KEMET Announces Fourth Quarter and Fiscal Year Results

FORT LAUDERDALE, Fla., May 14, 2020 (GLOBE NEWSWIRE) -- 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, 2020.

Fourth Quarter Highlights

  • Net sales of $293.2 million
  • GAAP gross margin of 31.4% and non-GAAP adjusted gross margin of 31.9%
  • GAAP EPS net loss of $0.01 per diluted share
  • Non-GAAP adjusted EPS of $0.37 per diluted share

Full Year Highlights

  • Net sales of $1.26 billion
  • GAAP gross margin of 33.4% and non-GAAP adjusted gross margin of 33.7%
  • GAAP EPS of $0.70 per diluted share
  • Non-GAAP adjusted EPS of $2.31 per diluted share

“During these unprecedented times, our number one priority remains the safety and well-being of our employees, their families, and the communities in which we operate. I am proud of our colleagues around the world who have worked together to quickly implement COVID-19 prevention actions sooner than required by federal or local governments to keep our employees safe and our facilities operating while continuing to serve critical infrastructure customers who need our products,” stated William M. Lowe Jr., KEMET’s Chief Executive Officer. “Despite COVID-19’s global impact, I am pleased to report that KEMET's fourth quarter results exceeded our revenue guidance, as we finished the quarter with $293.2 million in revenue and with non-GAAP adjusted gross margin and adjusted EBITDA margin of 31.9% and 18.5% respectively. This reinforces the fact that the structural changes we have made in our operations are firmly ingrained in our margin structure. While estimating the full impact the global COVID-19 pandemic will have on our upcoming fiscal year remains very challenging, we continue to believe at this time that our robust financial position will see us through the storm and position us well for long term growth. We now expect our combination with Yageo to close this summer,” continued Lowe.

For the quarter and fiscal year ended March 31, 2020, net sales were $293.2 million and $1.26 billion, respectively, compared to $355.8 million and $1.38 billion, respectively, for the same period last year.

GAAP gross margin for the quarter ended March 31, 2020 was 31.4% compared to 35.5% for the quarter ended March 31, 2019. Non-GAAP adjusted gross margin for the quarter ended March 31, 2020 was 31.9% compared to 34.8% for the quarter ended March 31, 2019.

GAAP gross margin for the fiscal year ended March 31, 2020 was 33.4% compared to 33.2% for the fiscal year ended March 31, 2019. Non-GAAP adjusted gross margin for the fiscal year ended March 31, 2020 was 33.7% compared to 33.3% for the fiscal year ended March 31, 2019.

GAAP net loss was $0.3 million or $0.01 per diluted share for the quarter ended March 31, 2020, compared to GAAP net income of $93.4 million or $1.58 per diluted share for the quarter ended March 31, 2019.

GAAP net income was $41.4 million or $0.70 per diluted share for the fiscal year ended March 31, 2020, compared to GAAP net income of $206.6 million or $3.50 per diluted share for the fiscal year ended March 31, 2019.

GAAP net income (loss) for the quarter and fiscal year ended March 31, 2020 included $17.6 million and $19.7 million in losses related to the write down of long-lived assets. GAAP net income for the quarter and fiscal year 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 was a result of the significant improvements in our profitability of the past several years and the expectation of continued profitability in the future.

Non-GAAP adjusted net income was $22.2 million or $0.37 per diluted share for the quarter ended March 31, 2020, compared to non-GAAP adjusted net income of $61.4 million or $1.04 per diluted share for the quarter ended March 31, 2019.

Non-GAAP adjusted net income was $137.3 million or $2.31 per diluted share for the fiscal year ended March 31, 2020, compared to non-GAAP adjusted net income of $207.1 million or $3.51 per diluted share for the fiscal year ended March 31, 2019.

Net income for the quarter and fiscal year ended March 31, 2020, December 31, 2019, and March 31, 2019, include various items affecting comparability as denoted in the GAAP to non-GAAP reconciliation table included hereafter.

