Fourth Fiscal Quarter 2018
Cabot Microelectronics Corporation (Nasdaq: CCMP), the world’s
leading supplier of chemical mechanical planarization (CMP)
polishing slurries and second largest CMP pad supplier to the
semiconductor industry, today reported financial results for its
fourth quarter and full fiscal year 2018, which ended September 30,
2018.
Key Quarter Highlights
During the fourth fiscal quarter, the company
delivered total revenue of $156.7 million, which is $19.9 million,
or 15% higher than in the same quarter last year, and a record
level for the company. Fourth quarter revenue was driven by growth
in tungsten slurries, dielectrics slurries, and CMP pads, which all
delivered record results and are the key focus areas for the
company. Net income for the quarter was a record $48.2 million,
which is $21.7 million, or 82% higher than the same quarter last
year. Diluted earnings per share (EPS) was a record $1.84,
which is $0.81, or 79%, higher than in the same quarter last
year. Cash flow from operations was a record $64.9
million.
As previously reported in August, the company
has reached an agreement to acquire KMG Chemicals, Inc. for $55.65
in cash and 0.2000 of a share of Cabot Microelectronics common
stock per KMG share. KMG’s special shareholder meeting to approve
the transaction is scheduled for November 13, 2018, and the
transaction is expected to close within three days following KMG
shareholder approval, subject to customary closing conditions.
“We are proud of our record financial
performance for the quarter and for the full fiscal year, which we
believe demonstrates the strength of our consumables-based business
model as well as our strong focus on the execution of our strategic
initiatives,” said David Li, President and CEO of Cabot
Microelectronics. “Looking forward, we remain excited about the
future, both for our core CMP consumables business, which we expect
to continue to grow faster than the industry, as well as the
expected addition of the KMG portfolio of critical enabling
materials. We look forward to welcoming KMG’s world class employees
to our team. Last, as we close out another record year, I would
like to thank our employees at Cabot Microelectronics for their
hard work, dedication, and commitment.”
Key Financial Information – Fourth
Fiscal Quarter
- Revenue was $156.7 million, which is $19.9 million, or 15%,
higher compared to the same quarter last year. The company achieved
record quarterly revenue in tungsten slurries, dielectrics slurries
and polishing pads, which grew 10%, 12%, and 26% year-over-year,
respectively. Results also benefited from record revenues in
Engineered Surface Finishes, which includes QED Technologies.
- Gross margin for the quarter was 53.8%, compared to 51.2%
reported in the same quarter a year ago. Gross margin this quarter
included $1.3 million of NexPlanar amortization expense. Excluding
this, non-GAAP gross margin was 54.7%. Gross margin this quarter
benefited from higher sales volume, a higher value product mix and
higher selling prices.
- Operating expenses, which include research, development and
technical, selling and marketing, and general and administrative
expenses, were $40.4 million in the fourth fiscal quarter.
Operating expenses were $3.4 million higher than the same quarter a
year ago, primarily due to acquisition-related expenses of $3.9
million and the absence of the gain on sale of R&D equipment,
which had a positive impact on operating expenses last year.
Excluding the acquisition-related expenses, operating expenses were
$36.5 million, which was $0.5 million lower than the prior
year.
- Net income for the quarter was $48.2 million, which is $21.7
million, or 82%, higher than in the same quarter last year. Net
income increased primarily due to higher revenue, higher gross
margin and a tax benefit resulting from an update to the previously
recorded adverse impact of the U.S. Tax Cuts and Jobs Act (“tax
act”), partially offset by higher operating expenses. Non-GAAP net
income was $38.7 million, which is $11.2 million, or 41%, higher
than the prior year.
- Diluted EPS was $1.84 this quarter, which is $0.81, or 79%,
higher than in the fourth quarter of fiscal 2017. On a non-GAAP
basis, diluted EPS was $1.48, which is $0.41, or 38%, higher than
last year. GAAP to non-GAAP reconciliation is provided in the
financial statements portion of this press release.
Key Financial Information – Full Fiscal
Year 2018
- Revenue was $590.1 million, which is $82.9 million, or 16%
higher than for fiscal year 2017. All three key focus product areas
delivered record revenues. Revenues increased 14% in tungsten
slurries, 16% in dielectrics slurries and 21% in polishing pads.
Results also benefited from record revenues in Engineered Surface
Finishes, which includes QED Technologies.
