FORT WORTH, Texas, June 11, 2018 (GLOBE NEWSWIRE) -- KMG (NYSE:KMG), a global provider of specialty chemicals and performance materials, today announced financial results for the fiscal 2018 third quarter ended April 30, 2018.

2018 Third Quarter Financial Highlights

• Sales increased 45% from the third quarter of last year to a record $118.6 million.
• GAAP diluted earnings per share doubled to $0.98 from $0.49 per diluted share in the third quarter of fiscal 2017.
• Adjusted diluted earnings per share¹ was a record $1.10 compared to $0.53 per share reported in the third quarter of last year.
• GAAP net income increased to $15.6 million, compared to $6.1 million in the third quarter of last year.
• Adjusted EBITDA² was a record $31.5 million, up 125% from $14.0 million in the third quarter of fiscal 2017.
• Operating cash flow increased to a record $21.5 million, compared to $7.9 million in the third quarter of fiscal 2017.

“KMG achieved outstanding third quarter results, driven by strong organic growth in both our electronic chemicals and performance materials segments, as well as a significant contribution from the acquisition of Flowchem,” said Chris Fraser, KMG chairman and CEO. “Consolidated sales grew 45% year-over-year and 4% sequentially to $118.6 million, setting another quarterly record for KMG. Adjusted EBITDA and adjusted diluted earnings per share also reached record levels, reflecting product volume growth and continued efficiency improvements across our global operations.”

Mr. Fraser continued, “Third quarter sales in our electronic chemicals segment increased 10% year-over-year to a record $74.7 million, benefiting from product volume growth in each of our major geographic regions. Despite higher freight costs, segment operating income grew 28% year-over-year to $10.9 million, aided by increased product volume, operating efficiencies and a favorable product mix.  

“Our performance materials segment also generated record results, with third quarter sales increasing 10% on a sequential basis and more than tripling year-over-year to $44 million. Supported by our global capabilities and innovative technology, our pipeline performance business generated strong growth, with favorable energy market dynamics contributing to increased demand for our products and solutions that optimize pipeline throughput and maximize performance and safety. We also experienced continued growth in our wood treating chemicals business, which provides products essential to preserve North America’s expansive wood-based utility pole infrastructure. Overall, performance materials segment operating income grew to $16 million, a new quarterly record for this segment.”      

Mr. Fraser concluded, “Considering our strong financial performance through the first nine months of fiscal 2018, as well as our expectations for continued growth in the fourth quarter of our fiscal year, we are increasing our fiscal 2018 sales forecast to $455-465 million, from $445-455 million previously, and increasing our fiscal 2018 adjusted EBITDA guidance to $118-120 million, from $114-118 million.”

Consolidated results

Third quarter Dollars in thousands, except EPS	Fiscal 2018							Fiscal 2017
	As Reported			Adjusted				As Reported			Adjusted
	(GAAP)			(non-GAAP)3				(GAAP)			(non-GAAP)4
Net sales	$118,647			$118,647				$81,616			$81,616
Operating income		23,953			27,230				9,367			10,001
Operating margin		20.2	%		23.0	%			11.5	%		12.3	%
Net income		15,645			17,459				6,067			6,479
Diluted earnings per share	$0.98			$1.10				$ 0.49			$0.53

Nine months ended April 30 Dollars in thousands, except EPS	Fiscal 2018 YTD							Fiscal 2017 YTD
	As Reported			Adjusted				As Reported			Adjusted
	(GAAP)			(non-GAAP)5				(GAAP)			(non-GAAP)6
Net sales	$343,162			$343,162				$237,182			$237,182
Operating income		65,763			75,749				27,087			28,671
Operating margin		19.2	%		22.1	%			11.4	%		12.1	%
Net income		46,832			45,205				18,293			19,323
Diluted earnings per share	$3.16			$3.05				$  1.50			$  1.58

