Cabot Microelectronics Corporation (Nasdaq: CCMP), a leading
global supplier of consumable materials to semiconductor
manufacturers and pipeline companies, today reported financial
results for its first quarter of fiscal 2020, which ended December
31, 2019.
Key Highlights
Total company revenue increased 1.6% over the
prior quarter driven by stronger demand for CMP slurries and
pipeline performance products. Revenue was essentially flat
compared with pro forma revenue in the prior year as growth in the
Performance Materials segment from higher demand in pipeline
performance products offset lower revenue in the Electronic
Materials segment, which was negatively impacted by semiconductor
industry softness compared with strong demand in the same quarter
last year. Net Income for the quarter was $38.5 million. Adjusted
EBITDA was $95.3 million in the quarter, benefiting from lower
operating expenses. During the quarter, the company generated $48.0
million in cash flow from operations, and had $194.3 million of
cash on hand and $937.2 million in total debt as of December 31,
2019. The company successfully refinanced its credit facility
during the quarter, which is expected to reduce annual interest
expense by approximately $2 million going forward.
“We delivered another quarter of record revenue
and strong profitability, driven by continued solid execution and
meaningful participation in the most challenging and leading-edge
technologies, as well as an improving semiconductor demand
environment,” said David Li, President and CEO of Cabot
Microelectronics Corporation. “Looking forward, we see continued
recovery for the semiconductor industry, driven by 5G and other
emerging technologies, as well as continued strength in our
pipeline materials business, which gives us confidence in our
ability to drive continued revenue growth and increasing
profitability.”
Key Financial Information for First
Quarter of Fiscal 2020
- Revenue was $283.1 million, 27.7% higher than the revenue
reported in the same quarter last year, benefiting from the
acquisition of KMG Chemicals, Inc. (“KMG”), which closed in
November of 2018. Revenue was essentially flat compared to the pro
forma revenue in same quarter last year as revenue growth in
Performance Materials offset a revenue decline in Electronic
Materials, which was impacted by softer demand in the semiconductor
industry, primarily from memory customers. Sequentially, revenue
increased 1.6% due to stronger demand for CMP slurries and pipeline
performance products.
- Net Income was $38.5 million, which is $25.1 million higher
than in the same quarter last year. Adjusted net income was $57.2
million, flat compared with adjusted pro forma net income in the
prior year. Net Income benefited from the timing of certain
manufacturing costs, reduced operating expenses and lower interest
expense, offset by less favorable product mix and higher tax
expense in the quarter.
- Diluted earnings per share (EPS) was $1.30. Adjusted
diluted EPS was $1.92, 1.5%, lower than adjusted pro forma EPS in
the same quarter last year, primarily due to a higher number of
shares outstanding.
- Adjusted EBITDA was $95.3 million, 7.2%, higher than adjusted
pro forma EBITDA in the same quarter last year, primarily due to
lower operating expenses, mostly from synergies. Adjusted
EBITDA margin for the quarter was 33.6%, compared to adjusted pro
forma EBITDA margin of 31.3% in the same quarter last year.
Electronic Materials – Revenue
was $220.7 million, 4.4%, lower than pro forma revenue in the same
quarter last year. CMP slurries, CMP pads and electronic chemicals
reported lower revenue than in the prior year, primarily due to
soft semiconductor industry conditions. Adjusted EBITDA was
$81.2 million, or 36.8% of revenue.
Performance Materials – Revenue
was $62.4 million for the quarter, 17.8% higher than pro forma
revenue in the same quarter last year. The increase was
driven by higher revenue from pipeline performance products, which
was partially offset by a decline in QED revenue. Adjusted EBITDA
was $27.5 million, or 44.0% of revenue.
Guidance for Second Quarter and Full
Fiscal Year 2020
For the second quarter of fiscal 2020, the
company currently expects total revenue to be approximately flat to
up low single digits compared to the company’s revenue in the first
quarter of fiscal 2020. Sequentially, Electronic
Materials revenue is expected to be approximately
flat to up low single digits and Performance
Materials revenue is expected to be up low single
digits.