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 gross margin, adjusted net income, adjusted earnings per share, and adjusted EBITDA margin. Definitions of our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures are included in the financial schedules accompanying this news release.

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) the failure to complete the merger with Yageo Corporation (the “Merger”) and the effects such failure would have on the Company's financial condition and results of operations, (ii) certain business uncertainties and contractual restrictions related to the pendency of the Merger, (iii) our inability to pursue alternatives to the Merger during the pendency of the Merger, (iv) 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; (v) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased raw materials; (vi) changes in the competitive environment; (vii) uncertainty of the timing of customer product qualifications in heavily regulated industries; (viii) economic, political, or regulatory changes in the countries in which we operate; (ix) difficulties, delays, or unexpected costs in completing the Company’s restructuring plans; (x) 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; (xi) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xii) difficulties associated with retaining, attracting, and training effective employees and management; (xiii) the need to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xiv) exposure to claims alleging product defects; (xv) the impact of laws and regulations that apply to our business, including those relating to environmental matters, data protection, cyber security and privacy; (xvi) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xvii) 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; (xviii) volatility of financial and credit markets affecting our access to capital; (xix) default or failure of one or more of our counterparty financial institutions could cause us to incur significant losses; (xx) the need to reduce the total costs of our products to remain competitive; (xxi) potential limitation on the use of net operating losses to offset possible future taxable income; (xxii) restrictions in our debt agreements that could limit our flexibility in operating our business; (xxiii) failure to maintain effective internal controls over financial reporting; (xxiv) 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; (xxv) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (xxvi) fluctuation in distributor sales could adversely affect our results of operations; (xxvii) earthquakes, natural disasters, and climate change could disrupt our operations and have a material adverse effect on our financial condition and results of operations; (xxviii) global health epidemics such as the coronavirus could materially affect our business, financial condition, and results of operations; and (xxix) volatility in our stock price.


KEMET CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

    Quarter Ended March 31,   Fiscal Year Ended March 31,
    2020   2019   2020   2019
Net sales   $ 293,174     $ 355,794     $ 1,260,554     $ 1,382,818  
Operating costs and expenses:                
Cost of sales   201,165     229,388     840,066     924,276  
Selling, general and administrative expenses   47,523     53,571     194,766     202,642  
Research and development   12,191     11,572     49,264     44,612  
Restructuring charges   2,952     7,157     8,882     8,779  
Loss on write down of long-lived assets   17,615     49     19,710     1,660  
Total operating costs and expenses   281,446     301,737     1,112,688     1,181,969  
Operating income   11,728     54,057     147,866     200,849  
Non-operating (income) expense:                
Interest income   (800 )   (710 )   (3,325 )   (2,035 )
Interest expense   2,922     2,436     11,021     21,239  
Antitrust class action settlements and regulatory costs       2,138     64,695     6,701  
Other (income) expense, net   (4,806 )   2,430     (4,356 )   4,513  
Income before income taxes and equity income (loss) from equity method investments   14,412     47,763     79,831     170,431  
Income tax expense (benefit)   14,626     (48,660 )   38,526     (39,460 )
Income before equity income (loss) from equity method investments   (214 )   96,423     41,305     209,891  
Equity income (loss) from equity method investments   (87 )   (3,003 )   76     (3,304 )
Net income (loss)   $ (301 )   $ 93,420     $ 41,381     $ 206,587  
                 
Net income (loss) per basic share   $ (0.01 )   $ 1.60     $ 0.71     $ 3.57  
Net income (loss) per diluted share   $ (0.01 )   $ 1.58     $ 0.70     $ 3.50  
                 
Weighted-average shares outstanding:                
Basic   58,774     58,233     58,574     57,840  
Diluted   58,774     58,975     59,415     59,082  