Business segment results

Electronic Chemicals	Third Quarter			Third Quarter				Nine Months			Nine Months
Dollars in thousands	Fiscal 2018			Fiscal 2017				Fiscal 2018			Fiscal 2017
	As Reported			As Reported				As Reported			As Reported
	(GAAP)			(GAAP)				(GAAP)			(GAAP)
Net sales	$74,669			$68,141				$222,401			$204,829
Operating income		10,889			8,509				34,877			26,153
Operating margin		14.6	%		12.5	%			15.7	%		12.8	%

For the third fiscal quarter, the Electronic Chemicals segment reported:

• Sales of $74.7 million, up 10% from the third quarter of fiscal 2017. The gain in sales reflected product volume growth in all geographic regions and a more favorable product mix.  
• Operating income of $10.9 million, up 28% from $8.5 million in the same period of fiscal 2017. Operating income increased due to product volume growth, operational efficiencies and product mix. Operating margin improved to 14.6% compared to 12.5% in the prior-year period.
• Adjusted EBITDA⁷ of $13.7 million, up 19.7% from $11.5 million last year.

Performance Materials
The Performance Materials segment consists of the pipeline performance business and the wood treating chemicals business.

Performance Materials	Third Quarter			Third Quarter				Nine Months			Nine Months
Dollars in thousands	Fiscal 2018			Fiscal 2017				Fiscal 2018			Fiscal 2017
	As Reported			As Reported				As Reported			As Reported
	(GAAP)			(GAAP)				(GAAP)			(GAAP)
Net sales	$43,978			$13,475				$120,761			$32,353
Operating income		16,041			4,224				40,435			10,927
Operating margin		36.5	%		31.4	%			33.5	%		33.8	%

For the third fiscal quarter, the Performance Materials segment reported:

• Sales of $44.0 million versus $13.5 million in the same period a year ago. Sales growth reflected the contribution from Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals.
• Operating income of $16.0 million compared to $4.2 million last year. The increase in operating income reflected the contribution from Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals. Segment operating margins were 36.5%, compared to 31.4% in the third quarter of 2017, due to the contribution from Flowchem, as well as product volume growth in both industrial lubricants and wood treating chemicals.
• Adjusted EBITDA⁸ of $20.2 million versus $4.8 million last year.

Fiscal 2018 Outlook

• Sales: We increase our fiscal 2018 consolidated net sales forecast to $455-465 million, from our prior guidance of $445-455 million.
• Adjusted EBITDA: We increase our adjusted EBITDA forecast to $118-120 million, from our prior guidance of $114-118 million, reflecting stronger growth expectations in both our electronic chemicals and performance materials segments. Our revised fiscal 2018 adjusted EBITDA forecast includes approximately $8.0 million in stock-based compensation expense, unchanged from our prior estimate.
• Depreciation and Amortization: Depreciation and amortization expense is forecast to be approximately $30 million.
• Capital Expenditures: Capital expenditures are forecast to be approximately $25 million, down from our prior estimate of approximately $29 million.

With respect to the Company’s full year guidance of Adjusted EBITDA, the Company is not able to provide a reconciliation of these fiscal 2018 non-GAAP financial measures to the most comparable GAAP measure without unreasonable efforts; certain items that are included have not yet occurred and cannot be reasonably predicted, and, accordingly, the probable significance of such items cannot be determined at this time. The most comparable GAAP measure and reconciling information that is unavailable, or not reasonably predictable, would include restructuring and realignment charges and acquisition and integration-related expenses.

Conference call
Date: Monday June 11, 2018
Time: 5:00 p.m. ET
Dial in: 844-316-8066 or 703-736-7353
Conference ID: 1685029

The conference call will be webcast live via the “Investors” section of the Company’s website at http://kmgchemicals.com.

If you are unable to listen live, the conference call will be archived on the KMG website. A telephone replay of the call will also be available for one week, starting at 8:00 p.m. ET on June 11, 2018. To access the call, dial 855-859-2056 (domestic) or 404-537-3406 (international) using conference ID 1685029.

