Press Release


<< Back
Cabot Microelectronics Corporation Reports Record Revenue for the First Quarter of Fiscal 2020
  • Record Revenue of $283.1 Million, 27.7% Higher than Last Year and Essentially Flat Compared with Pro Forma Revenue Last Year1
     
  • Revenue Increased 1.6% Sequentially Due to Strong Growth in CMP Slurries and Pipeline Performance Products
     
  • Diluted EPS of $1.30; Adjusted Diluted EPS1 of $1.92, 1.5% Lower than Adjusted Pro Forma EPS Last Year1
     
  • Expecting Revenue for Fiscal 2020 Second Quarter to be Approximately Flat to Up Low Single Digits Sequentially

AURORA, Ill., Feb. 05, 2020 (GLOBE NEWSWIRE) -- 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 PRESENTATION
A 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 CALL
Cabot 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 CORPORATION
Cabot 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 INFORMATION
The 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 STATEMENTS
This press release contains forward-looking statements, which address a variety of subjects including, for example, future sales and operating results; growth or contraction, and trends in the 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 Mumford
Vice President, Communications and Marketing
Cabot 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 Information
The 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 Ended
December 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.
         

 

Cabot Microelectronics Corporation Logo

Source: Cabot Microelectronics Corporation

Connect with Cabot Microelectronics


Address
870 N. Commons Drive
Aurora, IL 60504
Contact Us

Technical Resources