KEMET Reports Fourth Quarter Revenue Up 11.9% -Full Year Revenue Up 15.2%

Date : 05/16/2019 @ 1:00PM
Source : GlobeNewswire Inc.
Stock : Kemet Corporation (KEM)
Quote : 22.64  1.33 (6.24%) @ 12:59AM

KEMET Reports Fourth Quarter Revenue Up 11.9% -Full Year Revenue Up 15.2%

Kemet (NYSE:KEM)
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KEMET Corporation (the “Company”) (NYSE: KEM), a leading global supplier of electronic components, today reported preliminary results for the fourth quarter and fiscal year ended March 31, 2019.

Fourth Quarter Highlights (compared to prior year fourth quarter)

  • Net sales of $355.8 million, up 11.9%
  • Gross margin of 35.5% versus 27.7%
  • Net income per diluted share on a GAAP basis of $1.58 versus $0.04
  • Adjusted net income per diluted share on a Non-GAAP basis of $1.05 versus $0.44
  • Net income of $93.4 million versus $2.3 million
  • Adjusted EBITDA of $78.9 million versus $48.5 million

Full Year Highlights (compared to prior fiscal year)

  • Net sales of $1.38 billion, up 15.2%
  • Gross margin of 33.2% versus 28.3%
  • Net income per diluted share on a GAAP basis of $3.50 versus $4.33
  • Adjusted net income per diluted share on a Non-GAAP basis of $3.54 versus $1.74
  • Net income of $206.6 million versus $254.1 million
  • Adjusted EBITDA of $289.5 million versus $191.7 million

“KEMET's revenue increased 15.2% compared to the prior year, driven by increases in all of our business segments,” stated William Lowe, the Company's Chief Executive Officer. “Over the past five years, our net income (loss) has improved from a net loss of $14.1 million in fiscal year 2015 to net income of $206.6 million in fiscal year 2019. In this same time period, our adjusted EBITDA increased from $91.7 million in fiscal year 2015 to $289.5 million in fiscal year 2019, representing an average annual growth rate of 37.0%. These improvements in our financial results are clear evidence that the structural changes we have made to our business during the past few years have been effective. In Ceramics, we have segmented the market with a focus on specialty multi-layer large case sizes and we are closely working with our customers to design in our products. The vertical integration of our Tantalum product line, increased focus on polymer technology, and the TOKIN acquisition have substantially contributed to our success. The acquisition of TOKIN has created operational synergies and further diversified our products and geographies. We have transformed KEMET to a growth company. As we look ahead, we see tremendous opportunity to build on our positive momentum, drive long-term growth, and enhance shareholder value,” continued Mr. Lowe.

Overview of Results

For the fiscal year ended March 31, 2019, net sales were $1.38 billion, up 15.2% compared to $1.20 billion for the fiscal year ended March 31, 2018. Net sales of $355.8 million for the quarter ended March 31, 2019 increased 11.9% compared to net sales of $318.1 million for the quarter ended March 31, 2018.

GAAP net income for the fiscal year ended March 31, 2019 was $206.6 million, or $3.50 per diluted share compared to net income of $254.1 million, or $4.33 per diluted share for the fiscal year ended March 31, 2018. GAAP net income for the quarter ended March 31, 2019 was $93.4 million, or $1.58 per diluted share compared to net income for the quarter ended March 31, 2018 of $2.3 million or $0.04 per diluted share.

GAAP net income for the fiscal year and quarter ended March 31, 2019 included a tax benefit of $50.1 million related to the partial release of valuation allowances in the U.S. and Japan. The one-time net income benefit of this release is a result of the significant improvements in our profitability over the last several years and the expectation of continued profitability in the future.

For the fiscal year ended March 31, 2019, non-GAAP Adjusted net income was $209.0 million, or $3.54 per diluted share compared to non-GAAP adjusted net income of $102.3 million, or $1.74 per diluted share for the fiscal year ended March 31, 2018. Non-GAAP Adjusted net income for the quarter ended March 31, 2019 was $62.1 million or $1.05 per diluted share, compared to a non-GAAP Adjusted net income of $26.2 million or $0.44 per diluted share for the quarter ended March 31, 2018.