The company currently continues to expect full
fiscal year 2020 adjusted EBITDA to be between $350 million and
$380 million. Additional current expectations are provided on slide
8 in the related slide presentation.1 Refer to financial tables and
“Use of Certain GAAP, non-GAAP Adjusted and Non-GAAP Adjusted Pro
Forma 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.
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, February 6. 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 7765737. 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 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. Cabot Microelectronics Corporation 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 1,900 employees
globally. For more information about Cabot Microelectronics
Corporation, visit www.cabotcmp.com, or contact Colleen Mumford,
Vice President, Communications and Marketing, at 630-499-2600.
USE OF CERTAIN GAAP, NON-GAAP ADJUSTED,
AND NON-GAAP ADJUSTED PRO FORMA FINANCIAL INFORMATIONThe
company presented the following measures considered as non-GAAP by
the SEC: adjusted net income, adjusted diluted earnings per share,
adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization), adjusted EBITDA margin, adjusted pro forma revenue,
adjusted pro forma EBITDA, adjusted pro forma EBITDA margin,
adjusted pro forma net income and adjusted pro forma diluted
earnings per share. The adjusted results exclude the impact of
non-recurring acquisition and integration related costs,
acquisition related amortization expenses, the adjustments related
to the effect of the enactment of the Tax Cuts and Jobs Act in
December 2017 in the United States (“tax act”) and the
recently-issued final regulations related to the tax act, the
effect of restructuring charges related to the company’s wood
treatment business, and certain costs related to a warehouse fire
at KMG-Bernuth in Tuscaloosa, Alabama. The adjusted pro forma
results are presented as if the company’s acquisition of KMG
Chemicals, Inc. (“KMG”), had been consummated on October 1, 2017
and exclude the impact of those adjustments stated earlier.
The non-GAAP adjusted 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 adjustments related to the effect of the enactment of the Tax
Cuts and Jobs Act in December 2017 in the United States (“tax act”)
and the recently issued final regulations related to the tax act,
KMG acquisition and integration-related expenses, the effect of
restructuring charges related to the company’s wood treatment
business, certain costs related to a warehouse fire at KMG-Bernuth
in Tuscaloosa, Alabama, and acquisition-related amortization
expenses are not indicative of its core operating results, and thus
presents these certain metrics excluding these effects. The
presentation of non-GAAP adjusted financial information and
adjusted pro forma 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. Reconciliations
of non-GAAP measures to their most comparable GAAP measures and
reconciliations of pro forma financial information to adjusted pro
forma financial information are included in the financial
statements portion of this press release.
The company has not quantitatively reconciled
its guidance for adjusted EBITDA to its most comparable GAAP
measure because the company does not provide specific guidance for
the various reconciling items as certain items that impact this
measure have not occurred, are out of the company’s control, or
cannot be reasonably predicted. Accordingly, a reconciliation
to the nearest GAAP financial metric is not available without
unreasonable effort. Please note that the unavailable
reconciling items could significantly impact the company’s
results.
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 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
acquisition of, investment in, or collaboration with other
entities, including the Company’s acquisition of KMG Chemicals,
Inc. (“KMG”), and the expected benefits and synergies of such
acquisition; 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;
competitive landscape; the Company's supply chain; natural
disasters; various economic or political factors and international
or national events, including related to global public health
crises 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 Cabot Microelectronics; the Company's
management; foreign exchange fluctuation; the Company's current or
future tax rate, including the effects of the Tax Cuts and Jobs Act
in the United States (“Tax Act”); 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 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 Cabot Microelectronics’ filings with
the Securities and Exchange Commission (“SEC”), including the risk
factors contained in Cabot Microelectronics’ Annual Report on Form
10-K for the fiscal year ended September 30, 2019. 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.
