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CST: 21/08/2019 19:51:08   

Cabot Microelectronics Corporation Reports Record Revenue For The Third Quarter of Fiscal 2019

14 Days ago

  • Record Revenue of $271.9 Million, $121.4 Million or 80.7% Higher Than Last Year; Essentially Flat Compared with Adjusted Pro Forma Revenue of $272.6 Million Last Year1
     
  • Net Income of $18.9 Million, $16.3 Million or 46.3% Lower Than Last Year; Adjusted Pro Forma Net Income of $46.9 Million, $0.4 Million or 0.9% Higher Than Last Year1
     
  • Diluted Earnings Per Share of $0.64, $0.70 or 52.2% Lower Than Last Year; Adjusted Pro Forma Diluted Earnings Per Share of $1.59, $0.02 or 1.3% Higher Than Last Year1
     
  • Adjusted Pro Forma EBITDA of $85.8 Million, $5.5 Million or 6.9% Higher Than Last Year; Adjusted Pro Forma EBITDA of 31.5% of Revenue, 210 Basis Points Higher Than Last Year1
     
  • Expecting Full Year Fiscal 2019 Adjusted EBITDA Between $325 Million and $335 Million

AURORA, Ill., Aug. 07, 2019 (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 third quarter of fiscal 2019, which ended June 30, 2019.

Key Quarter Highlights
During the third fiscal quarter, the company delivered total revenue of $271.9 million, essentially flat compared with the adjusted pro forma revenue of $272.6 million in the same quarter last year. The company’s year-over-year growth in CMP pads, electronic chemicals and pipeline performance products was offset by lower CMP slurries revenue.  Adjusted pro forma gross margin was 45.3%, and adjusted pro forma EBITDA was $85.8 million, or 31.5% of revenue, in the quarter. The company generated $63.5 million in cash flow from operations during the quarter, and ended the quarter with $168.7 million of cash on hand and $943.7 million in total debt.

“We are proud of our strong results this quarter, which we believe demonstrate the resiliency of our core CMP business as well as the strength of our acquired businesses.  In particular, it is encouraging to see the continued growth in electronic chemicals and pipeline performance in addition to signs of broader semiconductor industry stabilization,” said David Li, President and CEO of Cabot Microelectronics Corporation.  “We continue to focus on execution and managing our business within this challenging environment and feel that we are well positioned to continue to profitably grow in the future.”

Key Financial Information For The Third Quarter of Fiscal 2019

  • Revenue was $271.9 million, which is $121.4 million, or 80.7% higher than the revenue reported in the same quarter last year. Adjusted pro forma revenue of $271.9 million was $0.7 million, or 0.3%, lower compared to the same quarter last year. Year-over-year results benefited from revenue growth in CMP pads, electronic chemicals and pipeline performance products, while CMP slurries revenue declined due to soft semiconductor industry demand, primarily from memory and foundry customers, while advanced logic demand remained strong.
     
  • Net income for the quarter was $18.9 million, which is $16.3 million, or 46.3%, lower than in the same quarter last year. Excluding the impact of acquisition-related expenses, an adjustment related to newly issued final regulations for the tax act and cleanup costs related to a wood treatment business warehouse fire in Tuscaloosa, Alabama, adjusted pro forma net income was $46.9 million, which is $0.4 million, or 0.9%, higher than in the prior year.
     
  • Diluted EPS was $0.64 this quarter, which is $0.70, or 52.2%, lower than in the third quarter of fiscal 2018.  Adjusted pro forma EPS was $1.59, which is $0.02, or 1.3%, higher than in the same quarter last year.
     
  • Adjusted pro forma EBITDA was $85.8 million, which is $5.5 million, or 6.9%, higher than in the same quarter last year, primarily due to lower selling, general and administrative expenses.  Adjusted pro forma EBITDA margin for the quarter was 31.5%, compared to 29.4% in the same quarter last year.

Segment Results For The Third Quarter of Fiscal 2019
Electronic Materials – Revenue was $212.1 million, which is $10.0 million, or 4.5%, lower than pro forma revenue in the same quarter last year.  CMP pads delivered another quarter of strong revenue, which was 11.9% higher than in the same quarter last year. Electronic chemicals revenue increased 2.3% over the prior year’s quarter, driven by higher demand for products consumed in advanced logic applications.  CMP slurries revenue declined 11.6% from last year’s quarter, primarily due to softer industry conditions that resulted in lower demand for the company’s products from memory and foundry customers, which offset strong demand from advanced logic customers.  The Electronic Materials segment adjusted EBITDA was $70.9 million, or 33.4% of revenue.