- Gross margin was 53.2% of revenue, 310 basis points higher than
the 50.1% reported last year, and slightly above the company’s full
year guidance of 52% to 53%. Excluding the NexPlanar amortization
expense, non-GAAP gross margin for the fiscal year was
54.1%.
- Total operating expenses were $154.0 million, which is $11.8
million higher than in the prior year, primarily due to higher
incentive compensation as well as additional costs related to
executive officer transitions and the pending KMG acquisition.
Operating expenses include approximately $1.9 million of the
referenced amortization expense.
- Net income was $110.0 million, which is $23.1 million, or 27%,
higher than in fiscal year 2017. Net income includes the
initial adverse impact of the enactment of the tax act,
acquisition-related expenses and the referenced amortization
expense. Non-GAAP net income was $137.0 million, which is $45.8
million, or 50%, higher than last year.
- Diluted EPS was $4.19, which is $0.79, or 23%, higher than in
fiscal year 2017, and includes the negative impact of the tax
act. Non-GAAP diluted EPS was $5.22, which is $1.66, or 47%,
higher than for last year.
Guidance Update and Capital Deployment
Details
Please note that the guidance below reflects
Cabot Microelectronics’ business only and does not include KMG.
The company currently expects a low to mid
single digit revenue increase for IC CMP consumables in the first
fiscal quarter of 2019 compared to the fourth fiscal quarter of
2018.
The company currently expects its gross margin
for full fiscal year 2019 to be between 53% and 55%. This includes
approximately 80 basis points of NexPlanar amortization
expense.
Full fiscal year operating expenses are expected
to be between $154 million and $158 million. This includes
approximately $1.9 million of NexPlanar amortization expense, but
does not include any expenses related to the pending KMG
acquisition. Additional current expectations are provided in the
related slide presentation.
As announced on September 26, 2018, the
company’s Board of Directors declared a quarterly cash dividend of
$0.40 per share ($1.60 per share on an annualized basis) on the
company's common stock. The dividend will be payable on or about
October 30, 2018 to shareholders of record at the close of business
on October 9, 2018.
The company returned $72 million to shareholders
by way of dividends and share repurchases during fiscal year 2018,
which represents approximately 60% of the $120 million in free cash
flow generated in fiscal year 2017, and exceeds the company’s
commitment to return 50% of the last year’s free cash flow to
shareholders.
RELATED SLIDE PRESENTATIONA
slide presentation related to this press release will be available
at ir.cabotcmp.com in the Quarterly Results section of the
Investor Relations center at approximately the same time that this
press release is issued.
CONFERENCE CALLCabot
Microelectronics Corporation’s quarterly earnings conference call
will be held at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on
Thursday, October 25. The conference call will be available via
live webcast and replay from the company’s website,
www.cabotcmp.com, or by phone at (844) 825-4410. Callers outside
the U.S. may dial (973) 638-3236. The conference code for the call
is 6151899. A transcript of the formal comments made during the
conference call will also be available in the Investor Relations
section of the company’s website.
ABOUT CABOT MICROELECTRONICS
CORPORATIONCabot Microelectronics Corporation,
headquartered in Aurora, Illinois, is the world's leading supplier
of CMP polishing slurries and second largest CMP pads supplier to
the semiconductor industry. The company’s products play a critical
role in the production of advanced semiconductor devices, helping
to enable the manufacture of smaller, faster and more complex
devices by its customers. The company's mission is to create value
by delivering high-performing and innovative solutions that solve
its customers’ challenges. The company has approximately 1,150
employees on a global basis. For more information about Cabot
Microelectronics Corporation, visit www.cabotcmp.com or
contact Colleen Mumford, Director of Investor Relations, at
630-499-2600.
USE OF NON-GAAP FINANCIAL
INFORMATIONThe company presented the following measures
considered as non-GAAP by the U.S. Securities and Exchange
Commission: gross profit margin, net income and diluted earnings
per share excluding the effect of the enactment of the Tax Cuts and
Jobs Act in December 2017 in the United States (“tax act”),
acquisition and integration costs related to the expected
acquisition of KMG and amortization expense related to its October
2015 acquisition of NexPlanar Corporation. The non-GAAP financial
information provided in this press release is a supplement to, and
not a substitute for, the company’s financial results presented in
accordance with U.S. GAAP. These non-GAAP financial measures are
provided to enhance the investor's understanding about the
company's ongoing operations. Specifically, the company believes
the impact of the tax act, acquisition-related expenses and
NexPlanar amortization expenses are not indicative of its core
operating results, and thus presents these certain metrics
excluding these effects. The presentation of non-GAAP financial
information is not meant to be considered in isolation or as a
substitute for results prepared and presented in accordance with
U.S. GAAP. A reconciliation table of GAAP to non-GAAP financial
measures is contained in this press release.
