CMC Materials, Inc.2 (Nasdaq: CCMP), a leading global supplier
of consumable materials to semiconductor manufacturers and pipeline
companies, today reported financial results for its fourth quarter
and full fiscal year 2020, which ended September 30, 2020.
Key Highlights
Total revenue decreased 1.6% in the fourth quarter compared to
the same quarter last year as stronger demand in CMP slurries and
electronic chemicals as well as higher wood treatment revenue were
offset by lower revenue in pipeline performance products and CMP
pads. Net income for the quarter was $36.9 million compared to a
loss of $20.2 million in the prior year primarily due to the
impairment charge the company took for its strategic decision to
exit the wood treatment business in the prior year. Adjusted EBITDA
was $84.0 million, down 1.5% compared with the prior year. Full
year revenue was a record and increased 7.6% compared to the last
year primarily due to a full year of revenue from the company's
acquisition of KMG Chemicals, Inc. in November of 2018, growth in
CMP slurries and higher wood treatment revenue. During the year the
company generated $287.3 million in cash flow from operations, and
had $257.4 million of cash on hand and $921.4 million in total debt
as of the end of the fiscal year.
“I am proud of our performance, delivering another year of
record revenue and profitability despite the challenging and
unprecedented environment caused by the COVID-19 pandemic, which
demonstrates our strong execution and robust businesses. We are
most grateful for the overall well-being of our employees, and I
would like to thank our global teams for their dedication to
driving our record results,” said David Li, President and CEO of
CMC Materials. “In fiscal 2021, we expect to see continued strong
demand from our semiconductor customers driven by advanced node
transitions to support new technologies including 5G, as well as
improving fundamentals and demand from our pipeline customers. We
also started the year with the rebranding of our company to CMC
Materials, which we believe embodies our focus on delivering
innovative, high value, specialty materials to our customers
globally.”
1Refer to financial tables and “Use of Certain GAAP, non-GAAP
Adjusted Financial Information” in the press release below for
information about these non-GAAP financial measures and
reconciliations of these non-GAAP measures to their most comparable
GAAP measure.2Formerly known as Cabot Microelectronics Corporation
until October 1, 2020
Key Financial Information for the Fourth
Quarter
- Revenue was $274.2 million, 1.6% lower than the revenue
reported in the same quarter last year. Revenue was down 0.2%
compared to the prior quarter primarily due to lower revenue in CMP
pads and pipeline performance products, which more than offset
higher revenue in CMP slurries and electronic chemicals.
- Net income was $36.9 million compared to a loss of $20.2
million last year. Adjusted net income was $58.0 million, 16.1%
higher compared to adjusted net income in the prior year. Adjusted
net income benefited from lower operating expenses, lower interest
expense and lower taxes compared to the same quarter last
year.
- Diluted EPS was $1.25. Adjusted diluted EPS was $1.96,
16.0% higher than adjusted diluted EPS in the same quarter last
year.
- Adjusted EBITDA was $84.0 million, down 1.5% compared to last
year. Adjusted EBITDA margin for the quarter was 30.6%,
comparable to adjusted EBITDA margin of 30.6% in the same quarter
last year.
Electronic Materials – Revenue was $222.8
million for the quarter, 2.5% higher than revenue in the same
quarter last year. Higher revenue in CMP slurries and electronic
chemicals more than offset lower revenue in CMP pads. Adjusted
EBITDA was $71.4 million, or 32.0% of revenue.
Performance Materials –
Revenue was $51.4 million for the quarter, 16.0% lower than revenue
in the same quarter last year, driven primarily by a
pandemic-related decline in demand for pipeline performance
products. Higher revenue in the wood treatment and QED businesses
partially offset this impact. Adjusted EBITDA was $22.4 million, or
43.6% of revenue.
Key Financial Information for the Full Fiscal Year
2020
- Revenue was a record $1,116.3 million, 7.6% higher than the
revenue reported in the prior year primarily due to the full year
impact of the KMG acquisition. Revenue was 1.5% higher compared to
the $1,099.7 million pro forma revenue in the fiscal year 2019
primarily due to higher revenue in CMP slurries and wood treatment
products.
- Net income was a record $142.8 million, 264.2% higher than the
prior year. Adjusted net income was a record $220.8 million, 12.9%
higher compared to adjusted net income in the prior year, and 11.3%
higher than adjusted pro forma net income last year. The increase
compared to adjusted pro forma net income was due primarily to
higher revenue, lower operating expenses, and lower interest
expense in fiscal year 2020.
- Diluted EPS was a record $4.83, 257.8% higher than the
prior year. Adjusted diluted EPS was a record $7.47, 11.0%
higher than adjusted diluted EPS in the prior year and 11.2% higher
than adjusted pro forma diluted EPS in the prior year.
- Adjusted EBITDA was a record $357.8 million, up 7.3% compared
to adjusted EBITDA last year and up 3.6% compared to adjusted pro
forma EBITDA in the prior year. Adjusted EBITDA margin was 32.1%,
compared to adjusted EBITDA margin of 32.1% and adjusted pro forma
EBITDA margin of 31.4% in the prior year.
Guidance for the First Quarter and Full Fiscal Year
2021
With continued uncertainty as to the ongoing macroeconomic
environment and the impact of the COVID-19 pandemic on the
industries in which the company participates, the company currently
expects revenue in the first quarter of fiscal 2021 to be
approximately flat to up low single digits compared to the
company’s revenue in the fourth quarter. Sequentially, Electronic
Materials revenue is expected to be approximately flat to up low
single digits and Performance Materials revenue is expected to be
approximately flat.