Net income for the fiscal quarters and years ended March 31, 2019 and 2018 include various items affecting comparability as denoted in the GAAP to non-GAAP reconciliation tables included hereafter.

Solid Capacitors Reportable Segment

Revenue for our Tantalum product line was up 8.3% this past quarter from the same quarter last year. Our full year revenue also improved year over year as we successfully execute on our strategic Tantalum Polymer product development and growth initiatives. Polymer products continue to drive high design and interest across multiple industry segments and are expected to drive future growth. Ceramics revenue increased across all channels and regions due to favorable mix, increased volume, and favorable pricing. Demand for our larger case size ceramic capacitors continues to support our capacity expansion plans.

  Quarter Ended March 31, Fiscal Year Ended March 31,
  2019 2018 2019 2018
Tantalum product line net sales $137,208  $126,635  $563,255  $495,114 
Ceramic product line net sales 110,653  76,170  372,583  276,126 
Solid Capacitors net sales $247,861  $202,805  $935,838  $771,240 
Solid Capacitors operating income $98,694  $64,056  $348,150  $234,473 

Film and Electrolytic Reportable Segment

Film and Electrolytic revenue was slightly up year over year, although down for this past quarter compared to the same quarter last year. The pipeline remains strong for future periods. We continue to focus on cost reduction initiatives and manufacturing process improvements to increase our operating margins. Our recently announced closing of the Granna manufacturing facility in Sweden is continuing on schedule with expected gross margin improvements in the coming quarters.

  Quarter Ended March 31, Fiscal Year Ended March 31,
  2019 2018 2019 2018
Net sales (1) $50,486  55,028  $206,240  $201,977 
Segment operating income (loss) (1) (503) (268) 8,183  3,622 

_________________(1) Fiscal year ending March 31, 2018 adjusted due to the adoption of ASC 606.

Electro-Magnetic, Sensors, and Actuators (“MSA”) Reportable Segment

Our full year revenues grew 6.1% over the previous year, although down slightly in this past quarter compared to the same quarter last year, driven by the consumer segment. We saw overall strength in actuator products going into the semiconductor equipment segment, as well as metal materials related to the medical segment. Demand for piezo products related to the consumer and commercial fish finder business was also solid. 

  Quarter Ended March 31, Fiscal Year Ended March 31,
  2019 2018 2019 2018
Net sales $57,447  $60,258  $240,740  $226,964 
Segment operating income (loss) 3,585  (2,361) 22,546  15,694 

Outlook

We expect our first quarter revenue to be in the range of $338.0 million to $348.0 million, up approximately 3.2% to 6.2% from last year same quarter and that non-GAAP adjusted gross margin will continue to be strong in the range of 33.5% and 35.0%. We anticipate that non-GAAP Selling, General and Administrative (“SG&A”) expenses will hold steady between $44.0 million and $46.0 million, and Research and Development expenses will be approximately in the range of $12.0 million to $13.0 million. We also expect that our global effective tax rate will be around 25.0% to 28.0% for the first quarter. This more normalized rate following last quarter’s valuation allowances release is due to our improved profitability resulting in the realization for financial statement purposes of our income tax net operating losses. For fiscal year 2020, we expect cash taxes to be in the range of $15.0 million to $20.0 million.

Presentation of Non-GAAP Financial Measures

The Company has presented certain historical financial measures that have not been prepared in accordance with GAAP, including adjusted net income, adjusted net income per basic and diluted share, adjusted EBITDA, adjusted gross margin, and adjusted SG&A expenses. Definitions of our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measure are included in the financial schedules accompanying this news release.