Contact:Colleen MumfordVice
President, Communications and MarketingCabot Microelectronics
Corporation(630) 499-2600
CABOT
MICROELECTRONICS CORPORATION |
CONSOLIDATED
STATEMENTS OF INCOME (LOSS) |
(Unaudited and amounts
in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
December 31, 2019 |
|
September 30, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$283,143 |
|
|
$278,645 |
|
|
$221,778 |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
154,461 |
|
|
|
165,535 |
|
|
|
122,445 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
128,682 |
|
|
|
113,110 |
|
|
|
99,333 |
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research, development and technical |
|
|
12,811 |
|
|
|
12,698 |
|
|
|
14,040 |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
54,439 |
|
|
|
50,663 |
|
|
|
61,128 |
|
|
|
|
|
|
|
|
Asset Impairment Charges |
|
|
- |
|
|
|
67,372 |
|
|
|
- |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
67,250 |
|
|
|
130,733 |
|
|
|
75,168 |
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
61,432 |
|
|
|
(17,623 |
) |
|
|
24,165 |
|
|
|
|
|
|
|
|
Interest
expense |
|
|
11,920 |
|
|
|
12,703 |
|
|
|
6,890 |
|
|
|
|
|
|
|
|
Interest
income |
|
|
315 |
|
|
|
342 |
|
|
|
1,019 |
|
|
|
|
|
|
|
|
Other income
(expense), net |
|
|
(397 |
) |
|
|
(1,158 |
) |
|
|
(1,411 |
) |
|
|
|
|
|
|
|
Income
(loss) before income taxes |
|
|
49,430 |
|
|
|
(31,142 |
) |
|
|
16,883 |
|
|
|
|
|
|
|
|
Provision
for income taxes (benefit) |
|
|
10,881 |
|
|
|
(10,899 |
) |
|
|
3,440 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$38,549 |
|
|
($20,243 |
) |
|
$13,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share |
|
$1.32 |
|
|
($0.70 |
) |
|
$0.50 |
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding |
|
|
29,137 |
|
|
|
29,084 |
|
|
|
27,157 |
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share |
|
$1.30 |
|
|
($0.70 |
) |
|
$0.48 |
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
29,694 |
|
|
|
29,084 |
|
|
|
27,762 |
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
CONSOLIDATED CONDENSED BALANCE SHEETS |
|
|
|
|
|
(Unaudited and amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,2019 |
|
September 30, 2019 |
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$194,328 |
|
$188,495 |
|
Accounts receivable, net |
|
|
|
|
144,741 |
|
|
146,113 |
|
Inventories |
|
|
|
|
156,140 |
|
|
145,278 |
|
Prepaid expenses and other current assets |
|
|
|
|
31,634 |
|
|
28,670 |
|
Total current assets |
|
|
|
|
526,843 |
|
|
508,556 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
296,724 |
|
|
276,818 |
|
Other long-term assets |
|
|
|
|
1,496,842 |
|
|
1,476,392 |
|
Total assets |
|
|
|
$2,320,409 |
|
$2,261,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
|
|
$49,485 |
|
$54,529 |
|
Current portion of long-term debt |
|
|
|
|
10,650 |
|
|
13,313 |
|
Accrued expenses, income taxes payable and other current
liabilities |
|
|
98,022 |
|
|
103,618 |
|
Total current liabilities |
|
|
|
|
158,157 |
|
|
171,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
|
|
926,541 |
|
|
928,463 |
|
Other long-term liabilities |
|
|
|
|
205,712 |
|
|
181,466 |
|
Total liabilities |
|
|
|
|
1,290,410 |
|
|
1,281,389 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
1,029,999 |
|
|
980,377 |
|
Total liabilities and stockholders' equity |
|
|
|
$2,320,409 |
|
$2,261,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
Unaudited Reconciliation of Certain GAAP Financial Measures
to Certain Non-GAAP Adjusted Financial Measures |
|
(Unaudited and amounts in thousands, except per share and
percentage amounts) |
|
|
|
|
|
Unaudited Reconciliation of GAAP Net Income to Non-GAAP
Adjusted Net Income |
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
December 31, 2019 |
|
|
GAAP Net
income |
|
$38,549 |
|
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
|
21,361 |
|
|
|