The company currently expects full fiscal year 2021 adjusted
EBITDA to be between $358 million and $385 million.
Additional current expectations are provided on slide 9 in the
related slide presentation.
RELATED SLIDE PRESENTATION
A slide presentation related to this press release will be
available at cmcmaterials.com in the Quarterly Results
section of the Investor Relations center at approximately the same
time that this press release is issued.
CONFERENCE CALL
CMC Materials’ quarterly earnings conference call will be held
at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Thursday,
November 12. The conference call will be available via live
webcast and replay from the company’s website, cmcmaterials.com, or
by phone at (833) 714-0937. Callers outside the U.S. may dial
(778) 560-2685. The conference code for the call is 7063856.
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 CMC MATERIALS, INC.
CMC Materials, Inc., headquartered in Aurora, Illinois, is a
leading global supplier of consumable materials to semiconductor
manufacturers and pipeline companies. 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. CMC Materials, Inc. is
also a leading provider of performance materials to pipeline
operators. The company's mission is to create value by
delivering high-performing and innovative solutions that solve its
customers’ challenges. The company has approximately 2,100
employees globally. For more information about CMC Materials, Inc.,
visit www.cmcmaterials.com, or contact Colleen Mumford, Vice
President, Communications and Marketing, at 630-499-2600.
USE OF CERTAIN GAAP AND NON-GAAP ADJUSTED FINANCIAL
INFORMATION
The company’s financial results are provided in accordance with
accounting principles generally accepted in the United States of
America (GAAP) and using certain non-GAAP financial measures. In
particular, the Company presents the following non-GAAP financial
measures: adjusted net income, adjusted diluted earnings per share,
adjusted EBITDA, adjusted EBITDA margin, free cash flow, and net
debt. The company has also presented the following non-GAAP
pro forma measures: adjusted pro forma EBITDA, adjusted pro forma
EBITDA margin, adjusted pro forma net income and adjusted pro forma
diluted earnings per share. Adjusted EBITDA is defined
as earnings before interest, income taxes, depreciation and
amortization, and excludes certain items that affect comparability
from period to period. Adjusted EBITDA margin is defined as
adjusted EBITDA as a percentage of revenue. The
non-GAAP pro forma measures present the results as if the company’s
acquisition of KMG Chemicals, Inc. (“KMG”)(“Acquisition”), had been
included in the company’s results beginning October 1, 2018 and
adjusts for certain items that affect comparability from period to
period.
The non-GAAP financial measures 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 adjustments related to the Acquisition, such as expenses
incurred to complete the Acquisition and related integration and
acquisition-related amortization expenses, costs of restructuring
related to the wood treatment business and related adjustments in
fiscal 2020, costs related to the KMG-Bernuth warehouse fire net of
insurance recovery, costs incurred in fiscal 2020 related to the
COVID-19 pandemic (“Pandemic”) net of grants received, the effects
of Tax Cuts and Jobs Act in December 2017 in the United States
(“Tax Act”) and the issued final regulations related to the Tax
Act, and in fiscal 2019, impact of fair value adjustments to
inventory acquired from KMG, are not indicative of its core
operating results and thus presents these certain measures
excluding these effects. The presentation of non-GAAP financial
measures and non-GAAP pro forma measures is not meant to be
considered in isolation or as a substitute for results prepared and
presented in accordance with U.S. GAAP. Reconciliations
of non-GAAP measures to their most comparable GAAP measures are
included in the financial statements portion of this press
release.
Adjusted EBITDA for the Electronic Materials and Performance
Materials segments is presented in conformity with Accounting
Standards Codification Topic 280, Segment Reporting. This measure
is reported to the chief operating decision maker for purposes of
making decisions about allocating resources to the segments and
assessing their performance. For these reasons, this measure is
excluded from the definition of non-GAAP financial measures under
the SEC Regulation G and Item 10(e) of Regulation S-K.
FORWARD LOOKING STATEMENTS
This 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
industries and markets in which the company participates such as
the semiconductor, and oil and gas, industries; the acquisition of,
investment in, or collaboration with other entities, including the
company’s acquisition of KMG, and the expected benefits and
synergies of such acquisitions; divestment or disposition, or
cessation of investment in certain, of the company’s businesses;
new product introductions; development of new products,
technologies and markets; product performance; the financial
conditions of the company's customers; the competitive landscape
that relates to the company’s business; the company's supply chain;
natural disasters; various economic or political factors and
international or national events, including related to global
public health crises such as the COVID-19 pandemic, and the
enactment of trade sanctions, tariffs, or other similar matters;
the generation, protection and acquisition of intellectual
property, and litigation related to such intellectual property or
third party intellectual property; environmental, health and safety
laws and regulations, and related compliance; the operation of
facilities by the company; the company's management; foreign
exchange fluctuation; the company's current or future tax rate,
including the effects of changes to tax laws in the jurisdictions
in which the company operates; cybersecurity threats; financing
facilities and related debt, pay off or payment of principal and
interest, and compliance with covenants and other terms; and, 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. Statements that are not historical facts,
including statements about CMC Materials’ beliefs, plans and
expectations, are forward-looking statements. Such statements are
based on current expectations of CMC Materials’ 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 CMC
Materials’ filings with the Securities and Exchange Commission
(“SEC”), including the risk factors contained in CMC Materials’
Annual Report on Form 10-K for the fiscal year ended September 30,
2020 to be filed by November 27, 2020, its Annual Report on Form
10-K for the fiscal year ended September 30, 2019 and its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2020.
Except as required by law, CMC Materials undertakes no obligation
to update forward-looking statements made by it to reflect new
information, subsequent events or circumstances.