About KMG
KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals and performance materials for the semiconductor, industrial wood preservation and pipeline and energy markets. For more information, visit the Company's website at http://kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.

¹ Non-U.S. GAAP measure. See Table 2 for reconciliation.    

² Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.

³ Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

⁴ Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

⁵ Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

⁶ Non-U.S. GAAP measure. See Tables 2 and 2A for reconciliation.

⁷ Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.

⁸ Non-U.S. GAAP measure. See Tables 1 and 1A for reconciliation.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except for per share amounts)
			Three Months Ended								Nine Months Ended
			April 30,								April 30,
				2018				2017				2018				2017
Net sales			$118,647				$81,616				$343,162				$237,182
Cost of sales				68,156				49,106				196,936				143,787
		Gross profit		50,491				32,510				146,226				93,395
Distribution expenses				9,070				9,457				27,192				28,329
Selling, general and administrative expenses				13,601				13,008				41,939				36,241
Amortization of intangible assets				3,867				608				11,263				1,668
Restructuring charges				−				70				69				70
		Operating income		23,953				9,367				65,763				27,087
Other (expense) income
	Interest expense, net			(4,153	)			(301	)			(17,333	)			(650	)
	Loss on the extinguishment of debt			(277	)			−				(6,368	)			−
	Derivative fair value gain			1,365				−				5,238				−
	Other, net			(200	)			144				(977	)			88
		Total other (expense) income, net		(3,265	)			(157	)			(19,440	)			(562	)
Income before income taxes				20,688				9,210				46,323				26,525
		Provision for income taxes		(5,043	)			(3,143	)			509				(8,232	)
Net income			$15,645				$6,067				$46,832				$18,293
Earnings per share:
	Net income per common share basic		$1.01				$0.51				$3.24				$1.54
	Net income per common share diluted		$0.98				$0.49				$3.16				$1.50
Weighted average shares outstanding:
	Basic			15,505				11,888				14,439				11,884
	Diluted			15,905				12,303				14,814				12,236

KMG CHEMICALS, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands, except for share and per share amounts)
	April 30,			July 31,
		2018			2017
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$21,818			$20,708
Accounts receivable
Trade, net of allowances of $235 at April 30, 2018 and $263 at July 31, 2017		59,422			51,168
Other		7,176			6,168
Inventories, net		54,087			46,482
Prepaid expenses and other		4,305			8,617
Total current assets		146,808			133,143
Property, plant and equipment, net		114,640			105,435
Goodwill		227,797			224,391
Intangible assets, net		303,318			320,401
Other assets, net		12,744			9,061
Total assets	$805,307			$792,431
Liabilities & stockholders’ equity
Current liabilities
Accounts payable	$37,907			$29,570
Accrued liabilities		10,884			12,456
Employee incentive accrual		5,574			7,713
Current portion of long-term debt		−			3,167
Total current liabilities		54,365			52,906
Long-term debt		323,550			523,102
Deferred tax liabilities		23,243			37,944
Other long-term liabilities		5,446			4,763
Total liabilities		406,604			618,715
Commitments and contingencies
Stockholders’ equity
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued		−			−
Common stock, $.01 par value, 40,000,000 shares authorized, 15,505,350 shares issued and outstanding at April 30, 2018 and 11,889,649 shares issued and outstanding at July 31, 2017		155			119
Additional paid-in capital		220,094			42,535
Accumulated other comprehensive loss		(7,864	)		(9,712	)
Retained earnings		186,318			140,774
Total stockholders’ equity		398,703			173,716
Total liabilities and stockholders’ equity	$805,307			$792,431