Acquisition and integration-related expenses |
|
|
2,204 |
|
|
|
Costs
related to KMG-Bernuth warehouse fire and restructuring of wood
treatment business |
|
|
392 |
|
|
|
Impact of U.S. Tax Cuts and Jobs Act (Tax Act) |
|
7 |
|
|
|
Tax
effect on adjustments to net income |
|
|
(5,354 |
) |
|
|
|
|
|
|
|
Adjusted Net
income |
|
$57,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP Revenue to Non-GAAP
Adjusted Gross Profit/ Gross Margin |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
December 31, 2019 |
|
|
|
|
|
|
GAAP
revenue |
|
$283,143 |
|
|
|
Cost
of sales |
|
|
154,461 |
|
|
|
Gross profit/margin |
|
|
128,682 |
|
45.4 |
% |
|
Adjustments: |
|
|
|
|
Amortization of acquisition related intangibles |
|
3,338 |
|
1.2 |
% |
|
Costs
related to KMG-Bernuth warehouse fire and restructuring of wood
treatment business |
|
|
392 |
|
0.2 |
% |
|
Adjusted
gross profit/gross margin |
|
|
132,412 |
|
46.8 |
% |
|
|
|
|
|
|
Unaudited Reconciliation of GAAP Operating Expenses to
Non-GAAP Adjusted Operating Expenses |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
GAAP
operating expenses |
|
|
67,250 |
|
|
|
Adjustments*: |
|
|
|
|
Amortization of acquisition related intangibles |
|
(18,023 |
) |
|
|
Acquisition and integration-related expenses |
|
|
(2,204 |
) |
|
|
Adjusted
operating expenses |
|
|
47,023 |
|
|
|
|
|
|
|
|
* All the adjustments are related to the Selling, general and
administrative expenses. |
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP Diluted Earnings Per Share
to Non-GAAP Adjusted Diluted Earnings Per Share |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
December 31, 2019 |
|
|
GAAP Diluted
earnings per share |
|
$1.30 |
|
|
|
Adjustments
(net of tax): |
|
|
|
|
Amortization of acquisition related intangibles |
|
0.55 |
|
|
|
Acquisition and integration-related expenses |
|
|
0.06 |
|
|
|
Costs
related to KMG-Bernuth warehouse fire and restructuring of wood
treatment business |
|
|
0.01 |
|
|
|
Adjusted
Diluted earnings per share |
|
$1.92 |
|
|
|
|
|
|
|
|
Unaudited Reconciliation of GAAP Net Income to Non-GAAP
Adjusted EBITDA/ EBITDA Margin |
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
GAAP net
income |
|
$38,549 |
|
|
|
Interest expense |
|
|
11,920 |
|
|
|
Interest income |
|
|
(315 |
) |
|
|
Provision for income taxes |
|
|
10,881 |
|
|
|
Depreciation and Amortization |
|
|
31,642 |
|
|
|
EBITDA **/
EBITDA margin |
|
$92,677 |
|
32.7 |
% |
|
Adjustments
(pre-tax): |
|
|
|
|
Acquisition and integration-related expenses |
|
|
2,204 |
|
|
|
Costs
related to KMG-Bernuth warehouse fire and restructuring of wood
treatment business |
|
|
392 |
|
|
|
Adjusted
EBITDA ***/EBITDA margin |
|
$95,273 |
|
33.6 |
% |
|
|
|
|
|
|
** EBITDA represents earnings before interest, taxes, depreciation
and amortization. |
|
|
*** Adjusted EBITDA is calculated by excluding items from EBITDA
that are believed to be infrequent or not indicative |
|
of the company's continuing operating performance. |
|
|
|
|
|
|
|
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 Cabot Microelectronics and
KMG. The following Unaudited Pro Forma Condensed Combined Statement
of Income for the three months ended December 31, 2018 is based on
the historical financial statements of Cabot Microelectronics 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 Cabot Microelectronics Consolidate Statement of
Income for the three months ended December 31, 2018 was derived
from the consolidated financial statements included in this press
release. The historical KMG Consolidate Statements of Income for
the three months ended December 31, 2018 include 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 actual KMG’s pre-Acquisition results with the
months aligned to Cabot Microelectronics’ fiscal periods, and
therefore, they do not align with consolidated financial statements
included in KMG’s Quarterly Reports on Form 10-Q.