Performance Materials – Revenue was $59.8 million for the quarter, which is $9.3 million, or 18.4%, higher than pro forma revenue in the prior year’s quarter.  The increase was driven by higher revenue from the company’s pipeline performance and QED businesses. The Performance Materials segment adjusted EBITDA was $27.4 million, or 45.9% of revenue.

Guidance Update
For the fourth quarter of fiscal 2019, the company currently expects total revenue to be approximately flat compared to the company’s revenue for the third quarter of fiscal 2019. Electronic Materials revenue is expected to be approximately flat sequentially. Performance Materials revenue is expected to be approximately flat sequentially due to the timing impact of QED revenue, with strong demand for the company’s pipeline performance products expected to continue.

The company now expects full fiscal year 2019 adjusted EBITDA to be between $325 million and $335 million. Additional current expectations are provided on slide 9 in the related slide presentation.

RELATED SLIDE PRESENTATION
A slide presentation related to this press release will be available at 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, August 8.  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 4888912.  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.

1 Adjusted pro forma results, including adjusted pro forma gross margin, adjusted pro forma net income, adjusted pro forma EBITDA and adjusted pro forma diluted EPS, are considered as non-GAAP financial measures by the U.S. Securities and Exchange Commission (SEC).  These 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 non-recurring acquisition and integration related costs, acquisition-related amortization expenses, the effect of the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States (“tax act”) and the newly issued final regulations related to the tax act and certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama. See “Use of Certain GAAP and Non-GAAP Adjusted Pro Forma Financial Information” below for more information about these measures.  In addition, reconciliations of these 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.

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, Corporate Relations Director, at 630-499-2600.

USE OF CERTAIN GAAP AND NON-GAAP ADJUSTED PRO FORMA FINANCIAL INFORMATION
The company presented the following measures considered as non-GAAP by the SEC: adjusted pro forma EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted pro forma EBITDA margin, adjusted pro forma net income and adjusted pro forma diluted earnings per share. These 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 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 newly issued final regulations related to the tax act and certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama.  The non-GAAP adjusted pro forma 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 adjusted pro forma 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 newly issued final regulations related to the tax act, KMG acquisition and integration-related expenses, certain costs related to a warehouse fire at KMG-Bernuth in n 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 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; 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 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, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which is expected to be filed by August 9, 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
Corporate Relations Director
Cabot Microelectronics Corporation
(630) 499-2600



CABOT MICROELECTRONICS CORPORATION      
CONSOLIDATED STATEMENTS OF INCOME      
(Unaudited and amounts in thousands, except per share amounts)      
                     
             
    Quarter Ended   Nine Months Ended
    June 30, 2019   March 31, 2019   June 30, 2018   June 30, 2019   June 30, 2018
           
                     
Revenue   $271,882     $265,391     $150,437   $759,051     $433,394
                     
Cost of sales       156,492         150,571         69,737       429,508         203,635
                     
Gross profit       115,390         114,820         80,700       329,543         229,759
                     
Operating expenses:                    
                     
Research, development & technical       12,191         12,778         13,059       39,009         38,578
                     
Selling, general & administrative       50,959         50,328         25,711       162,415         75,051
                     
                     
Total operating expenses       63,150         63,106         38,770       201,424         113,629
                     
Operating income       52,240         51,714         41,930       128,119         116,130
                     
Interest expense       12,757         13,331         513       32,978         2,803
                     
Interest income       417         568         1,141       2,004         3,248
                     
Other income (expense), net       (472 )       (1,014 )       486       (2,897 )       113
                     
Income before income taxes       39,428         37,937         43,044       94,248         116,688
                     
Provision for income taxes       20,550         10,800         7,873       34,790         54,863
                     
Net income   $18,878     $27,137     $  35,171   $59,458     $61,825
                     
                     
Basic earnings per share   $0.65     $0.94     $1.37   $2.09     $2.42
                     
Weighted average basic shares outstanding     29,064       28,998       25,612     28,399       25,479
                     
Diluted earnings per share   $0.64     $0.92     $1.34   $2.06     $2.35
                     
Weighted average diluted shares outstanding     29,568       29,479       26,319     28,924       26,222