The Company also has presented certain non-GAAP financial measures as projected for the first quarter of fiscal year 2020, including adjusted gross margin and adjusted SG&A expenses. A reconciliation of GAAP to non-GAAP gross margin and GAAP to non-GAAP SG&A expenses are not provided. The Company does not forecast GAAP gross margin and GAAP SG&A expenses as it cannot, without unreasonable effort, estimate or predict with certainty various components of each. These components include stock-based compensation expenses for GAAP gross margin and stock-based compensation expenses and ERP integration costs/IT transition costs for GAAP SG&A expenses. Further, in the future, other items with similar characteristics to those currently included in adjusted gross margin and adjusted SG&A expenses, that have a similar impact on the comparability of periods, and which are not known at this time, may exist and impact adjusted gross margin and adjusted SG&A expenses.

About KEMET

The Company’s common stock is listed on the NYSE under the ticker symbol “KEM” (NYSE: KEM).  At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company. KEMET offers our customers the broadest selection of capacitor technologies in the industry, along with an expanding range of sensors, actuators, and electromagnetic compatibility solutions. KEMET operates manufacturing facilities and sales and distribution centers around the world. Additional information about KEMET can be found at http://www.kemet.com.

Cautionary Statement on Forward-Looking Statements

Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company's financial condition and results of operations that are based on management's current expectations, estimates and projections about the markets, in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects," "anticipates," "believes," "estimates" or other similar expressions and future or conditional verbs such as “will,” “should,” “would,” and “could” are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking statements to reflect new information, future events or otherwise.

Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to, the following: (i) adverse economic conditions could impact our ability to realize operating plans if the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate and could cause a write down of long-lived assets or goodwill; (ii) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased raw materials; (iii) changes in the competitive environment; (iv) uncertainty of the timing of customer product qualifications in heavily regulated industries; (v) economic, political, or regulatory changes in the countries in which we operate; (vi) difficulties, delays, or unexpected costs in completing the Company’s restructuring plans; (vii) acquisitions and other strategic transactions expose us to a variety of risks, including the ability to successfully integrate and maintain adequate internal controls over financial reporting in compliance with applicable regulations; (viii) our acquisition of TOKIN Corporation may not achieve all of the anticipated results; (ix) our business could be negatively impacted by increased regulatory scrutiny and litigation; (x) difficulties associated with retaining, attracting, and training effective employees and management; (xi) the need to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xii) exposure to claims alleging product defects; (xiii) the impact of laws and regulations that apply to our business, including those relating to environmental matters, data protection, cyber security and privacy; (xiv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xv) changes impacting international trade and corporate tax provisions related to the global manufacturing and sales of our products may have an adverse effect on our financial condition and results of operations; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) default or failure of one or more of our counterparty financial institutions could cause us to incur significant losses; (xviii) the need to reduce the total costs of our products to remain competitive; (xix) potential limitation on the use of net operating losses to offset possible future taxable income; (xx) restrictions in our debt agreements that could limit our flexibility in operating our business; (xxi) service interruption, misappropriation of data, or breaches of security as it relates to our information systems could cause a disruption in our operations, financial losses, and damage to our reputation; (xxii) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (xxiii) fluctuation in distributor sales could adversely affect our results of operations; (xxiv) earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations; and (xxv) volatility in our stock price.

KEMET CORPORATION AND SUBSIDIARIESConsolidated Statements of Operations(Amounts in thousands, except per share data)(Unaudited)