KMG CHEMICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
		Nine Months Ended
		April 30,
		2018				2017
Cash flows from operating activities
Net income		$46,832				$18,293
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			22,359				10,864
Loss on extinguishment of debt			6,368				−
Stock-based compensation expense			5,687				4,280
Amortization of debt discounts and financing costs included in interest expense			1,124				125
Debt repricing transaction costs			607				−
Deferred income tax benefit			(9,097	)			(1,189	)
Derivative fair value gain			(5,238	)			−
Other			(65	)			(935	)
Changes in operating assets and liabilities
Accounts receivable — trade			(7,664	)			(3,172	)
Accounts receivable — other			(50	)			2,253
Inventories			(7,238	)			606
Other current and noncurrent assets			(715	)			(1,062	)
Accounts payable			8,194				(1,282	)
Accrued liabilities and other			(3,349	)			(1,444	)
Net cash provided by operating activities			57,755				27,337
Cash flows from investing activities
Additions to property, plant and equipment			(15,527	)			(8,586	)
Purchase of Sealweld, net of cash acquired			(585	)			(16,584	)
Other investing activities			(577	)			−
Proceeds − insurance claim			−				1,247
Net cash used in investing activities			(16,689	)			(23,923	)
Cash flows from financing activities
Proceeds from sale of common stock, net of issuance costs			175,669				−
Borrowings under credit facility			−				17,000
Payments under credit facility			−				(18,800	)
Principal payments on borrowings on term loan			(210,000	)			−
Debt repricing transaction costs			(607	)			−
Payment of dividends			(1,288	)			(1,066	)
Cash payments related to tax withholdings from stock-based awards			(3,729	)			(277	)
Net cash used in financing activities			(39,955	)			(3,143	)
Effect of exchange rate changes on cash			(1	)			398
Net increase in cash, cash equivalents and restricted cash			1,110				669
Cash, cash equivalents and restricted cash at beginning of period			20,708				13,428
Cash, cash equivalents and restricted cash at end of period		$21,818				$14,097

Reconciliation of GAAP financial measures to non-GAAP financial measures
KMG provides non-GAAP financial information to complement reported GAAP results. KMG believes that analysis of our financial performance would be enhanced by an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. We define adjusted EBITDA as earnings from operations before interest, taxes, depreciation, amortization, acquisition and integration expenses, restructuring and realignment charges and other relevant items.

KMG intends to continue to provide certain non-GAAP financial information and the appropriate reconciliation to GAAP in its financial results. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures. These non-GAAP measures should be viewed as a supplement to, and not a substitute for, U.S. GAAP measures of performance.

Table 1
RECONCILIATION OF CONSOLIDATED GAAP NET INCOME TO CONSOLIDATED ADJUSTED EBITDA

(in thousands)	Third Quarter Fiscal 2018			Third Quarter Fiscal 2017
Consolidated GAAP net income	$15,645			$  6,067
Add back:
Interest expense, net		4,153			301
Income taxes		5,043			3,143
Depreciation & amortization		7,664			3,817
Loss on the extinguishment of debt		277			−
Derivative fair value gain		(1,365	)		−
Debt repricing transaction costs		5			−
Acquisition & integration expenses		48			562
Corporate relocation expense		−			2
Restructuring charges, excluding accelerated depreciation		−			70
Consolidated adjusted EBITDA	$31,470			$13,962

(in thousands)	Nine Months Ended April 30, 2018			Nine Months Ended April 30, 2017
Consolidated GAAP net income	$46,832			$18,293
Add back:
Interest expense, net		17,333			650
Income taxes		(509	)		8,232
Depreciation & amortization		22,359			10,864
Loss on the extinguishment of debt		6,368			−
Derivative fair value gain		(5,238	)		−
Debt repricing transaction costs		607			−
Acquisition & integration expenses		578			1,145
Corporate relocation expense		−			369
Restructuring charges, excluding accelerated depreciation		69			70
Consolidated adjusted EBITDA	$88,399			$39,623

Table 1A
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
Note that we do not allocate certain financial statement line items below operating income to our segments; as such, the reconciliations below only reflect the reconciliation of our operating income by segment to our non-GAAP measures.