Contact:Colleen MumfordVice President,
Communications and MarketingCMC Materials, Inc.(630) 499-2600
CMC MATERIALS, INC.CONSOLIDATED
STATEMENTS OF INCOME(Unaudited and amounts in thousands,
except per share amounts)
|
Quarter Ended |
|
Year Ended |
|
September 30, 2020 |
|
June 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
274,207 |
|
|
$ |
274,727 |
|
|
$ |
278,645 |
|
|
$ |
1,116,270 |
|
|
$ |
1,037,696 |
|
Cost of sales |
157,144 |
|
|
152,973 |
|
|
165,535 |
|
|
627,669 |
|
|
595,043 |
|
Gross profit |
117,063 |
|
|
121,754 |
|
|
113,110 |
|
|
488,601 |
|
|
442,653 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research, development and technical |
14,105 |
|
|
12,165 |
|
|
12,698 |
|
|
52,311 |
|
|
51,707 |
|
Selling, general and administrative |
54,576 |
|
|
51,847 |
|
|
50,663 |
|
|
217,071 |
|
|
213,078 |
|
Asset impairment charges |
2,314 |
|
|
— |
|
|
67,372 |
|
|
2,314 |
|
|
67,372 |
|
Total operating expenses |
70,995 |
|
|
64,012 |
|
|
130,733 |
|
|
271,696 |
|
|
332,157 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
46,068 |
|
|
57,742 |
|
|
(17,623 |
) |
|
216,905 |
|
|
110,496 |
|
Interest expense |
9,431 |
|
|
10,406 |
|
|
12,703 |
|
|
42,510 |
|
|
45,681 |
|
Interest income |
81 |
|
|
131 |
|
|
342 |
|
|
670 |
|
|
2,346 |
|
Other (expense), net |
(110 |
) |
|
(201 |
) |
|
(1,158 |
) |
|
(1,718 |
) |
|
(4,055 |
) |
Income (loss) before income
taxes |
36,608 |
|
|
47,266 |
|
|
(31,142 |
) |
|
173,347 |
|
|
63,106 |
|
Provision for income taxes
(benefit) |
(247 |
) |
|
12,741 |
|
|
(10,899 |
) |
|
30,519 |
|
|
23,891 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
36,855 |
|
|
$ |
34,525 |
|
|
$ |
(20,243 |
) |
|
$ |
142,828 |
|
|
$ |
39,215 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share |
$ |
1.27 |
|
|
$ |
1.19 |
|
|
$ |
(0.70 |
) |
|
$ |
4.90 |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share |
$ |
1.25 |
|
|
$ |
1.17 |
|
|
$ |
(0.70 |
) |
|
$ |
4.83 |
|
|
$ |
1.35 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
outstanding |
29,082 |
|
|
29,079 |
|
|
29,084 |
|
|
29,136 |
|
|
28,571 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted
shares outstanding |
29,520 |
|
|
29,456 |
|
|
29,084 |
|
|
29,580 |
|
|
29,094 |
|
CMC MATERIALS, INC.CONSOLIDATED
CONDENSED BALANCE SHEETS(Unaudited and amounts in
thousands)
|
September 30, 2020 |
|
September 30, 2019 |
ASSETS: |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
257,354 |
|
|
$ |
188,495 |
|
Accounts receivable, net |
134,023 |
|
|
146,113 |
|
Inventories |
159,134 |
|
|
145,278 |
|
Prepaid expenses and other current assets |
26,558 |
|
|
28,670 |
|
Total current assets |
577,069 |
|
|
508,556 |
|
|
|
|
|
Property, plant and equipment,
net |
362,067 |
|
|
276,818 |
|
Other long-term assets |
1,437,331 |
|
|
1,476,392 |
|
Total assets |
$ |
2,376,467 |
|
|
$ |
2,261,766 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
49,254 |
|
|
$ |
54,529 |
|
Current portion of long-term debt |
10,650 |
|
|
13,313 |
|
Accrued expenses, income taxes payable and other current
liabilities |
121,442 |
|
|
103,618 |
|
Total current liabilities |
181,346 |
|
|
171,460 |
|
|
|
|
|
Long-term debt, net of current
portion |
910,764 |
|
|
928,463 |
|
Other long-term liabilities |
210,044 |
|
|
181,466 |
|
Total liabilities |
1,302,154 |
|
|
1,281,389 |
|
|
|
|
|
Stockholders' equity |
1,074,313 |
|
|
980,377 |
|
Total liabilities and stockholders' equity |
$ |
2,376,467 |
|
|
$ |
2,261,766 |
|
CMC MATERIALS, INC.Unaudited
Reconciliation of Certain GAAP Financial Measures to Certain
Non-GAAP Financial Measures (Unaudited and amounts in
thousands, except per share and percentage amounts)
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net
Income |
|
Three Months Ended |
|
Twelve Months Ended |
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
GAAP Net income (loss) |
$ |
36,855 |
|
|
$ |
(20,243 |
) |
|
$ |
142,828 |
|
|
$ |
39,215 |
|
|
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
21,391 |
|
|
16,685 |
|
|
85,550 |
|
|
59,921 |
|
Acquisition and integration-related expenses |
3,067 |
|
|
1,601 |
|
|
10,852 |
|
|
34,709 |
|
Costs related to KMG-Bernuth warehouse fire, net of insurance