 Quarter Ended March 31, Fiscal Year Ended March 31,
 2019 2018 2019 2018
Net sales (1)$355,794  $318,091  $1,382,818  $1,200,181 
Operating costs and expenses:       
Cost of sales (1)229,388  229,963  924,276  860,744 
Selling, general and administrative expenses53,571  47,821  202,642  173,620 
Research and development (1)11,572  10,424  44,612  39,114 
Restructuring charges7,157  8,307  8,779  14,843 
Gain (loss) on write down and disposal of long-lived assets49  (70) 1,660  (992)
Total operating costs and expenses (1)301,737  296,445  1,181,969  1,087,329 
Operating income (1)54,057  21,646  200,849  112,852 
Non-operating (income) expense:       
Interest income(710) (396) (2,035) (809)
Interest expense2,436  7,150  21,239  32,882 
Acquisition (gain) loss  6,303    (130,880)
Other (income) expense, net4,568  3,531  11,214  24,592 
Income before income taxes and equity income (loss) from equity method investments47,763  5,058  170,431  187,067 
Income tax expense (benefit) (1)(48,660) 3,091  (39,460) 9,132 
Income before equity income (loss) from equity method investments (1)96,423  1,967  209,891  177,935 
Equity income (loss) from equity method investments(3,003) 313  (3,304) 76,192 
Net income (1)$93,420  $2,280  $206,587  $254,127 
        
Net income per basic share$1.60  $0.04  $3.57  $4.81 
        
Net income per diluted share$1.58  $0.04  $3.50  $4.33 
        
Dividends declared per share$0.05  $  $0.10  $ 
        
Weighted-average shares outstanding:       
Basic58,233  57,025  57,840  52,798 
Diluted58,975  59,063  59,082  58,640 

_________________(1) Quarter and fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606, Revenue from Contracts with Customers ("ASC 606").

KEMET CORPORATION AND SUBSIDIARIESConsolidated Balance Sheets(Amounts in thousands, except per share data)(Unaudited)

 March 31, 2019 March 31, 2018
ASSETS   
Current assets:   
Cash and cash equivalents$207,918  $286,846 
Accounts receivable, net (1)154,059  146,561 
Inventories, net241,129  204,386 
Prepaid expenses and other current assets38,947  41,160 
Total current assets (1)642,053  678,953 
Property, plant and equipment, net495,280  405,316 
Goodwill40,294  40,294 
Intangible assets, net53,749  59,907 
Equity method investments12,925  12,016 
Deferred income taxes57,024  13,837 
Other assets (1)16,770  12,600 
Total assets (1)$1,318,095  $1,222,923 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$28,430  $20,540 
Accounts payable153,287  139,989 
Accrued expenses (1)93,761  125,119 
Income taxes payable2,995  2,010 
Total current liabilities (1)278,473  287,658 
Long-term debt266,041  304,083 
Other non-current obligations (1)125,360  152,249 
Deferred income taxes (1)8,806  15,058 
Total liabilities (1)678,680  759,048 
Commitments and contingencies   
Stockholders’ equity:   
Preferred stock, par value $0.01, authorized 10,000 shares, none issued   
Common stock, par value $0.01, authorized 175,000 shares, issued 57,822 and 56,641 shares at March 31, 2019 and 2018, respectively578  566 
Additional paid-in capital465,366  462,737 
Retained earnings (1)204,195  3,370 
Accumulated other comprehensive income (loss) (1)(30,724) (2,798)
Total stockholders’ equity (1)639,415  463,875 
Total liabilities and stockholders’ equity (1)$1,318,095  $1,222,923 

_________________(1) Fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.

KEMET CORPORATION AND SUBSIDIARIESConsolidated Statements of Cash Flows(Amounts in thousands)(Unaudited)

  Fiscal Years Ended March 31,
  2019 2018
Operating activities    
Net income (1) $206,587  $254,127 
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effect of acquisitions:    
Depreciation and amortization 52,628  50,661 
Equity (income) loss from equity method investments 3,304  (76,192)
Acquisition (gain) loss   (130,880)
Non-cash debt and financing costs 1,872  2,467 
Loss on early extinguishment of debt 15,946  486 
Stock-based compensation expense 12,866  7,657 
Pension and other post-retirement benefits 4,938  4,717 
Change in deferred income taxes (1) (49,757) 564 
Net (gain) loss on write down and disposal of long-lived assets 1,660  (992)
Rent receivable   2,645 
Other, net (285) (680)
Changes in assets and liabilities, net of the effect of acquisitions:    
Accounts receivable (8,910) 30,217 
Inventories (42,806) (13,827)
Prepaid expenses and other assets (4,381) 4,330 
Accounts payable 7,650  (16,053)
Accrued income taxes 1,046  1,317 
Other operating liabilities (70,627) 197 
Net cash provided by (used in) operating activities 131,731  120,761 
Investing activities:    
Capital expenditures (146,056) (65,004)
Contributions to equity method investments (4,000) (3,000)
Proceeds from dividend 776  2,745 
Acquisitions, net of cash received   163,985 
Proceeds from sale of assets 2,268  3,638 
Net cash provided by (used in) investing activities (147,012) 102,364 