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 Cabot Microelectronics 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 incurring 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 initially
completed as of November 15, 2018 and finalized in fiscal 2019.
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 period 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 Cabot Microelectronics’ Current Report on
Form 8-K/A filed on January 30, 2019, as well as the historical
consolidated financial statements and related notes of Cabot
Microelectronics and KMG, which are available to the public at the
SEC’s website at www.sec.gov.
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
For the Three Months Ended December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
December 31, 2018 |
|
|
|
|
|
|
Revenue |
|
|
$283,756 |
|
|
Cost of sales |
|
|
155,215 |
|
|
Gross profit |
|
|
128,541 |
|
|
Operating expenses: |
|
|
|
Research, development and technical |
|
|
14,040 |
|
|
Selling, general and administrative expenses |
|
|
58,019 |
|
|
Total operating expenses |
|
|
72,059 |
|
|
Operating income |
|
|
56,482 |
|
|
Interest expense |
|
|
13,705 |
|
|
Interest income |
|
|
1,070 |
|
|
Other income (expense), net |
|
|
(1,669 |
) |
|
Income before income taxes |
|
|
42,178 |
|
|
Provision for income taxes |
|
|
3,822 |
|
|
Net income |
|
$38,356 |
|
|
Basic earnings per share |
|
$1.33 |
|
|
Weighted average basic shares outstanding |
|
|
28,775 |
|
|
Diluted earnings per share |
|
$1.31 |
|
|
Weighted average diluted shares outstanding |
|
|
29,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
|
|
|
|
For the Three Months Ended December 31,
2018 |
|
|
|
|
|
|
|
|
|
|
Cabot Microelectronics (1) |
|
KMG Chemicals (2) |
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
October 1, 2018 to November 14, 2018 |
|
Presentation Reclassification (3) |
|
Pro Forma Adjustments (4) |
|
Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$221,778 |
|
|
$61,978 |
|
|
|
- |
|
|
|
- |
|
|
$283,756 |
|
Cost of sales |
|
122,445 |
|
|
|
36,534 |
|
|
|
4,741 |
|
|
|
(8,505 |
) |
|
|
155,215 |
|
Gross profit |
|
99,333 |
|
|
|
25,444 |
|
|
|
(4,741 |
) |
|
|
8,505 |
|
|
|
128,541 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Distribution expenses |
|
- |
|
|
|
4,741 |
|
|
|
(4,741 |
) |
|
|
- |
|
|
|
- |
|
Research, development and technical |
|
14,040 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,040 |
|
Selling, general and administrative expenses |
|
61,128 |
|
|
|
40,504 |
|
|
|
- |
|
|
|
(43,613 |
) |
|
|
58,019 |
|
Amortization of intangibles |
|
- |
|
|
|
1,943 |
|
|
|
- |
|
|
|
(1,943 |
) |
|
|
- |
|
Total operating expenses |
|
75,168 |
|
|
|
47,188 |
|
|
|
(4,741 |
) |
|
|
(45,556 |
) |
|
|
72,059 |
|
Operating income (loss) |
|
24,165 |
|
|
|
(21,744 |
) |
|
|
- |
|
|
|
54,061 |
|
|
|
56,482 |
|
Interest expense |
|
6,890 |
|
|
|
8,537 |
|
|
|
- |
|
|
|
(1,722 |
) |
|
|
13,705 |
|
Interest income |
|
1,019 |
|
|
|
51 |
|
|
|
- |
|
|
|
- |
|
|
|
1,070 |
|
Derivative fair value gain |
|
- |
|
|
|
567 |
|
|
|
- |
|
|
|
(567 |
) |
|
|
- |
|
Other income (expense), net |
|
(1,411 |
) |
|
|
(258 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,669 |
) |
Income before income taxes |
|
16,883 |
|
|
|
(29,921 |
) |
|
|
- |
|
|
|
55,216 |
|
|
|
42,178 |
|
Provision for income taxes (benefit) |
|
3,440 |
|
|
|
(3,722 |
) |
|
|
- |
|
|
|
4,104 |
|
|
|
3,822 |
|
Net income (loss) |
$13,443 |
|
|
($26,199 |
) |
|
|
- |
|
|
$51,112 |
|
|
$38,356 |
|
Basic earnings per share |
$0.50 |
|
|
|
- |
|
|
|
|
|
|
$1.33 |
|
Weighted average basic shares outstanding |
|
27,157 |
|
|
|
- |
|