recovery |
(137 |
) |
|
5,455 |
|
|
1,078 |
|
|
9,905 |
|
Net costs related to restructuring of wood treatment business1 |
72 |
|
|
1,530 |
|
|
(216 |
) |
|
1,530 |
|
Costs related to Pandemic, net of grants received |
500 |
|
|
— |
|
|
849 |
|
|
— |
|
Charges for fair value write-up of acquired inventory sold |
— |
|
|
— |
|
|
— |
|
|
14,869 |
|
U.S. tax reform |
9 |
|
|
36 |
|
|
47 |
|
|
8,905 |
|
Charges related to asset impairment of wood treatment |
2,314 |
|
|
67,372 |
|
|
2,314 |
|
|
67,372 |
|
Tax effect on adjustments to net income2 |
(6,092 |
) |
|
(22,510 |
) |
|
(22,456 |
) |
|
(40,742 |
) |
Adjusted Net income |
$ |
57,979 |
|
|
$ |
49,926 |
|
|
$ |
220,846 |
|
|
$ |
195,684 |
|
Reconciliation of GAAP Diluted Earnings Per Share to
Non-GAAP Adjusted Diluted Earnings Per Share |
|
Three Months Ended |
|
Twelve Months Ended |
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
GAAP Diluted earnings (loss)
per share |
$ |
1.25 |
|
|
$ |
(0.70 |
) |
|
|
$ |
4.83 |
|
|
|
$ |
1.35 |
|
Adjustments (net of tax)2
: |
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
0.56 |
|
|
0.45 |
|
|
|
2.26 |
|
|
|
1.59 |
|
Acquisition and integration-related expenses |
0.08 |
|
|
0.05 |
|
|
|
0.28 |
|
|
|
1.06 |
|
Costs related to KMG-Bernuth warehouse fire, net of insurance
recovery |
— |
|
|
0.15 |
|
|
|
0.03 |
|
|
|
0.26 |
|
Net costs related to restructuring of wood treatment business1 |
— |
|
|
0.04 |
|
|
|
(0.01 |
) |
|
|
0.04 |
|
Costs related to the Pandemic, net of grants received |
0.01 |
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
Charges for fair value write-up of acquired inventory sold |
— |
|
|
— |
|
|
|
— |
|
|
|
0.39 |
|
Charges related to asset impairment of wood treatment |
0.06 |
|
|
1.70 |
|
|
|
0.06 |
|
|
|
1.73 |
|
U. S tax reform |
— |
|
|
— |
|
|
|
— |
|
|
|
0.31 |
|
Adjusted Diluted earnings per
share |
$ |
1.96 |
|
|
$ |
1.69 |
|
|
|
$ |
7.47 |
|
|
|
$ |
6.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted common shares
outstanding |
|
29,520 |
|
|
|
29,084 |
|
|
|
|
29,580 |
|
|
|
|
29,094 |
|
Effect of dilutive
securities |
|
— |
|
|
|
526 |
|
|
|
|
— |
|
|
|
|
— |
|
Adjusted diluted common shares
outstanding |
|
29,520 |
|
|
|
29,610 |
|
|
|
|
29,580 |
|
|
|
|
29,094 |
|
Reconciliation of GAAP Revenue to Non-GAAP Adjusted Gross
Profit and Gross Margin |
|
Three Months Ended |
|
Twelve Months Ended |
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
GAAP Revenue |
$ |
274,207 |
|
|
$ |
278,645 |
|
|
$ |
1,116,270 |
|
|
$ |
1,037,696 |
|
Cost of sales |
157,144 |
|
|
165,535 |
|
|
627,669 |
|
|
595,043 |
|
Gross profit |
$ |
117,063 |
|
|
$ |
113,110 |
|
|
$ |
488,601 |
|
|
$ |
442,653 |
|
Gross margin |
42.7 |
% |
|
40.6 |
% |
|
43.8 |
% |
|
42.7 |
% |
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
3,487 |
|
|
3,247 |
|
|
13,552 |
|
|
12,589 |
|
Costs related to KMG-Bernuth warehouse fire, net of insurance
recovery |
(137) |
|
|
5,294 |
|
|
1,078 |
|
|
9,494 |
|
Net costs related to restructuring of wood treatment business1 |
72 |
|
|
1,530 |
|
|
(216) |
|
|
1,530 |
|
Costs related to the Pandemic, net of grants received |
277 |
|
|
— |
|
|
506 |
|
|
— |
|
Charges for fair value write-up of acquired inventory sold |
— |
|
|
— |
|
|
— |
|
|
14,869 |
|
Adjusted gross profit |
$ |
120,762 |
|
|
$ |
123,181 |
|
|
$ |
503,521 |
|
|
$ |
481,135 |
|
Adjusted gross margin |
44.0 |
% |
|
44.2 |
% |
|
45.1 |
% |
|
46.4 |
% |
Reconciliation of GAAP Operating expenses to Non-GAAP
Adjusted Operating expenses |
|
Three Months Ended |
|
Twelve Months Ended |
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
GAAP Research, development and
technical |
$ |
14,105 |
|
|
$ |
12,698 |
|
|
$ |
52,311 |
|
|
$ |
51,707 |
|
GAAP Selling, general, and
administrative |
54,576 |
|
|
50,663 |
|
|
217,071 |
|
|
213,078 |
|
GAAP Asset impairment
charges |
2,314 |
|
|
67,372 |
|
|
2,314 |
|
|
67,372 |
|
Operating expenses |
$ |
70,995 |
|
|
$ |
130,733 |
|
|
$ |
271,696 |
|
|
$ |
332,157 |
|
Adjustments3 : |
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
(17,904 |
) |
|
(13,438 |
) |
|
(71,998 |
) |
|
(47,332 |
) |