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

    March 31, 2020   March 31, 2019
ASSETS        
Current assets:        
Cash and cash equivalents   $ 222,399     $ 207,918  
Accounts receivable, net   144,743     154,059  
Inventories, net   243,210     241,129  
Prepaid expenses and other current assets   36,143     38,947  
Total current assets   646,495     642,053  
Property, plant and equipment, net   552,636     495,280  
Goodwill   41,210     40,294  
Intangible assets, net   52,713     53,749  
Equity method investments   16,593     12,925  
Deferred income taxes   39,750     57,024  
Other assets   42,226     16,770  
Total assets   $ 1,391,623     $ 1,318,095  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Current portion of long-term debt   $ 29,111     $ 28,430  
Accounts payable   103,201     153,287  
Accrued expenses   167,622     93,761  
Income taxes payable   2,778     2,995  
Total current liabilities   302,712     278,473  
Long-term debt   235,673     254,771  
Other non-current obligations   191,918     136,630  
Deferred income taxes   14,058     8,806  
Total liabilities   744,361     678,680  
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 58,273 and 57,822 shares at March 31, 2020 and 2019, respectively   583     578  
Additional paid-in capital   474,488     465,366  
Retained earnings   239,773     204,195  
Accumulated other comprehensive income (loss)   (67,582 )   (30,724 )
Total stockholders’ equity   647,262     639,415  
Total liabilities and stockholders’ equity   $ 1,391,623     $ 1,318,095  


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

    Fiscal Years Ended March 31,
    2020   2019
Operating activities        
Net income   $ 41,381     $ 206,587  
Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effect of acquisitions:        
Depreciation and amortization   62,819     52,628  
Equity (income) loss from equity method investments   (76 )   3,304  
Non-cash debt and financing costs   4,173     1,872  
Loss on early extinguishment of debt       15,946  
Stock-based compensation expense   12,084     12,866  
Pension and other post-retirement benefits   6,816     4,938  
Change in deferred income taxes   25,804     (49,757 )
Loss on write down of long-lived assets   19,710     1,660  
Other, net   270     (285 )
Changes in assets and liabilities, net of the effect of acquisitions:        
Accounts receivable   5,727     (8,910 )
Inventories   (3,594 )   (42,806 )
Prepaid expenses and other assets   3,962     (4,381 )
Accounts payable   (41,442 )   7,650  
Accrued income taxes   (236 )   1,046  
Other operating liabilities   21,458     (70,627 )
Net cash provided by (used in) operating activities   158,856     131,731  
Investing activities:        
Capital expenditures   (146,331 )   (146,056 )
Contributions to equity method investments   (5,000 )   (4,000 )
Proceeds from dividend   433     776  
Acquisitions, net of cash received   (1,294 )    
Proceeds from sale of assets       2,268  
Net investment hedge settlement   8,879      
Net cash provided by (used in) investing activities   (143,313 )   (147,012 )


Consolidated Statements of Cash Flows (Unaudited) (Continued)

    Fiscal Years Ended March 31,
    2020   2019
Financing activities:        
Proceeds from issuance of debt       284,924  
Payments of long-term debt   (26,862 )   (344,461 )
Customer advances related to customer capacity agreements   43,095     13,412  
Proceeds from termination of derivative instruments   6,476      
Early extinguishment of debt costs       (3,234 )
Debt issuance costs       (2,021 )
Cash flow hedge settlement   (6,972 )    
Principal payments on finance leases   (1,447 )    
Proceeds from exercise of stock options   327     485  
Proceeds from exercise of stock warrants        
Payment of dividends   (5,803 )   (5,762 )
Net cash provided by (used in) financing activities   8,814     (56,657 )
Net increase (decrease) in cash and cash equivalents   24,357     (71,938 )
Effect of foreign currency fluctuations on cash   (1,812 )   (6,990 )
Cash, cash equivalents, and restricted cash at beginning of fiscal year   207,918     286,846  
Cash, cash equivalents, and restricted cash at end of fiscal year   230,463     207,918  
Less: Restricted cash at end of year   8,064      
Cash and cash equivalents at end of year   $ 222,399     $ 207,918  