|
|
|
|
|
|
28,775 |
|
Diluted earnings per share |
$0.48 |
|
|
|
- |
|
|
|
|
|
|
$1.31 |
|
Weighted average diluted shares outstanding |
|
27,762 |
|
|
|
- |
|
|
|
|
|
|
|
29,380 |
|
|
|
|
|
|
|
|
|
|
|
|
1 Includes heritage
Cabot Microelectronics from October 1, 2018 to December 31, 2018
and heritage KMG from November 15, 2018 to December 31, 2018. On
November 15, 2018, the Acquisition was completed and actual
combined company results are included. |
2 Heritage KMG results
that occurred prior to the Acquisition on November 15, 2018. |
3 Represents the
reclassification of KMG distribution expenses from operating
expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies. |
4 Certain pro forma
adjustments related to depreciation, amortization, financing costs
and costs of sales have been made for the October 1, 2018 to
December 31, 2018 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
three-month period. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
Summary of Pro Forma Adjustments |
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
|
|
|
|
|
Impact to Cost of sales: |
|
|
|
Depreciation and amortization, net (a) |
|
$1,756 |
|
|
Inventory step-up (b) |
|
|
(10,261 |
) |
|
Impact to Cost of sales |
|
|
(8,505 |
) |
|
|
|
|
|
|
Impact to Operating expense: |
|
|
|
Depreciation and amortization, net (a) |
|
|
12,618 |
|
|
Compensation expense (c) |
|
|
(34,632 |
) |
|
Deal costs (d) |
|
|
(21,599 |
) |
|
Historical KMG amortization in other operating expenses removal
(a) |
|
|
(1,943 |
) |
|
Impact to Operating expense |
|
($45,556 |
) |
|
|
|
|
|
|
Impact to Other income (expense), net: |
|
|
|
Derivative fair value gain (e) |
|
|
(567 |
) |
|
Impact to Other income (expense), net |
|
($567 |
) |
|
|
|
|
|
|
Impact to Interest expense: |
|
|
|
Interest expense (f) |
|
|
(1,722 |
) |
|
Impact to Interest expense |
|
($1,722 |
) |
|
|
|
|
|
|
Adjustments included in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are as follows: |
|
|
|
|
|
(a) Depreciation and amortization expense are adjusted by removing
depreciation and amortization associated with heritage 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 Cost 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. |
|
(b) 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. |
|
(c) 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 Company stock
awards in connection with the Acquisition ("Replacement Awards"),
the vesting for on-going service expenses are added as a pro forma
adjustment. |
|
(d) The elimination of non-recurring deal costs incurred in
connection with the Acquisition. |
|
(e) 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. |
|
(f) Changes in Interest expense as a result of financing associated
with the Acquisition. The adjustments remove heritage 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 December 31, 2018. |
|
|
|
|
|
|
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 three-month period ended December 31,
2018.
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 Cabot
Microelectronics Quarterly Report on Form 10-Q.
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 InformationThe company reports its financial results
in accordance with U.S. GAAP. 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. We refer to these
measures “Adjusted Pro Forma”, which begin with Pro Forma results
that are prepared in accordance with SEC Regulation S-X Article 11
and are included above. These results are then adjusted for
the following additional items for the three months ended December
31, 2018:
• 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, as they are non-recurring in
nature.