Acquisition and integration-related expenses |
(3,067 |
) |
|
(1,601 |
) |
|
(10,852 |
) |
|
(34,709 |
) |
Costs related to KMG-Bernuth warehouse fire, net of insurance
recovery |
— |
|
|
(161 |
) |
|
— |
|
|
(411 |
) |
Costs related to the Pandemic, net of grants received |
(223 |
) |
|
— |
|
|
(343 |
) |
|
— |
|
Charges related to asset impairment of wood treatment |
(2,314 |
) |
|
(67,372 |
) |
|
(2,314 |
) |
|
(67,372 |
) |
Adjusted operating
expenses |
$ |
47,487 |
|
|
$ |
48,161 |
|
|
$ |
186,189 |
|
|
$ |
182,333 |
|
Reconciliation of GAAP Net Income to Non-GAAP Adjusted
EBITDA and EBITDA Margin |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
September 30, 2020 |
|
September 30, 2019 |
|
September 30, 2020 |
|
September 30, 2019 |
GAAP Net income (loss) |
|
$ |
36,855 |
|
|
$ |
(20,243) |
|
|
$ |
142,828 |
|
|
$ |
39,215 |
|
Interest expense |
|
9,431 |
|
|
12,703 |
|
|
42,510 |
|
|
45,681 |
|
Interest income |
|
(81) |
|
|
(342) |
|
|
(670) |
|
|
(2,346) |
|
Provision for income taxes (benefit) |
|
(247) |
|
|
(10,899) |
|
|
30,519 |
|
|
23,891 |
|
Depreciation & amortization |
|
32,221 |
|
|
28,116 |
|
|
127,737 |
|
|
98,592 |
|
EBITDA |
|
78,179 |
|
|
9,335 |
|
|
342,924 |
|
|
205,033 |
|
EBITDA margin |
|
28.5 |
% |
|
3.4 |
% |
|
30.7 |
% |
|
19.8 |
% |
|
|
|
|
|
|
|
|
|
Adjustments (pre-tax): |
|
|
|
|
|
|
|
|
Acquisition and integration-related expenses |
|
3,067 |
|
|
1,601 |
|
|
10,852 |
|
|
34,709 |
|
Costs related to KMG-Bernuth warehouse fire, net of insurance
recovery |
|
(137) |
|
|
5,455 |
|
|
1,083 |
|
|
9,905 |
|
Net costs related to restructuring of wood treatment business1 |
|
72 |
|
|
1,530 |
|
|
(221) |
|
|
1,530 |
|
Costs related to the Pandemic, net of grants received |
|
500 |
|
|
— |
|
|
849 |
|
|
— |
|
Charges for fair value write-up of acquired inventory sold |
|
— |
|
|
— |
|
|
— |
|
|
14,869 |
|
Charges related to asset impairment of wood treatment |
|
2,314 |
|
|
67,372 |
|
|
2,314 |
|
|
67,372 |
|
Adjusted EBITDA |
|
$ |
83,995 |
|
|
$ |
85,293 |
|
|
$ |
357,801 |
|
|
$ |
333,418 |
|
Adjusted EBITDA margin |
|
30.6 |
% |
|
30.6 |
% |
|
32.1 |
% |
|
32.1 |
% |
Fiscal Year 2021 Guidance Reconciliation 4 |
|
|
|
|
|
Fiscal Year 2021 |
|
Fiscal Year 2021 |
|
Low |
|
High |
Net income |
$ |
142,000 |
|
|
$ |
163,000 |
|
Interest expense, net5 |
39,000 |
|
|
39,000 |
|
Provision for income taxes5 |
40,000 |
|
|
46,000 |
|
Depreciation5 |
52,500 |
|
|
52,500 |
|
Amortization |
85,000 |
|
|
85,000 |
|
Adjusted EBITDA Guidance -
Consolidated |
$ |
358,500 |
|
|
$ |
385,500 |
|
Reconciliation of Cash Flow From Operations to Free Cash
Flow |
|
|
|
|
|
September 30, 2020 |
|
September 30, 2019 |
Net cash provided by operating activities |
$ |
287,284 |
|
|
$ |
174,981 |
|
Less: Capital expenditures |
125,839 |
|
|
55,972 |
|
Free cash flow |
$ |
161,445 |
|
|
$ |
119,009 |
|
|
|
|
|
Net cash used in investing
activities |
$ |
(124,252 |
) |
|
$ |
(1,232,976 |
) |
|
|
|
|
Net cash provided by (used in)
financing activities |
$ |
(97,656 |
) |
|
$ |
894,432 |
|
Reconciliation of GAAP Debt to Net Debt |
|
|
|
|
|
September 30, 2020 |
|
September 30, 2019 |
Total short-term and long-term debt |
$ |
921,414 |
|
|
$ |
941,776 |
|
Less: Cash and cash equivalents |
257,354 |
|
|
188,495 |
|
Total net debt |
$ |
664,060 |
|
|
$ |
753,281 |
|
1 Represents adjustments to previously recorded
severance liability related to the wood treatment business.2 Tax
effect on the adjustments were calculated using the U.S. Federal
and state blended tax rate for the respective periods as the
related adjustments are mainly U.S. driven. 3 All the adjustments
are related to the Selling, general and administrative expenses.4
This is a reconciliation of our indicated full year net income to
our adjusted EBITDA. The amounts above may not reflect certain
future charges costs and/or gains that are inherently difficult to
predict and estimate due to their unknown timing, effect and/or
significance, including impairment charges associated with the
anticipated closure of our wood treatment business. 5 Amounts
represent the mid-point of the current financial guidance provided
on November 11, 2020.