Consolidated Statements of Cash Flows (Unaudited) (Continued)

  Fiscal Years Ended March 31,
  2019 2018
Financing activities:    
Payments of revolving line of credit   (33,881)
Proceeds from issuance of debt 298,336  334,978 
Early extinguishment of debt costs (3,234)  
Payment of long-term debt (344,461) (365,938)
Debt issuance costs (2,021) (5,002)
Proceeds from exercise of stock options 485  5,207 
Proceeds from exercise of stock warrants   8,838 
Payment of dividends (5,762)  
Net cash provided by (used in) financing activities (56,657) (55,798)
Net increase (decrease) in cash and cash equivalents (71,938) 167,327 
Effect of foreign currency fluctuations on cash (6,990) 9,745 
Cash, cash equivalents, and restricted cash at beginning of fiscal year 286,846  109,774 
Cash, cash equivalents, and restricted cash at end of fiscal year 207,918  286,846 
Less: Restricted cash at end of year    
Cash and cash equivalents at end of year $207,918  $286,846 

Non GAAP Financial Measures

The Company utilizes certain non-GAAP financial measures, including "Adjusted gross margin", "Adjusted operating income", “Adjusted net income”, “Adjusted net income per basic and diluted share,” “Adjusted EBITDA,” and “Adjusted SG&A expenses."  Management believes that investors may find it useful to review the Company’s financial results as adjusted to exclude items as determined by management as further described below.

Adjusted Gross Margin

Adjusted gross margin represents net sales less cost of sales excluding adjustments which are outlined in the quantitative reconciliation provided below.  Management uses Adjusted gross margin to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided below which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations.

The Company believes that Adjusted gross margin is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company.  Adjusted gross margin should not be considered as an alternative to gross margin or any other performance measure derived in accordance with GAAP.

The following table provides a reconciliation from GAAP gross margin to non-GAAP Adjusted gross margin (amounts in thousands, except percentages):

 Quarters Ended Fiscal Years Ended
 March 31, 2019 December 31, 2018 March 31, 2018 March 31, 2019 March 31, 2018
 (Unaudited)
Net sales (1)$355,794  $350,175  $318,091  $1,382,818  $1,200,181 
Cost of sales (1)229,388  226,425  229,963  924,276  860,744 
Gross Margin (GAAP) (1)126,406  123,750  88,128  458,542  339,437 
Gross margin as a % of net sales35.5% 35.3% 27.7% 33.2% 28.3%
Non-GAAP adjustments:         
Plant start-up costs (2)(3,346) 305  929  (927) 929 
Stock-based compensation expense815  666  465  2,756  1,519 
Adjusted gross margin (non-GAAP) (1)$123,875  $124,721  $89,522  $460,371  $341,885 
Adjusted gross margin as a % of net sales34.8% 35.6% 28.1% 33.3% 28.5%

_________________(1) Quarter and fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.(2) $0.9 million in costs incurred during fiscal year 2018 related to the relocation of the Company's tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant were reclassified from “Plant start-up costs” to “Restructuring charges” during the quarter ended March 31, 2019. Additionally, $2.4 million in costs incurred during the first three quarters of fiscal year 2019 were reclassified from “Plant start-up costs” to “Restructuring charges” during the fourth quarter of fiscal year 2019.