• Adjustment for U.S. Tax Reform, which represents a significant
non-recurring item affecting comparability among periods.
Reconciliations for these items are provided in the tables
below.
CABOT MICROELECTRONICS CORPORATION |
|
|
|
Unaudited Reconciliation of Certain Pro Forma Financial
Measures to Certain Non-GAAP Adjusted Pro Forma Financial
Measures |
(Unaudited and amounts in thousands, except per share and
percentage amounts) |
|
|
|
Unaudited Reconciliation of Pro Forma Net Income to
Non-GAAP Adjusted Pro Forma Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
Pro forma
net income |
|
|
$38,356 |
|
|
Adjustments
(net of tax): |
|
|
|
|
Amortization of acquisition related intangibles |
|
|
17,997 |
|
|
Integration expenses |
|
|
|
1,046 |
|
|
U. S.
Tax Reform |
|
|
|
(259 |
) |
|
Adjusted pro
forma net income |
|
|
$57,140 |
|
|
|
|
|
|
|
Unaudited Reconciliation of Pro Forma Revenue to Non-GAAP
Adjusted Pro Forma Gross Profit/ Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
|
|
|
|
|
Pro forma
revenue |
|
|
$283,756 |
|
|
Cost
of sales |
|
|
|
155,215 |
|
|
Gross profit/margin |
|
|
|
128,541 |
|
45.3 |
% |
Adjustments: |
|
|
|
|
Amortization of acquisition related intangibles |
|
|
3,470 |
|
1.2 |
% |
Adjusted pro
forma gross profit/gross margin |
|
|
|
132,011 |
|
46.5 |
% |
|
|
|
|
|
Unaudited Reconciliation of Pro Forma Operating Expenses to
Non-GAAP Adjusted Pro Forma Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Three Months EndedDecember 31, 2018 |
|
|
|
|
|
|
Pro forma
operating expenses |
|
|
|
72,059 |
|
|
Adjustments*: |
|
|
|
|
Amortization of acquisition related intangibles |
|
|
(19,442 |
) |
|
Integration expenses |
|
|
|
(1,331 |
) |
|
Adjusted pro
forma operating expenses |
|
|
|
51,286 |
|
|
|
|
|
|
|
* All the adjustments are related to the Selling, general and
administrative expenses. |
|
|
|
|
|
|
Unaudited Reconciliation of Pro Forma Diluted Earnings Per
Share to Non-GAAP Adjusted Pro Forma Diluted Earnings Per
Share |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
Pro forma
diluted earnings per share |
|
|
$1.31 |
|
|
Adjustments
(net of tax): |
|
|
|
|
Amortization of acquisition related intangibles |
|
|
0.61 |
|
|
Integration expenses |
|
|
|
0.04 |
|
|
U. S.
Tax Reform |
|
|
|
(0.01 |
) |
|
Adjusted pro
forma diluted earnings per share |
|
|
$1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Reconciliation of Pro Forma Net Income to
Non-GAAP Adjusted Pro Forma EBITDA/ EBITDA Margin |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 |
|
|
|
|
|
|
Pro forma
net income |
|
|
$38,356 |
|
|
Interest expense |
|
|
|
13,705 |
|
|
Interest income |
|
|
|
(1,070 |
) |
|
Depreciation and amortization |
|
|
|
32,722 |
|
|
Provision for income taxes |
|
|
|
3,822 |
|
|
Pro forma
EBITDA **/ EBITDA margin |
|
|
$87,535 |
|
30.8 |
% |
Adjustments
(pre-tax): |
|
|
|
|
Integration expenses |
|
|
|
1,331 |
|
0.5 |
% |
Adjusted pro forma EBITDA ***/EBITDA margin |
|
$88,866 |
|
31.3 |
% |
|
|
|
|
|
** Pro forma EBITDA represents pro forma earnings before interest,
taxes, depreciation and amortization. |
*** Adjusted pro forma EBITDA is calculated by excluding items from
pro forma EBITDA that are believed to be infrequent or not
indicative. |
|
|
|
|
|
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