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial
Information is presented to illustrate the estimated effects of the
company’s acquisition of KMG (the “Acquisition”), which was
consummated on November 15, 2018 (the “Acquisition Date”), based on
the historical results of operations of CMC Materials and KMG. The
following Unaudited Pro Forma Condensed Combined Statements of
Income for the twelve months ended September 30, 2019 are based on
the historical financial statements of CMC Materials and KMG after
giving effect to the Acquisition, and the assumptions and
adjustments described in the accompanying notes to these Unaudited
Pro Forma Condensed Combined Statements of Income.
The historical CMC Materials Consolidated Statement of Income
for the twelve months ended September 30, 2019 was based upon and
should be read in conjunction with, the CMC Materials historical
audited consolidated financial statements and accompanying notes as
of and for the year ended September 30, 2019 included in CMC
Materials Annual Report on Form 10-K filed on November 27, 2019.
The historical KMG Consolidated Statements of Income for the twelve
months ended September 30, 2019 includes information derived from
KMG’s books and records. Prior to the Acquisition, KMG was on a
July 31st fiscal year end reporting cycle. These pro forma
financials include KMG’s actual pre-acquisition results with the
months aligned to CMC Materials’ fiscal periods, and therefore,
they do not align with consolidated financial statements included
in KMG’s Quarterly or Annual Reports on Form 10-Q or 10-K.
The Unaudited Pro Forma Condensed Combined Statements of Income
are presented as if the Acquisition had been consummated on October
1, 2017, the first business day of our 2018 fiscal year, and
combine the historical results of CMC Materials and KMG, which is
consistent with internal management reporting, after primarily
giving effect to the following assumptions and adjustments:
- Application of the acquisition method of accounting;
- Elimination of transaction costs incurred in connection with
the Acquisition;
- Adjustments to reflect the new financing arrangements entered
into and legacy financing arrangements retired in connection with
the Acquisition;
- The exchange of 0.2000 share(s) of Cabot Microelectronics
common stock for each share of KMG common stock; and
- Conformance of accounting policies.
The Unaudited Pro Forma Condensed Combined Financial Information
was prepared using the acquisition method of accounting, which
requires, among other things, that assets acquired and liabilities
assumed in a business combination be recognized at their fair
values as of the completion of the acquisition. We utilized
estimated fair values at the Acquisition Date to allocate the total
consideration exchanged to the net tangible and intangible assets
acquired and liabilities assumed. This allocation was completed in
the first quarter of fiscal year 2020.
The Unaudited Pro Forma Condensed Combined financial information
has been prepared on the basis of SEC Regulation S-X Article 11 and
is not necessarily indicative of the results of operations that
would have been realized had the transactions been completed as of
the dates indicated, nor are they meant to be indicative of our
anticipated combined future results. In addition, the accompanying
Unaudited Pro Forma Condensed Combined Statements of Income do not
reflect any additional anticipated synergies, operating
efficiencies, cost savings, or any integration costs that may
result from the Acquisition.
The historical consolidated financial information has been
adjusted in the accompanying Unaudited Pro Forma Condensed Combined
Statements of Income to give effect to unaudited pro forma events
that are (1) directly attributable to the transaction, (2)
factually supportable and (3) are expected to have a continuing
impact on the results of operations of the combined company. As a
result, under SEC Regulation S-X Article 11, certain non-recurring
expenses such as deal costs and compensation expenses related to
severance or accelerated stock compensation and certain non-cash
costs related to the fair value step-up of inventory are eliminated
from pro forma results in the periods presented. Certain recurring
historical KMG expenses related to depreciation, amortization,
financing costs and costs of sales have been adjusted as if the
Acquisition had occurred on October 1, 2017.
The Unaudited Pro Forma Condensed Combined Financial
Information, including the related notes included
herein, should be read in conjunction with
CMC Materials’ Current Report on Form 8-K/A filed on January 30,
2019, as well as our consolidated financial statements included in
this release and the historical consolidated financial statements
and related notes of CMC Materials and KMG, which are available to
the public at the SEC’s website at www.sec.gov.