FORWARD LOOKING STATEMENTSThis
press release contains forward-looking statements, which address a
variety of subjects including, for example, future sales and
operating results; growth or contraction, and trends in the
industry and markets in which the company participates; the
company's management; various economic or political factors and
international or national events, including related to the
enactment of trade sanctions, tariffs, or other similar matters;
product performance; the generation, protection and acquisition of
intellectual property, and litigation related to such intellectual
property or third party intellectual property; new product
introductions; development of new products, technologies and
markets; the company's supply chain; the financial conditions of
the company's customers; natural disasters; the acquisition of,
investment in, or collaboration with other entities; uses and
investment of the company's cash balance, including dividends and
share repurchases, which may be suspended, terminated or modified
at any time for any reason by the company, based on a variety of
factors; financing facilities and related debt, pay off or payment
of principal and interest, and compliance with covenants and other
terms; the company's capital structure; the company's current or
future tax rate, including the effects of tax reform in the U.S.;
the operation of facilities by Cabot Microelectronics; the expected
timetable for closing of the proposed transaction between Cabot
Microelectronics and KMG; the expected benefits and synergies of
the proposed transaction between Cabot Microelectronics and the
capital structure of the combined company. Statements that are not
historical facts, including statements about Cabot
Microelectronics’ beliefs, plans and expectations, are
forward-looking statements. Such statements are based on current
expectations of Cabot Microelectronics’ management and are subject
to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the
forward-looking statements. For information about factors that
could cause actual results to differ materially from those
described in the forward-looking statements, please refer to both
Cabot Microelectronics’ and KMG’s filings with the Securities and
Exchange Commission (“SEC”), including the risk factors contained
in each of Cabot Microelectronics’ and KMG’s most recent Quarterly
Reports on Form 10-Q and Annual Reports on Form 10-K and the
registration statement of Cabot Microelectronics on Form S-4
registering the common stock of Cabot Microelectronics to be issued
in the proposed transaction between Cabot Microelectronics and KMG.
Except as required by law, Cabot Microelectronics undertakes no
obligation to update forward-looking statements made by it to
reflect new information, subsequent events or circumstances.
IMPORTANT ADDITIONAL INFORMATION AND
WHERE TO FIND ITIn connection with the proposed
transaction, Cabot Microelectronics has filed with the SEC a
registration statement of Cabot Microelectronics on Form S-4 (the
“registration statement”) that includes a proxy statement of KMG
and that also constitutes a prospectus of Cabot Microelectronics
(the “proxy statement/prospectus”). KMG has mailed the proxy
statement/prospectus to its shareholders in connection with the
proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO
CAREFULLY READ THE ENTIRE REGISTRATION STATEMENT, PROXY
STATEMENT/PROSPECTUS AND OTHER RELEVANT INFORMATION FILED WITH THE
SEC WHEN THEY BECOME AVAILABLE, BECAUSE THEY CONTAIN IMPORTANT
INFORMATION ABOUT CABOT MICROELECTRONICS, KMG AND THE PROPOSED
TRANSACTION. The registration statement, proxy statement/prospectus
and other documents filed by Cabot Microelectronics with the SEC
may be obtained free of charge at Cabot Microelectronics’ website
at www.cabotcmp.com or at the SEC’s website at www.sec.gov. These
documents may also be obtained free of charge from Cabot
Microelectronics by requesting them by mail at Cabot
Microelectronics Corporation, 870 North Commons Drive, Aurora,
Illinois 60504, Attention: Investor Relations, or by telephone at
(630) 499-2600. The proxy statement/prospectus and other documents
filed by KMG with the SEC may be obtained free of charge at KMG’
website at www.kmgchemicals.com or at the SEC’s website at
www.sec.gov. These documents may also be obtained free of charge
from KMG by requesting them by mail at KMG Chemicals, Inc., 300
Throckmorton Street, Fort Worth, TX 76102, Attention: Investor
Relations, or by telephone at (817) 761-6100.
