up 14.2% versus prior year third fiscal quarter
  • GAAP Diluted EPS up more than 100% versus prior year third fiscal quarter
  • GAAP EPS of $0.69 per diluted share and Non-GAAP Adjusted EPS of $1.07 per diluted share
  • GAAP Gross margin of 35.3% up 520 basis points versus prior year third quarter

FORT LAUDERDALE, Fla., Jan. 31, 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 third fiscal quarter ended December 31, 2018.

Net sales of $350.2 million for the quarter ended December 31, 2018 increased $1.0 million, or 0.3%, from net sales of $349.2 million for the prior quarter ended September 30, 2018. Net sales increased $43.6 million, or 14.2% from net sales of $306.6 million for the quarter ended December 31, 2017.

“We are pleased with the strong operational performance in our third quarter with gross margins increasing to 35.3%, primarily due to a significant improvement in the Solid Capacitor segment. Looking forward we see continued strength in our Ceramic products, along with further improvement driven by our capital investments. The recently announced ten-year customer financed capacity agreements totaling $66 million to date and resulting new KEMET capacity will further enhance this growth,” stated William Lowe, the Company's Chief Executive Officer. “We expect these positive trends to continue along with growth in several of our key markets, which should offset some of the recent weakness in certain consumer markets and in Asia,” continued Mr. Lowe.

U.S. GAAP net income was $40.8 million or $0.69 per diluted share for the quarter ended December 31, 2018, compared to U.S. GAAP net income of $37.1 million or $0.63 per diluted share for the quarter ended September 30, 2018. For the quarter ended December 31, 2017, the Company reported a U.S. GAAP net income of $18.6 million or $0.32 per diluted share.

Non-GAAP adjusted net income was $63.1 million or $1.07 per diluted share for the quarter ended December 31, 2018, compared to non-GAAP adjusted net income of $51.3 million or $0.87 per diluted share for the quarter ended September 30, 2018. For the quarter ended December 31, 2017, the Company reported non-GAAP adjusted net income of $30.6 million or $0.52 per diluted share.

Net income (loss) for the quarters ended December 31, 2018, September 30, 2018 and December 31, 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 December 31,
Net sales (1)2018 2017
Operating costs and expenses:      350,175    306,576 
Cost of sales (1)226,425  214,288 
Selling, general and administrative expenses48,271  47,751 
Research and development (1)11,357  9,907 
Restructuring charges1,718  3,530 
(Gain) loss on write down and disposal of long-lived assets788  (902)
Total operating costs and expenses (1)288,559  274,574 
Operating income (loss) (1)61,616  32,002 
Non-operating (income) expense:   
Interest income(572) (252)
Interest expense4,480  7,407 
Acquisition (gain) loss  (310)
Other (income) expense, net14,006  4,769 
Income (loss) before income taxes and equity income (loss) from equity method
investments (1)
43,702  20,388 
Income tax expense (benefit) (1)2,600  2,037 
Income (loss) before equity income (loss) from equity method investments (1)41,102  18,351 
Equity income (loss) from equity method investments(296) 238 
Net income (loss) (1)$40,806  $18,589 
    
Net income (loss) per basic share$0.70  $0.33 
Net income (loss) per diluted share$0.69  $0.32 
    
Dividends declared per share$0.05  $ 
    
Weighted-average shares outstanding:   
Basic58,010  56,778 
Diluted59,111  58,937 

_________________
(1) Quarter ended December 31, 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)

 December 31, 2018 March 31, 2018
ASSETS
   
Current assets:   
Cash and cash equivalents$234,359  $286,846 
Accounts receivable, net (1)147,848  146,561 
Inventories, net233,337  204,386 
Prepaid expenses and other current assets40,294  41,160 
Total current assets  (1)655,838  678,953 
Property, plant and equipment, net of accumulated depreciation of $867,313 and $866,614 as of December 31, 2018 and March 31, 2018, respectively438,265  405,316 
Goodwill40,294  40,294 
Intangible assets, net55,170  59,907 
Equity method investments12,861  12,016 
Deferred income taxes11,722  13,837 
Other assets (1)17,107  12,600 
Total assets (1)$1,231,257  $1,222,923 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$28,416  $20,540 
Accounts payable144,418  139,989 
Accrued expenses (1)98,279  125,119 
Income taxes payable3,684  2,010 
Total current liabilities (1)274,797  287,658 
Long-term debt277,260  304,083 
Other non-current obligations(1)125,856  152,249 
Deferred income taxes (1)14,911  15,058 
Total liabilities (1)692,824  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 57,819 and 56,641 shares at December 31, 2018 and March 31, 2018, respectively578  566 
Additional paid-in capital462,882  462,737 
Retained earnings (1)113,664  3,370 
Accumulated other comprehensive income (loss) (1)(38,691) (2,798)
Total stockholders’ equity (1)538,433  463,875 
Total liabilities and stockholders’ equity  (1)$1,231,257  $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)

 Nine months ended December 31,
Operating Activities:2018 2017
Net income (loss) (1)$      113,167  $  251,847 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities,
net of effect of acquisitions:
   