CMC Materials, Inc.Unaudited Pro Forma
Condensed Combined Statement of IncomeFor the Year
Ended September 30, 2019(in thousands, except per
share data)
|
CMC Materials |
|
KMG Chemicals(1) |
|
|
|
|
|
|
|
Year Ended September 30, 2019 |
|
October 1, 2018 to November 14, 2018 |
|
Presentation
Reclassification(2) |
|
Pro FormaAdjustments(3) |
|
Pro FormaCombined |
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
1,037,696 |
|
|
$ |
61,978 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,099,674 |
|
Cost of sales |
595,043 |
|
|
36,534 |
|
|
4,741 |
|
|
(13,015 |
) |
|
623,303 |
|
Gross profit |
442,653 |
|
|
25,444 |
|
|
(4,741 |
) |
|
13,015 |
|
|
476,371 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Distribution expenses |
— |
|
|
4,741 |
|
|
(4,741 |
) |
|
— |
|
|
— |
|
Research, development and
technical |
51,707 |
|
|
— |
|
|
— |
|
|
— |
|
|
51,707 |
|
Selling, general and
administrative expenses |
213,078 |
|
|
40,504 |
|
|
— |
|
|
(31,824 |
) |
|
221,758 |
|
Amortization of
intangibles |
— |
|
|
1,943 |
|
|
— |
|
|
(1,943 |
) |
|
— |
|
Asset impairment charges |
67,372 |
|
|
— |
|
|
— |
|
|
(16,186 |
) |
|
51,186 |
|
Total operating expenses |
332,157 |
|
|
47,188 |
|
|
(4,741 |
) |
|
(49,953 |
) |
|
324,651 |
|
Operating income (loss) |
110,496 |
|
|
(21,744 |
) |
|
— |
|
|
62,968 |
|
|
151,720 |
|
Interest expense |
45,681 |
|
|
8,537 |
|
|
— |
|
|
(475 |
) |
|
53,743 |
|
Interest income |
2,346 |
|
|
51 |
|
|
— |
|
|
— |
|
|
2,397 |
|
Derivative fair value
gain |
— |
|
|
567 |
|
|
— |
|
|
(567 |
) |
|
— |
|
Other (expense), net |
(4,055 |
) |
|
(258 |
) |
|
— |
|
|
— |
|
|
(4,313 |
) |
Income (loss) before income
taxes |
63,106 |
|
|
(29,921 |
) |
|
— |
|
|
62,876 |
|
|
96,061 |
|
Provision for income taxes
(benefit) |
23,891 |
|
|
(3,722 |
) |
|
— |
|
|
6,219 |
|
|
26,388 |
|
Net income (loss) |
$ |
39,215 |
|
|
$ |
(26,199 |
) |
|
$ |
— |
|
|
$ |
56,657 |
|
|
$ |
69,673 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
1.37 |
|
|
|
|
|
|
|
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares
outstanding |
28,571 |
|
|
|
|
|
|
|
|
28,979 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
$ |
1.35 |
|
|
|
|
|
|
|
|
$ |
2.36 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted
shares outstanding |
29,094 |
|
|
|
|
|
|
|
|
29,502 |
|
1 KMG results that occurred prior to the Acquisition
on November 15, 2018.2 Represents the reclassification of KMG
distribution expenses from operating expenses to cost of sales, in
order to conform with CMC Material’s accounting policies.3 Certain
pro forma adjustments related to depreciation, amortization,
financing costs and costs of sales have been made for the October
1, 2018 to September 30, 2019 period assuming that the Acquisition
occurred on October 1, 2017. Additionally, nonrecurring pro forma
adjustments have been made for deal costs, compensation expenses
related to severance or accelerated stock compensation, and the
fair value step-up of inventory directly attributable throughout
the twelve-month period.
CMC Materials, Inc.Summary of Unaudited
Pro Forma Adjustments
(in thousands) |
Year Ended September 30, 2019 |
Impact to cost of
sales: |
|
Depreciation and amortization,
net(a) |
$ |
1,855 |
|
Inventory step-up(b) |
(14,870 |
) |
Impact to cost of
sales |
$ |
(13,015 |
) |
|
|
Impact to operating
expense: |
|
Depreciation and amortization
step up(a) |
30,689 |
|
Asset impairment true
up(c) |
(16,186 |
) |
Compensation expense(d) |
(38,099 |
) |
Deal costs(e) |
(24,414 |
) |
Historical KMG amortization in
other operating expenses removal(a) |
(1,943 |
) |
Impact to operating
expense |
$ |
(49,953 |
) |
|
|
Derivative fair value
gain(f) |
(567 |
) |
|
|
Interest expense(g) |
(475 |
) |
Adjustments included in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are as follows:
- Depreciation and amortization expense are adjusted by removing
depreciation and amortization associated with legacy KMG assets and
assigning a pro forma expense based on the fair value of the assets
on the date of the Acquisition. For periods after the date of the
Acquisition, there is no pro forma adjustment for Depreciation and
actual booked depreciation is reflected on a straight-line basis.
Depreciation costs are allocated to costs of sales and selling,
general and administrative expenses based on historical KMG
allocations. Amortization costs are allocated to costs of sales or
selling, general and administrative expense based on the use of the
asset, where applicable.
- Cost of sales is impacted by increased inventory balance caused
by the non-cash impact of the step up to fair value of the
inventory. The incremental costs of sales driven by the inventory
step-up during the period have been removed.
- During the fiscal year ended September 30, 2019, an impairment
charge in the amount of $67.4 million was incurred related to the
Wood Treatment business, which was acquired from KMG. While
still within the one-year remeasurement period after the
Acquisition Date, it was determined that the facts and
circumstances that triggered the impairment were not known, or
could have been reasonably known, at the time of the transaction.
Further, it was determined that the impairment charge was not
directly attributable to the transaction and therefore, would not
be wholly removed for purposes of pro forma reporting. Since
the impairment charge taken for September 2019 reported results was
based on the actual Acquisition Date while the pro forma financials
are based upon an October 1, 2017 acquisition date, the pro forma
adjustment of $16.2 million to reduce the impairment charge to
$51.2 million for pro forma results is required. This
adjustment reflects the difference between amortization and
depreciation expense recognized post-acquisition from the earlier
pro forma acquisition date vs. the amortization and depreciation
expense recognized in reported results from the actual Acquisition
Date. The impairment adjustment is tax effected at 25.3%, which
considers the taxing jurisdictions where the impaired assets are
held (United States and Mexico) and the period for which the
impairment is deemed to have occurred (the twelve months ended
September 30, 2019).
- Directly attributable and non-recurring compensation expense
related to non-recurring retention expenses and stock award vesting
directly attributable to the Acquisition are removed for pro forma
purposes. For KMG stock awards that were replaced by CMC Material
stock awards in connection with the Acquisition, the vesting for
on-going service expenses are added as a pro forma adjustment.
- The elimination of non-recurring deal costs incurred in
connection with the Acquisition.