Third Quarter Fiscal 2018	Electronic			Performance
(in thousands)	Chemicals			Materials			Corporate			Total
Operating Income (Loss)	$10,889			$16,041			($2,977		)	$23,953
Other income (expense)		(33	)		(96	)		(71	)		(200	)
Depreciation and amortization		2,864			4,250			550			7,664
Acquisition & integration expenses		—			28			20			48
Debt repricing costs		—			—			5			5
Restructuring charges		—			—			—			—
Adjusted EBITDA		13,720			20,223			(2,473	)		31,470
Corporate allocation		3,034			1,964			(4,999	)		—
Adjusted EBITDA excl. corporate allocation	$16,754			$22,188			($7,472		)	$31,470

Nine Months Ended April 30, 2018	Electronic			Performance
(in thousands)	Chemicals			Materials			Corporate			Total
Operating Income (Loss)	$34,877			$40,435			($9,549		)	$65,763
Other income (expense)		(616	)		(41	)		(320	)		(977	)
Depreciation and amortization		8,418			12,418			1,523			22,359
Acquisition & integration expenses		—			125			453			578
Debt repricing transaction costs		—			—			607			607
Restructuring charges		69			—			—			69
Adjusted EBITDA		42,748			52,937			(7,286	)		88,399
Corporate allocation		9,103			5,893			(14,997	)		—
Adjusted EBITDA excl. corporate allocation	$51,851			$58,831			($22,283		)	$88,399

Third Quarter Fiscal 2017	Electronic		Performance
(in thousands)	Chemicals		Materials		Corporate			Total
Operating Income (Loss)	$8,509		$4,224		($3,366		)	$9,367
Other income (expense)		99		33		12			144
Depreciation and amortization		2,857		549		411			3,817
Acquisition & integration expenses		—		—		562			562
Restructuring charges		—		—		70			70
Corporate relocation expense		—		—		2			2
Adjusted EBITDA		11,465		4,806		(2,309	)		13,962
Corporate allocation		3,329		842		(4,171	)		—
Adjusted EBITDA excl. corporate allocation	$14,794		$5,648		($6,480		)	$13,962

Nine Months Ended April 30, 2017	Electronic			Performance
(in thousands)	Chemicals			Materials		Corporate			Total
Operating Income (Loss)	$26,153			$10,927		($9,993		)	$27,087
Other income (expense)		(88	)		66		110			88
Depreciation and amortization		8,502			1,121		1,241			10,864
Acquisition & integration expenses		—			—		1,145			1,145
Restructuring charges		—			—		70			70
Corporate relocation expense		—			—		369			369
Adjusted EBITDA		34,567			12,114		(7,058	)		39,623
Corporate allocation		9,987			2,527		(12,514	)		—
Adjusted EBITDA excl. corporate allocation	$44,554			$14,641		($19,572		)	$39,623

Table 2
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
(in thousands)

	Three Months Ended
	April 30,
		2018				2017
Net income	$15,645				$6,067
Items impacting pre-tax income:
Impact of the Tax Cuts and Jobs Act		−				−
Acquisition & integration expenses		48				562
Corporate relocation expense		−				2
Restructuring charges		−				70
Derivative fair value gain		(1,365	)			−
Amortization of Flowchem intangible assets		3,224				−
Loss on the extinguishment of debt		277				−
Debt repricing transaction costs		5				−
Amortization of debt discounts and financing costs		296				−
Income taxes *		(671	)			(222		)
Adjusted net income **	$17,459				$6,479
Adjusted diluted earnings per share **	$  1.10				$0.53
Weighted average diluted shares outstanding		15,905				12,303
	Nine Months Ended
	April 30,
		2018				2017
Net income	$46,832				$18,293
Items impacting pre-tax income:
Impact of the Tax Cuts and Jobs Act		(11,005	)			−
Acquisition & integration expenses		578				1,145
Corporate relocation expense		−				369
Restructuring charges		69				70
Derivative fair value gain		(5,238	)			−
Amortization of Flowchem intangible assets		9,339				−
Loss on the extinguishment of debt		6,368				−
Debt repricing transaction costs		607				−
Amortization of debt discounts and financing costs		1,124				−
Income taxes *		(3,469	)			(554)
Adjusted net income **	$45,205				$19,323
Adjusted diluted earnings per share **	$3.05				$ 1.58
Weighted average diluted shares outstanding		14,814			12,236
* For the three and nine months ended April 30, 2018, represents the aggregate tax-effect assuming a 27% tax rate of the items impacting pre-tax income, which is our estimated U.S. statutory federal tax rate for fiscal year 2018 following the Tax Act in December 2017. For the three and nine months ended April 30, 2017, represents the aggregate tax-effect assuming a 35% tax rate of items impacting pre-tax income. ** Adjusted net income and adjusted diluted earnings per share for the first quarter of fiscal 2018, which are included in the nine months ended April 30, 2018, have been adjusted to reflect the assumed 27% tax rate for fiscal year 2018.