Adjusted SG&A Expenses

Adjusted SG&A expenses represents SG&A expenses excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses Adjusted SG&A expenses to facilitate our analysis and understanding of our business operations by excluding these item which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted SG&A expenses is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company.  Adjusted SG&A expenses should not be considered as an alternative to SG&A expenses or any other performance measure derived in accordance with GAAP.

 Quarters Ended Fiscal Years Ended
 March 31, 2019 December 31, 2018 March 31, 2018 March 31, 2019 March 31, 2018
 (Unaudited)
SG&A expenses (GAAP)$53,571  $48,271  $47,821  $202,642  $173,620 
Non-GAAP adjustments:         
ERP integration costs/IT transition costs3,117  2,453  80  8,813  80 
Stock-based compensation expense1,935  767  2,251  9,751  5,890 
Legal expenses/fines related to antitrust class actions901  1,268  1,738  5,195  6,736 
Adjusted SG&A expenses (non-GAAP)$47,618  $43,783  $43,752  $178,883  $160,914 

Adjusted Operating Income

Adjusted operating income represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses Adjusted operating income (loss) to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided below which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted operating income is useful to investors because it provides a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. Adjusted operating income should not be considered as an alternative to operating income or any other performance measure derived in accordance with GAAP.

Adjusted operating income is calculated as follows (amounts in thousands):

  Quarters Ended Fiscal Year Ended
  March 31, 2019 December 31, 2018 March 31, 2018 March 31, 2019 March 31, 2018
  (Unaudited)
Operating income (GAAP) (1) $54,057  $61,616  $21,646  $200,849  $112,852 
Non-GAAP adjustments:          
(Gain) loss on write down and disposal of long-lived assets 49  788  (70) 1,660  (992)
ERP integration costs/IT transition costs 3,117  2,453  80  8,813  80 
Stock-based compensation expense 2,855  1,534  2,820  12,866  7,657 
Restructuring charges (2) 7,157  1,718  8,307  8,779  14,843 
Legal expenses/fines related to antitrust class actions 901  1,268  1,738  5,195  6,736 
Plant start-up costs (2) (3,346) 305  929  (927) 929 
Adjusted operating income (non-GAAP) (1) $64,790  $69,682  $35,450  $237,235  $142,105 

_________________(1) Quarter and fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.(2) $0.9 million in costs incurred during fiscal year 2018 related to the relocation of the Company's tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant were reclassified from “Plant start-up costs” to “Restructuring charges” during the quarter ended March 31, 2019. Additionally, $2.4 million in costs incurred during the first three quarters of fiscal year 2019 were reclassified from “Plant start-up costs” to “Restructuring charges” during the fourth quarter of fiscal year 2019.

Adjusted Net Income and Adjusted Net Income Per Basic and Diluted Share

“Adjusted net income” and “Adjusted net income per basic and diluted share” represent net income and net income per basic and diluted share excluding adjustments which are outlined in the quantitative reconciliation provided below. The Company believes that these non-GAAP financial measures are useful to investors because they provide a supplemental way to possibly better understand the underlying operating performance of the Company and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. Management uses these non-GAAP financial measures to evaluate operating performance by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. Non-GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

The following table provides reconciliation from GAAP net income to non-GAAP adjusted net income:

  Quarters Ended Fiscal Year Ended
  March 31, 2019 December 31, 2018 March 31, 2018 March 31, 2019 March 31, 2018
  (Unaudited, Amounts in thousands, except per share data)
GAAP          
Net sales (1) $355,794  $350,175  $318,091  $1,382,818  $1,200,181 
Net income (1) $93,420  $40,806  $2,280  $206,587  $254,127 
           
Net income per basic share $1.60  $0.70  $0.04  $3.57  $4.81 
Net income per diluted share $1.58  $0.69  $0.04  $3.50  $4.33 
           