- As a result of the Acquisition, there were non-recurring costs
incurred by KMG as a result of retiring old debt. The costs
associated with retiring the old debt facility and other financial
instruments are removed for pro forma purposes. These instruments
were retired as a result of the Acquisition and are not included in
the pro forma results, which are presented as if the Acquisition
had occurred on October 1, 2017.
- Changes in interest expense as a result of financing associated
with the Acquisition. The adjustments remove legacy KMG interest
costs, including unused revolver fees and adds the costs associated
with the new financing facilities as if the Acquisition occurred on
October 1, 2017. The calculation of interest expense considers the
changing LIBOR rate and uses monthly period end averages from
October 1, 2017 to September 30, 2019.
We calculated the income tax effect of the pro forma adjustments
using a 21.4% tax rate, which represents the weighted average
statutory tax rate for the year ended September 30, 2019.
We calculated the unaudited pro forma weighted average number of
diluted shares outstanding by adding the number of shares issued in
the Acquisition to the amount disclosed in the historical CMC
Quarterly and Annual Reports on Form 10-Q and 10-K. The basic and
diluted EPS calculation takes pro forma net income divided by the
applicable number of shares outstanding.
Reconciliation of Pro Forma and Non-GAAP Adjusted Pro
Forma Information
The company reports its financial results in accordance with
U.S. GAAP and pro forma information in accordance with SEC
Regulation S-X Article 11. However, management believes that
certain non-GAAP financial measures that reflect the way that
management evaluates the business may provide investors with
additional information regarding the company’s results, trends and
ongoing performance on a comparable basis. These
measures, referred to as, “adjusted pro forma”, begin with
pro forma results that are prepared in accordance with SEC
Regulation S-X Article 11 and are then adjusted for the following
additional items:
- Removal of amortization of acquisition related intangibles,
since management believes that these costs are not indicative of
the company’s core operating performance.
- Removal of integration expenses.
- Adjustment for U.S. Tax Reform, which represents a significant
item affecting comparability among periods.
- Removal of certain costs related to a warehouse fire at
KMG-Bernuth and the restructuring and asset impairment charges of
wood treatment business.
Reconciliations for these items are provided below. Amounts in
thousands, except per share and percentage amounts.
Unaudited Reconciliation of Pro Forma Net Income to
Non-GAAP Adjusted Pro Forma Net Income |
|
|
|
Twelve Months Ended |
|
September 30, 2019 |
Pro forma net income |
$ |
69,673 |
|
Adjustments (net of tax): |
|
Amortization of acquisition related intangibles |
70,913 |
|
Integration expenses |
1,913 |
|
Costs related to KMG-Bernuth warehouse fire |
7,683 |
|
Costs related to restructuring of wood treatment business |
1,075 |
|
Charges related to asset impairment of wood treatment business |
38,215 |
|
U. S tax reform |
8,905 |
|
Adjusted pro forma net
income |
$ |
198,377 |
|
Unaudited Reconciliation of Pro Forma Revenue to Non-GAAP
Adjusted Pro Forma Gross Profit and Gross Margin |
|
|
|
|
Twelve Months Ended |
|
September 30, 2019 |
Pro forma revenue |
$ |
1,099,674 |
|
|
Cost of sales |
623,303 |
|
|
Gross profit and gross
margin |
476,371 |
|
43.3 |
% |
Adjustments: |
|
|
Amortization of acquisition related intangibles |
13,879 |
|
1.3 |
% |
Costs related to KMG-Bernuth warehouse fire |
9,494 |
|
0.9 |
% |
Costs related to restructuring of wood treatment business |
1,530 |
|
0.1 |
% |
Adjusted pro forma gross profit and adjusted gross margin |
$ |
501,274 |
|
45.6 |
% |
Unaudited Reconciliation of Pro Forma Diluted Earnings
(Loss) Per Share to Non-GAAP Adjusted Pro Forma Diluted Earnings
Per Share |
|
Twelve Months Ended |
|
September 30, 2019 |
Pro forma diluted earnings per
share |
$ |
2.36 |
|
Adjustments (net of tax)1: |
|
Amortization of acquisition
related intangibles |
2.40 |
|
Integration expenses |
0.06 |
|
Costs related to KMG-Bernuth
warehouse fire |
0.26 |
|
Costs related to restructuring of
wood treatment business |
0.04 |
|
Charges related to asset
impairment of wood treatment business |
1.30 |
|
U. S tax reform |
0.30 |
|
Adjusted pro forma diluted
earnings per share |
$ |
6.72 |
|
1 Tax effect on the adjustments was calculated using the U.S.
Federal and state blended tax rate for the respective periods as
the related adjustments are mainly U.S. driven.
Unaudited Reconciliation of Pro Forma Revenue to Non-GAAP
Adjusted Pro Forma EBITDA and EBITDA Margin |
|
|
|
|
Twelve Months Ended |
|
September 30, 2019 |
Pro forma net income |
$ |
69,673 |
|
|
Interest expense |
53,743 |
|
|
Interest income |
(2,397 |
) |
|
Depreciation and amortization |
132,942 |
|
|
Provision for income taxes |
26,388 |
|
|
Pro forma EBITDA and
EBITDA margin |
280,349 |
|
25.5 |
% |
Adjustments (pre-tax): |
|
|
Integration expenses |
2,465 |
|
0.2 |
% |
Costs related to KMG-Bernuth warehouse fire |
9,905 |
|
0.9 |
% |
Costs related to restructuring of wood treatment business |
1,530 |
|
0.1 |
% |
Charges related to asset impairment of wood treatment business |
51,186 |
|
4.7 |
% |
Adjusted pro forma EBITDA and EBITDA margin |
$ |
345,435 |
|
31.4 |
% |
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