PARTICIPANTS IN THE
SOLICITATIONKMG, Cabot Microelectronics, their respective
directors and certain of their executive officers and employees may
be deemed participants in the solicitation of proxies from KMG
shareholders in connection with the proposed transaction under SEC
rules. Information regarding Cabot Microelectronics’ directors and
executive officers is available in its Annual Report on Form 10-K
filed with the SEC on November 15, 2017, and in its definitive
proxy statement filed with the SEC on January 23, 2018 in
connection with its 2018 annual meeting of stockholders.
Information regarding KMG’s directors and executive officers is
available in its Annual Report on Form 10-K filed with the SEC on
October 1, 2018, in its definitive proxy statement filed with the
SEC on November 3, 2017 in connection with its 2017 annual meeting
of shareholders and in the proxy statement/prospectus. Information
regarding the persons who may be deemed to be participants in the
solicitation of KMG shareholders in connection with the proposed
transaction, including a description of their direct or indirect
interests, by security holdings or otherwise, is included in the
proxy statement/prospectus.
Contact:Colleen MumfordDirector
of Investor RelationsCabot Microelectronics Corporation(630)
499-2600
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CABOT MICROELECTRONICS
CORPORATION |
CONSOLIDATED STATEMENTS OF
INCOME |
(Unaudited and amounts in thousands, except per share
amounts) |
|
|
|
|
|
Quarter Ended |
Twelve Months Ended |
|
September 30, 2018 |
June 30,2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
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Revenue |
$156,729 |
|
$150,437 |
$136,784 |
$590,123 |
$507,179 |
|
|
|
|
|
|
Cost of goods sold |
72,383 |
|
69,737 |
66,734 |
276,018 |
253,050 |
|
|
|
|
|
|
Gross
profit |
84,346 |
|
80,700 |
70,050 |
314,105 |
254,129 |
|
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Operating
expenses: |
|
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|
|
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|
|
|
|
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Research,
development & technical |
13,372 |
|
13,059 |
13,839 |
51,950 |
55,658 |
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|
|
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Selling
& marketing |
6,211 |
|
6,207 |
8,680 |
25,044 |
30,846 |
|
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General
& administrative |
20,775 |
|
19,504 |
14,489 |
76,993 |
55,637 |
|
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|
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|
|
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Total
operating expenses |
40,358 |
|
38,770 |
37,008 |
153,987 |
142,141 |
|
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|
|
|
Operating income |
43,988 |
|
41,930 |
33,042 |
160,118 |
111,988 |
|
|
|
|
|
|
Interest expense |
102 |
|
513 |
1,127 |
2,905 |
4,529 |
|
|
|
|
|
|
Other income, net |
1,137 |
|
1,627 |
798 |
4,498 |
1,913 |
|
|
|
|
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|
Income before income
taxes |
45,023 |
|
43,044 |
32,713 |
161,711 |
109,372 |
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Provision for income
taxes |
(3,195 |
) |
7,873 |
6,211 |
51,668 |
22,420 |
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Net
income |
$48,218 |
|
$35,171 |
$26,502 |
$110,043 |
$86,952 |
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Income available to
common shareholders |
$48,172 |
|
$35,137 |
$26,434 |
$109,920 |
$86,696 |
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Basic earnings per
share |
$1.89 |
|
$1.37 |
$1.05 |
$4.31 |
$3.47 |
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Weighted average basic
shares outstanding |
25,515 |
|
25,612 |
25,236 |
25,478 |
25,015 |
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Diluted earnings per
share |
$1.84 |
|
$1.34 |
$1.03 |
$4.19 |
$3.40 |
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Weighted average
diluted shares outstanding |
26,215 |
|
26,319 |
25,710 |
26,210 |
25,512 |
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CABOT MICROELECTRONICS
CORPORATION |
CONSOLIDATED CONDENSED BALANCE
SHEETS |
(Unaudited and amounts in thousands) |
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September 30, 2018 |
September 30, 2017 |
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ASSETS: |
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Current
assets: |
|
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Cash and cash equivalents |
$352,921 |
$397,890 |
Accounts receivable, net |
|
75,886 |
|
64,793 |
Inventories, net |
|
71,926 |
|
71,873 |
Other current assets |
|
21,735 |
|
16,426 |
Total current assets |
|
522,468 |
|
550,982 |
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Property,
plant and equipment, net |
|
111,403 |
|
106,361 |
Other
long-term assets |