Non-GAAP          
Net income (GAAP) 93,420  40,806  2,280  206,587  254,127 
Non-GAAP adjustments:          
Equity (income) loss from equity method investments 3,003  296  (313) 3,304  (76,192)
Acquisition (gain) loss     6,303    (130,880)
Restructuring charges (2) 7,157  1,718  8,307  8,779  14,843 
R&D grant reimbursements and grant income (2) (470)   (4,559)  
ERP integration costs/IT transition costs 3,117  2,453  80  8,813  80 
Stock-based compensation 2,855  1,534  2,820  12,866  7,657 
Legal expenses/fines related to antitrust class actions 3,039  1,549  1,095  11,896  16,636 
Net foreign exchange (gain) loss 2,316  (2,218) 3,972  (7,230) 13,145 
Plant start-up costs (2) (3,346) 305  929  (927) 929 
Amortization included in interest expense 787  450  647  1,872  2,467 
(Gain) loss on write down and disposals of long-lived assets 49  788  (70) 1,660  (992)
Income tax effect of non-GAAP adjustments (3) (50,208) (91) 156  (50,012) (30)
(Gain) loss on early extinguishment of debt (42) 15,988    15,946  486 
Adjusted net income (non-GAAP) $62,145  $63,108  $26,206  $208,995  $102,276 
Adjusted net income per basic share (non-GAAP) $1.07  $1.09  $0.46  $3.61  $1.94 
Adjusted net income per diluted share (non-GAAP) (4) $1.05  $1.07  $0.44  $3.54  $1.74 
Weighted average shares outstanding:          
Basic 58,233  58,010  57,025  57,840  52,798 
Diluted 58,975  59,111  59,063  59,082  58,640 

_________________(1) Quarter and fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.(2) $0.9 million in costs incurred during fiscal year 2018 related to the relocation of the Company's tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant were reclassified from “Plant start-up costs” to “Restructuring charges” during the quarter ended March 31, 2019. Additionally, $2.4 million in costs incurred during the first three quarters of fiscal year 2019 were reclassified from “Plant start-up costs” to “Restructuring charges” during the fourth quarter of fiscal year 2019.(3) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the deferred tax valuation for each applicable jurisdiction.(4) Fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.

Adjusted EBITDA

Adjusted EBITDA represents net income before net interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to exclude certain items which are outlined in the quantitative reconciliation provided herein.  Management uses Adjusted EBITDA to monitor and evaluate our operating performance and to facilitate internal and external comparisons of the historical operating performance of our business. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also present Adjusted EBITDA because we believe such measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because cash expenditures on interest are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other adjustments to arrive at Adjusted EBITDA are excluded in order to better reflect our continuing operations.

In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments noted below. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.

Our Adjusted EBITDA measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.  Some of these limitations are:

  • it does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
  • it does not reflect changes in, or cash requirements for, our working capital needs;
  • it does not reflect any income tax expense or benefit, including any changes to income taxes resulting from The Tax Cuts and Jobs Act enacted on December 22, 2017;
  • it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such replacements;
  • it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
  • it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
  • it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
  • other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA as supplementary information.

The following table provides a reconciliation from GAAP net income to Adjusted EBITDA (amounts in thousands):

 Fiscal Year 2019
 Q1 Q2 Q3 Q4 Total
 (Unaudited)
Net income (GAAP)$35,220  $37,141  $40,806  $93,420  $206,587 
          
Non-GAAP adjustments:         
Income tax expense (benefit)4,600  2,000  2,600  (48,660) (39,460)
Interest expense, net6,658  6,912  3,908  1,726  19,204 
Depreciation and amortization13,097  12,545  12,763  14,223  52,628 
EBITDA (non-GAAP)59,575  58,598  60,077  60,709  238,959 
Excluding the following items:         
Equity (income) loss from equity method investments69  (64) 296  3,003  3,304 
(Gain) loss on write down and disposals of long-lived assets511  312  788  49  1,660 
ERP integration costs/IT transition costs1,650  1,593  2,453  3,117  8,813 
Stock-based compensation4,060  4,417  1,534  2,855  12,866 
Restructuring charges(96)   1,718  7,157  8,779 
R&D grant reimbursements and grant income(4,087)   (470) (2) (4,559)
Legal expenses/fines related to antitrust class actions1,248  6,060  1,549  3,039  11,896 
Net foreign exchange (gain) loss(7,521) 193  (2,218) 2,316  (7,230)
Plant start-up costs753  1,361  305  (3,346) (927)
(Gain) loss on early extinguishment of debt    15,988  (42) 15,946 
Adjusted EBITDA (non-GAAP)$56,162  $72,470  $82,020  $78,855  $289,507 
          