Table 2A
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

Third Quarter Fiscal 2018	KMG Chemicals, Inc.
Dollars in thousands, except EPS
	Operating						Net				Diluted Earnings
	Income			Margin			Income				Per Share
GAAP measure	$23,953			20.2	%		$15,645				$0.98
Amortization of Flowchem intangible assets		3,224		2.7	%			2,354				0.15
Acquisition & integration expenses		48		0.1	%			35				0.01
Debt repricing transaction costs		5		0.0	%			4				0.00
Derivative fair value gain		—		—				(996	)			(0.06	)
Amortization of debt discounts and financing costs		—		—				216				0.01
Loss on the extinguishment of debt		—		—				202				0.01
Non-GAAP measure	$27,230			23.0	%		$17,459				$1.10

Nine Months Ended April 30, 2018	KMG Chemicals, Inc.
Dollars in thousands, except EPS
	Operating						Net				Diluted Earnings
	Income			Margin			Income				Per Share
GAAP measure	$65,763			19.2	%		$46,832				$3.16
Amortization of Flowchem intangible assets		9,339		2.7	%			6,817				0.46
Acquisition & integration expenses		578		0.2	%			422				0.03
Restructuring charges		69		0.0	%			50				0.00
Impact of the Tax Cuts and Jobs Act		—		—				(11,005	)			(0.74	)
Loss on the extinguishment of debt		—		—				4,649				0.31
Derivative fair value gain		—		—				(3,824	)			(0.26	)
Amortization of debt discounts and financing costs		—		—				821				0.06
Debt repricing transaction costs		—		—				443				0.03
Non-GAAP measure	$75,749			22.1	%		$45,205				$3.05

Third Quarter Fiscal 2017	KMG Chemicals, Inc.
Dollars in thousands, except EPS
	Operating						Net			Diluted Earnings
	Income			Margin			Income			Per Share
GAAP measure	$ 9,367			11.5	%		$6,067			$0.49
Acquisition & integration expenses		562		0.7	%			365		0.03
Restructuring & realignment charges		70		0.1	%			46		0.01
Corporate relocation expense		2		0.0	%			1		0.00
Non-GAAP measure	$10,001			12.3	%		$6,479			$0.53

Nine Months Ended April 30, 2017	KMG Chemicals, Inc.
Dollars in thousands, except EPS
	Operating						Net			Diluted Earnings
	Income			Margin			Income			Per Share
GAAP measure	$ 27,087			11.4	%		$18,293			$1.50
Acquisition & integration expenses		1,145		0.5	%			744		0.06
Restructuring & realignment charges		70		0.0	%			46		0.00
Corporate relocation expense		369		0.2	%			240		0.02
Non-GAAP measure	$ 28,671			12.1	%		$19,323			$1.58

 

KMG Investor Relations
Eric Glover, 817-761-6006
eglover@kmgchemicals.com