Non-GAAP Financial Measures

The Company utilizes certain Non-GAAP financial measures, including “Adjusted gross margin,” “Adjusted SG&A expenses,” “Adjusted operating income,” “Adjusted net income,” “Adjusted net income per basic and diluted share,” “EBITDA,” and “Adjusted EBITDA,” and certain related ratios. 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 non-GAAP adjusted gross margin to GAAP gross margin, the most directly comparable GAAP measure (amounts in thousands, except percentages):

    Quarters Ended   Fiscal Years Ended
         
    (Unaudited)
    March 31, 2020   December 31, 2019   March 31, 2019   March 31, 2020   March 31, 2019
Net sales   $ 293,174     $ 294,741     $ 355,794     $ 1,260,554     $ 1,382,818  
Cost of sales   201,165     201,560     229,388     840,066     924,276  
Gross Margin (GAAP)   92,009     93,181     126,406     420,488     458,542  
Gross margin as a % of net sales   31.4 %   31.6 %   35.5 %   33.4 %   33.2 %
Non-GAAP adjustments:                    
Plant start-up costs   233     136     (3,346 )   369     (927 )
Stock-based compensation expense   1,195     792     815     3,843     2,756  
Adjusted gross margin (non-GAAP)   $ 93,437     $ 94,109     $ 123,875     $ 424,700     $ 460,371  
Adjusted gross margin as a % of net sales   31.9 %   31.9 %   34.8 %   33.7 %   33.3 %


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 items 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.

The following table provides a reconciliation from non-GAAP adjusted SG&A expenses to GAAP SG&A expenses, the most directly comparable GAAP measure (amounts in thousands):

    Quarters Ended   Fiscal Years Ended
    (Unaudited)
    March 31, 2020   December 31, 2019   March 31, 2019   March 31, 2020   March 31, 2019
SG&A expenses (GAAP)   $ 47,523     $ 50,031     $ 53,571     $ 194,766     $ 202,642  
Non-GAAP adjustments:                    
ERP integration costs/IT transition costs   1,530     2,029     3,117     6,282     8,813  
Stock-based compensation expense   1,500     1,521     1,935     7,803     9,751  
Legal expenses related to antitrust class actions   396     (29 )   901     5,454     5,195  
Merger related expenses   1,836     5,283         7,119      
Contingent consideration fair value adjustment   62     33         127      
Adjusted SG&A expenses (non-GAAP)   $ 42,199     $ 41,194     $ 47,618     $ 167,981     $ 178,883  


Adjusted Operating Income

Adjusted operating income represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided below. We use adjusted operating income 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 to provide 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.

The following table provides a reconciliation from non-GAAP adjusted operating income to GAAP operating income, the most directly comparable GAAP measure (amounts in thousands, except percentages):

    Quarters Ended   Fiscal Year Ended
         
    (Unaudited)
    March 31, 2020   December 31, 2019   March 31, 2019   March 31, 2020   March 31, 2019
Net sales   $ 293,174     $ 294,741     $ 355,794     $ 1,260,554     $ 1,382,818  
                     
Operating income (GAAP)   $ 11,728     $ 28,648     $ 54,057     $ 147,866     $ 200,849  
Operating margin as a % of net sales   4.0 %   9.7 %   15.2 %   11.7 %   14.5 %
Non-GAAP adjustments:                    
Loss on write down of long-lived assets   17,615     1,076     49     19,710     1,660  
ERP integration costs/IT transition costs   1,530     2,029     3,117     6,282     8,813  
Stock-based compensation expense   2,826     2,387     2,855     12,084     12,866  
Restructuring charges   2,952     802     7,157     8,882     8,779  
Legal expenses related to antitrust class actions   396     (29 )   901     5,454     5,195  
Plant start-up costs   233     136     (3,346 )   369     (927 )
Merger related expenses   1,836     5,283         7,119      
Contingent consideration fair value adjustment   62     33         127      
Adjusted operating income (non-GAAP)   $ 39,178     $ 40,365     $ 64,790     $ 207,893     $ 237,235  
Adjusted operating margin (non-GAAP) as a % of net sales   13.4 %   13.7 %   18.2 %   16.5 %   17.2 %


Adjusted Net Income and Adjusted Net Income Per Share

Adjusted net income and adjusted net income per basic and diluted share represent net income (loss) and net income (loss) 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 understand the underlying operating performance of the Company and allow 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 below 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 (loss), operating income or any other performance measures derived in accordance with GAAP.