|
149,329 |
|
176,757 |
Total assets |
$783,200 |
$834,100 |
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LIABILITIES AND
STOCKHOLDERS' EQUITY: |
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Current
liabilities: |
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Accounts payable |
$18,171 |
$17,624 |
Current portion of long-term debt |
|
- |
|
10,938 |
Accrued expenses, income taxes payable and other current
liabilities |
|
82,983 |
|
62,651 |
Total current liabilities |
|
101,154 |
|
91,213 |
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Long-term
debt, net of current portion |
|
- |
|
132,997 |
Other
long-term liabilities |
|
15,354 |
|
14,853 |
Total liabilities |
|
116,508 |
|
239,063 |
|
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Stockholders' equity |
|
666,692 |
|
595,037 |
Total liabilities and stockholders' equity |
$783,200 |
$834,100 |
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CABOT MICROELECTRONICS
CORPORATION |
U.S. GAAP to Non-GAAP
Reconciliation |
(Unaudited and amounts in thousands, except per share
and percentage amounts) |
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The
following presents reconciliation of the Non-GAAP financial
measures included in the Cabot Microelectronics Corporation press
release dated October 24, 2018. |
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Three Months Ended September 30, 2018 |
Twelve Months Ended September 30, 2018 |
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U.S. GAAP |
Adjustments |
Non-GAAP |
U.S. GAAP |
Adjustments |
Non-GAAP |
Gross profit (1) |
|
$84,346 |
$1,309 |
$85,655 |
$314,105 |
$5,164 |
$319,269 |
Gross margin* |
|
53.8% |
|
54.7% |
53.2% |
|
54.1% |
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Operating income
(2) |
|
43,988 |
5,638 |
49,626 |
160,118 |
10,895 |
171,013 |
Operating margin
** |
|
28.1% |
|
31.7% |
27.1% |
|
29.0% |
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Net income (3) |
|
$48,218 |
$(9,480) |
$38,738 |
$110,043 |
$26,998 |
$137,041 |
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Diluted earnings per
share (4) |
|
$1.84 |
$(0.36) |
$1.48 |
$4.19 |
$1.03 |
$5.22 |
(1) |
Non-GAAP gross profit for the three months ended September 30,
2018 excludes $1,309 of NexPlanar amortization expense. |
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Non-GAAP gross profit for the twelve months ended September 30,
2018 excludes $5,164 of NexPlanar amortization expense. |
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(2) |
Non-GAAP operating income for the three months ended September
30, 2018 excludes the item mentioned above in (1) plus $468 of
NexPlanar amortization expense and $3,861 of acquisition and
integration related costs incurred in connection with KMG
acquisition recorded in operating expenses. |
|
Non-GAAP operating income for the twelve months ended September
30, 2018 excludes the item mentioned above in (1) plus $1,870 of
NexPlanar amortization expense and $3,861 of acquisition and
integration related costs incurred in connection with KMG
acquisition recorded in operating expenses. |
|
(3) |
Non-GAAP net income for the three months ended September 30,
2018 excludes the items mentioned above in (1) and (2). These
adjustments are partially offset by a $14,403 change in estimated
transition tax, withholding taxes and re-measurement of U.S.
deferred tax assets and liabilities recorded in the first nine
months of fiscal 2018 related to U.S. Tax Cuts and Jobs Act (Tax
Act) enacted on December 22, 2017, a $457 increase in the provision
for income taxes related to excluding NexPlanar amortization, and a
$258 increase in the provision for income taxes related to
excluding the acquisition and integration related costs incurred in
connection with KMG acquisition. |
|
Non-GAAP net income for the twelve months ended September 30,
2018 excludes the items mentioned above in (1) and (2) plus $18,178
of tax expense due to Tax Act. These adjustments are partially
offset by a $1,817 increase in the provision for income taxes
related to excluding NexPlanar amortization and a $258 increase in
the provision for income taxes related to excluding the acquisition
and integration related costs incurred in connection with KMG
acquisition. |
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(4) |
Non-GAAP diluted earnings per share is calculated based upon
Non-GAAP net income. The impact of the Tax Act increased diluted
earnings per share by $0.55 for the three months ended September
30, 2018, and reduced diluted earnings per share by $0.69 for the
twelve months ended September 30, 2018. |
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* |
Gross margin represents gross profit as a percentage of
revenue. |
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** |
Operating margin represents operating income as a percentage of
revenue. |
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