 Fiscal Year 2018
 Q1 Q2 Q3 Q4 Total
 (Unaudited)
Net income (GAAP) (2)$220,439  $12,819  $18,589  $2,280  $254,127 
          
Non-GAAP-adjustments:         
Income tax expense (2)1,140  2,864  2,037  3,091  9,132 
Interest expense, net10,894  7,270  7,155  6,754  32,073 
Depreciation and amortization (2)12,459  13,554  11,353  13,295  50,661 
EBITDA (non-GAAP) (2)244,932  36,507  39,134  25,420  345,993 
Excluding the following items:         
Equity (income) loss from equity method investments(75,417) (224) (238) (313) (76,192)
(Gain) loss on write down and disposals of long-lived assets19  (39) (902) (70) (992)
Acquisition (gain) loss(135,588) (1,285) (310) 6,303  (130,880)
ERP integration costs/IT transition costs      80  80 
Stock-based compensation1,101  1,530  2,206  2,820  7,657 
Restructuring charges1,613  1,393  3,530  8,307  14,843 
Legal expenses/fines related to antitrust class actions1,141  10,327  4,073  1,095  16,636 
Net foreign exchange (gain) loss5,043  1,891  2,239  3,972  13,145 
Plant start-up costs      929  929 
(Gain) loss on early extinguishment of debt486        486 
Adjusted EBITDA (non-GAAP) (2)$43,330  $50,100  $49,732  $48,543  $191,705 

_________________(1) $0.9 million in costs incurred during fiscal year 2018 related to the relocation of the Company's tantalum powder facility equipment from Carson City, Nevada to its existing Matamoros, Mexico plant were reclassified from “Plant start-up costs” to “Restructuring charges” during the quarter ended March 31, 2019. Additionally, $2.4 million in costs incurred during the first three quarters of fiscal year 2019 were reclassified from “Plant start-up costs” to “Restructuring Charges” during the fourth quarter of fiscal year 2019.(2) Quarter and fiscal year ended March 31, 2018 adjusted due to the adoption of ASC 606.

 Fiscal Year
 2017 2016 2015
 (Unaudited)
Net income (loss) (GAAP)$47,157  $(53,629) $(14,143)
      
Non-GAAP adjustments:     
Income tax expense4,294  6,006  5,227 
Interest expense, net39,731  39,591  40,686 
Depreciation and amortization38,151  39,016  40,768 
EBITDA (non-GAAP)129,333  30,984  72,538 
Excluding the following items:     
Change in value of TOKIN options(10,700) 26,300  (2,100)
Equity (income) loss from equity method investments(41,643) 16,406  2,169 
(Gain) loss on write down and disposals of long-lived assets10,671  375  (221)
ERP integration costs/IT transition costs7,045  5,677  3,248 
Stock-based compensation4,720  4,774  4,512 
Restructuring charges5,404  4,178  13,017 
Legal expenses/fines related to antitrust class actions2,640  3,041  844 
Net foreign exchange (gain) loss(3,758) (3,036) (4,249)
TOKIN investment-related expenses1,101  900  1,778 
Plant start-up costs427  861  4,556 
Plant shut-down costs  372  889 
Pension plan adjustment  312   
(Income) loss from discontinued operations    (5,379)
(Gain) loss on early extinguishment of debt    (1,003)
Professional fees related to financing activities    1,142 
Adjusted EBITDA (non-GAAP)$105,240  $91,144  $91,741 

 

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