The following table provides a reconciliation from non-GAAP adjusted net income and adjusted net income per basic and diluted share to GAAP net income (loss) and GAAP net income (loss) per basic and diluted share, the most directly comparable GAAP measures (amounts in thousands, except per share data):

    Quarters Ended   Fiscal Year Ended
         
    (Unaudited)
    March 31, 2020   December 31, 2019   March 31, 2019   March 31, 2020   March 31, 2019
GAAP                    
Net sales   $ 293,174     $ 294,741     $ 355,794     $ 1,260,554     $ 1,382,818  
Net income (loss)   $ (301 )   $ 16,602     $ 93,420     $ 41,381     $ 206,587  
                     
Net income (loss) per basic share   $ (0.01 )   $ 0.28     $ 1.60     $ 0.71     $ 3.57  
Net income (loss) per diluted share   $ (0.01 )   $ 0.28     $ 1.58     $ 0.70     $ 3.50  
                     
Non-GAAP                    
Net income (loss) (GAAP)   (301 )   16,602     93,420     41,381     206,587  
Non-GAAP adjustments:                    
Equity (income) loss from equity method investments   87     59     3,003     (76 )   3,304  
Loss on write down of long-lived assets   17,615     1,076     49     19,710     1,660  
Restructuring charges   2,952     802     7,157     8,882     8,779  
R&D grant reimbursements and grant income   (1,572 )   (7 )   (2 )   (1,595 )   (4,559 )
ERP integration costs/IT transition costs   1,530     2,029     3,117     6,282     8,813  
Stock-based compensation   2,826     2,387     2,855     12,084     12,866  
Settlements, regulatory costs, and legal expenses related to antitrust class actions   396     1,568     3,039     70,149     11,896  
Net foreign exchange (gain) loss   (8,089 )   4,113     2,316     (6,762 )   (7,230 )
Plant start-up costs   233     136     (3,346 )   369     (927 )
Income tax effect of non-GAAP adjustments   2,134     (5,693 )   (50,208 )   (22,085 )   (50,012 )
(Gain) loss on early extinguishment of debt           (42 )       15,946  
Write off of debt issuance costs   453             453      
Merger related expenses   1,836     5,283         7,119      
Curtailment/settlement expense on defined benefit pension plans   1,949             1,949      
Unrealized (gain) loss on equity securities   89     (794 )       (705 )    
Contingent consideration fair value adjustment   62     33         127      
Adjusted net income (non-GAAP)   $ 22,200     $ 27,594     $ 61,358     $ 137,282     $ 207,123  
                     
Adjusted net income per basic share (non-GAAP)   $ 0.38     $ 0.47     $ 1.05     $ 2.34     $ 3.58  
Adjusted net income per diluted share (non-GAAP)   $ 0.37     $ 0.46     $ 1.04     $ 2.31     $ 3.51  
                     
Weighted average shares outstanding:                    
Basic   58,774     58,646     58,233     58,574     57,840  
Diluted (1)   59,612     59,529     58,975     59,415     59,082  

_________________________________________
(1) For the quarter ended March 31, 2020, diluted shares were used to compute adjusted net income per diluted share (non-GAAP).


EBITDA and Adjusted EBITDA

EBITDA represents net income before income tax expense, interest expense, net, and depreciation and amortization expense. We present EBITDA as a supplemental measure of our ability to service debt. We believe 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; and depreciation and amortization are non-cash charges.