Depreciation and amortization (1)38,405  37,366 
Equity (income) loss from equity method investments301  (75,879)
Acquisition (gain) loss  (137,183)
Non-cash debt and financing costs1,085  1,820 
(Gain) loss on early extinguishment of debt15,988  486 
Stock-based compensation expense10,011  4,837 
Receivable write down84  162 
(Gain) loss on write down and disposal of long-lived assets1,611  (922)
Pension and other post-retirement benefits3,823  3,897 
Change in deferred income taxes (1)1,395  (3,792)
Change in operating assets (1)(42,130) 25,820 
Change in operating liabilities (1)(61,485) (26,258)
Other (1)472  582 
Net cash provided by (used in) operating activities (1)82,727  82,783 
Investing activities:   
Capital expenditures(77,650) (30,925)
Acquisitions, net of cash received  167,129 
Proceeds from sale of assets169  1,227 
Proceeds from dividend776  2,731 
Contributions to equity method investments(2,000)  
Net cash provided by (used in) investing activities(78,705) 140,162 
Financing activities:   
Payments on revolving line of credit  (33,881)
Payments of long-term debt(332,063) (361,625)
Proceeds from issuance of debt293,348  334,978 
Early extinguishment of debt costs(3,234)  
Debt issuance costs(1,797) (5,002)
Proceeds from exercise of stock warrants  8,838 
Proceeds from exercise of stock options480  5,122 
Payment of dividends(2,873)  
Net cash provided by (used in) financing activities(46,139) (51,570)
Net increase (decrease) in cash, cash equivalents and restricted cash(42,117) 171,375 
Effect of foreign currency fluctuations on cash, cash equivalents and restricted cash (1)(7,236) 3,017 
Cash, cash equivalents, and restricted cash, at beginning of fiscal period286,846  109,774 
Cash, cash equivalents, and restricted cash, at end of fiscal period237,493  284,166 
Less: Restricted cash at end of period3,134   
Cash and cash equivalents at end of period$234,359  $284,166 

_________________
(1) Nine Months Ended December 31, 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 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.

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)
 
 December 31,
2018
  September 30,
2018
  December 31,
2017
 
Net sales (1)          350,175    349,233  $  306,576 
Cost of sales (1)226,425  235,668  214,288 
Gross margin (U.S. GAAP) (1)123,750  113,565  92,288 
Gross margin as a % of net sales35.3% 32.5% 30.1%
Non-GAAP adjustments:     
Stock-based compensation expense666  686  402 
Plant start-up costs305  1,361   
Adjusted gross margin (non-GAAP) (1)$124,721  $115,612  $92,690 
Adjusted gross margin as a % of net sales (non-GAAP)35.6% 33.1% 30.2%

_________________
(1) Quarter ended December 31, 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)
 December 31,
2018
 September 30,
2018
 December 31,
2017
Operating income (loss) (U.S. GAAP) (1)$          61,616  $  50,000  $  32,002 
Non-GAAP adjustments:     
Restructuring charges1,718    3,530 
ERP integration/IT transition costs2,453  1,593   
Stock-based compensation expense1,534  4,417  2,206 
Legal expenses/fines related to antitrust class actions1,268  1,740  1,482 
Plant start-up costs305  1,361   
(Gain) loss on write down and disposal of long-lived assets788  312  (902)
Adjusted operating income (loss) (non-GAAP)$69,682  $59,423  $38,318 

_________________
(1) Quarter ended December 31, 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)
 December 31,
2018
 September 30,
2018
 December 31,
2017
U.S. GAAP           
Net sales (1)$350,175  $349,233  $306,576 
Net income (loss) (1)$40,806  $37,141  $18,589 
      
Net income (loss) per basic share$0.70  $0.64  $0.33 
Net income (loss) per diluted share$0.69  $0.63  $0.32 
      
Non-GAAP     
Net income (loss) (U.S. GAAP) (1)$40,806  $37,141  $18,589 
Non-GAAP adjustments:     
Acquisition (gain) loss    (310)
Restructuring charges1,718    3,530 
Research and development grant reimbursement(470)    
ERP integration/IT transition costs2,453  1,593   
Stock-based compensation expense1,534  4,417  2,206 
Legal expenses/fines related to antitrust class actions1,549  6,060  4,073 
Net foreign exchange (gain) loss(2,218) 193  2,239 
Amortization included in interest expense450  406  696 
Equity (income) loss from equity method investments296  (64) (238)
Plant start-up costs305  1,361   
(Gain) loss on write down and disposal of long-lived assets788  312  (902)
(Gain) loss on early extinguishment of debt15,988     
Income tax effect of non-GAAP adjustments(91) (164) 667 
Adjusted net income (loss) (non-GAAP) (1)$63,108  $51,255  $30,550 
Adjusted net income (loss) per basic share (non-GAAP)$1.09  $0.89  $0.54 
Adjusted net income (loss) per diluted share (non-GAAP)$1.07  $0.87  $0.52 
Weighted average shares outstanding:     
Weighted average shares-basic58,010  57,799  56,778 
Weighted average shares-diluted59,111  59,197  58,937 

_________________
(1) Quarter ended December 31, 2017 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 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)
 December 31,
2018
 September 30,
2018
 December 31,
2017
Net income (loss) (U.S. GAAP)(1)$          40,806  $  37,141  $  18,589 
      
Non-GAAP adjustments:     
Interest expense, net3,908  6,912  7,155 
Income tax expense (benefit) (1)2,600  2,000  2,037 
Depreciation and amortization(1)12,763  12,545  11,353 
EBITDA (non-GAAP)(1)60,077  58,598  39,134 
Excluding the following items:     
Acquisition (gain) loss    (310)
Restructuring charges1,718    3,530 
Research and development grant reimbursement(470)    
ERP integration/IT transition costs2,453  1,593   
Stock-based compensation expense1,534  4,417  2,206 
Legal expenses/fines related to antitrust class actions1,549  6,060  4,073 
Net foreign exchange (gain) loss(2,218) 193  2,239 
Equity (income) loss from equity method investments296  (64) (238)
(Gain) loss on early extinguishment of debt15,988     
Plant start-up costs305  1,361   
(Gain) loss on write down and disposal of long-lived assets788  312  (902)
Adjusted EBITDA (non-GAAP)$82,020  $72,470  $49,732 

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

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