We also present adjusted EBITDA, which is EBITDA excluding adjustments that are outlined in the following quantitative reconciliation provided, as a supplemental measure of our performance and because we believe this measure is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. The items excluded from 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 the significant interest expense or the cash requirements necessary to service interest or principal payments 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 tables provides a reconciliation from EBITDA, non-GAAP adjusted EBITDA, and non-GAAP adjusted EBITDA margin to GAAP net income (loss), the most directly comparable GAAP measure (amounts in thousands, except percentages):

    Fiscal Year 2020
    Q1   Q2   Q3   Q4   Total
    (Unaudited)
Net Sales   $ 345,242     $ 327,397     $ 294,741     $ 293,174     $ 1,260,554  
                     
Net income (loss) (GAAP)   $ 40,340     $ (15,260 )   $ 16,602     $ (301 )   $ 41,381  
Net income (loss) margin as a % of net sales   11.7 %   (4.7 )%   5.6 %   (0.1 )%   3.3 %
Non-GAAP adjustments:                    
Income tax expense (benefit)   16,800     1,700     5,400     14,626     38,526  
Interest expense, net   1,736     1,939     1,899     2,122     7,696  
Depreciation and amortization   14,259     15,117     16,154     17,289     62,819  
EBITDA (non-GAAP)   73,135     3,496     40,055     33,736     150,422  
Excluding the following items:                    
Equity (income) loss from equity method investments   250     (472 )   59     87     (76 )
Loss on write down of long-lived assets   960     59     1,076     17,615     19,710  
ERP integration costs/IT transition costs   1,215     1,508     2,029     1,530     6,282  
Stock-based compensation   2,725     4,146     2,387     2,826     12,084  
Restructuring charges   2,208     2,920     802     2,952     8,882  
R&D grant reimbursements and grant income   (35 )   19     (7 )   (1,572 )   (1,595 )
Settlements, regulatory costs, and legal expenses related to antitrust class actions   2,559     65,626     1,568     396     70,149  
Net foreign exchange (gain) loss   (489 )   (2,297 )   4,113     (8,089 )   (6,762 )
Plant start-up costs   34     (34 )   136     233     369  
Write off of debt issuance costs               453     453  
Merger related expenses           5,283     1,836     7,119  
Curtailment/settlement expense on defined benefit pension plans               1,949     1,949  
Unrealized (gain) loss on equity securities           (794 )   89     (705 )
Contingent consideration fair value adjustment       32     33     62     127  
Adjusted EBITDA (non-GAAP)   $ 82,562     $ 75,003     $ 56,740     $ 54,103     $ 268,408  
Adjusted EBITDA margin (non-GAAP) as a % of net sales   23.9 %   22.9 %   19.3 %   18.5 %   21.3 %


    Fiscal Year 2019
    Q1   Q2   Q3   Q4   Total
    (Unaudited)
Net Sales   $ 327,616     $ 349,233     $ 350,175     $ 355,794     $ 1,382,818  
                     
Net income (GAAP)   $ 35,220     $ 37,141     $ 40,806     $ 93,420     $ 206,587  
Net income (loss) margin as a % of net sales   10.8 %   10.6 %   11.7 %   26.3 %   14.9 %
Non-GAAP-adjustments:                    
Income tax expense (benefit)   4,600     2,000     2,600     (48,660 )   (39,460 )
Interest expense, net   6,658     6,912     3,908     1,726     19,204  
Depreciation and amortization   13,097     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 investments   69     (64 )   296     3,003     3,304  
Loss on write down of long-lived assets   511     312     788     49     1,660  
ERP integration costs/IT transition costs   1,650     1,593     2,453     3,117     8,813  
Stock-based compensation   4,060     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 )
Settlements, regulatory costs, and legal expenses related to antitrust class actions   1,248     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 costs   753     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  
Adjusted EBITDA margin (non-GAAP) as a % of net sales   17.1 %   20.8 %   23.4 %   22.2 %   20.9 %


Contact: Gregory C. Thompson Richard Vatinelle
  Executive Vice President and Vice President and
  Chief Financial Officer Treasurer
  GregThompson@KEMET.com InvestorRelations@KEMET.com
  954-595-5081 954-766-2819


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Source: KEMET Corporation