CABOT MICROELECTRONICS CORPORATION          
CONSOLIDATED CONDENSED BALANCE SHEETS        
(Unaudited and amounts in thousands)            
                   
              June 30, 2019   September 30, 2018
               
      ASSETS:            
                   
Current assets:            
Cash and cash equivalents       $168,678   $352,921
Accounts receivable, net           135,235       75,886
Inventories, net           145,783       71,926
Other current assets           25,296       22,048
Total current assets         474,992     522,781
                   
Property, plant and equipment, net           266,391       111,403
Other long-term assets           1,557,694       146,789
Total assets       $2,299,077   $780,973
                   
                   
      LIABILITIES AND STOCKHOLDERS' EQUITY:          
                   
Current liabilities:            
Accounts payable       $46,758   $18,171
Current portion of long-term debt           13,313       -
Accrued expenses, income taxes payable and other current liabilities       95,261       82,983
Total current liabilities         155,332     101,154
                   
Long-term debt, net of current portion           930,370       -
Other long-term liabilities           188,042       13,127
Total liabilities           1,273,744       114,281
                   
Stockholders' equity           1,025,333       666,692
Total liabilities and stockholders' equity       $2,299,077   $780,973


CABOT MICROELECTRONICS CORPORATION                
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA                
(Unaudited and amounts in thousands, except percentage amounts)                
                   
                   
       Quarter Ended
 
   Nine Months Ended
 
       June 30,
2019
   June 30,
2018
   June 30,
2019
   June 30,
2018
Reconciliation of GAAP Net income to Non-GAAP Adjusted EBITDA                
                   
Net income   $18,878     $35,171     $59,458     $61,825  
  Interest expense       12,757         513         32,978         2,803  
  Interest income       (417 )       (1,141 )       (2,004 )       (3,248 )
  Income taxes       20,550         7,873         34,790         54,863  
  Depreciation & amortization       26,587         6,410         70,476         19,548  
EBITDA*   $78,355     $48,826     $195,698     $135,791  
  Acquisition and integration-related expenses       2,910         -          33,108         -   
  Charge for fair value write-up of acquired inventory sold       42         -          14,869         -   
  Costs related to KMG-Bernuth Fire       4,450         -          4,450         -   
Adjusted EBITDA**   $85,757     $48,826     $248,125     $135,791  
Adjusted EBITDA margin     31.5 %     32.5 %     32.7 %     31.3 %
                   
*  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. See Note 1, Background and Basis of Presentation, and Note 4, Business Combination, to the consolidated financial statements for additional information on the Acquisition. The following Unaudited Pro Forma Condensed Combined Statements of Income for the three and nine months ended June 30, 2019 and 2018 are 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 Consolidated Statements of Income for the three and nine months ended June 30, 2019 and 2018 were derived from the consolidated financial statements included elsewhere in this Form 10-Q. The historical KMG Consolidated Statements of Income for the nine months ended June 30, 2019, as well as the historical KMG Consolidated Statements of Income for the three and nine months ended June 30, 2018 includes information derived from KMG’s books and records. Prior to the Acquisition, KMG was on a July 31st fiscal year end reporting cycle. These pro forma financials include 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 incurred in connection with the Acquisition;
  • Adjustments to reflect the new financing arrangements entered into and legacy financing arrangements retired in connection with the Acquisition;
  • The exchange of 0.2000 share(s) of Cabot Microelectronics common stock for each share of KMG common stock; and
  • Conformance of accounting policies.

The Unaudited Pro Forma Condensed Combined Financial Information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized estimated fair values at the Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. This allocation was initially completed as of November 15, 2018.  The allocation may be adjusted for up to one-year post closing.

The Unaudited Pro Forma Condensed Combined financial information has been prepared on the basis of SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying Unaudited Pro Forma Condensed Combined Statements of Income do not reflect any additional anticipated synergies, operating efficiencies, cost savings, or any integration costs that may result from the Acquisition.

The historical consolidated financial information has been adjusted in the accompanying Unaudited Pro Forma Condensed Combined Statements of Income to give effect to unaudited pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of the combined company. As a result, under SEC Regulation S-X Article 11, certain non-recurring expenses such as deal costs and compensation expenses related to severance or accelerated stock compensation and certain non-cash costs related to the fair value step-up of inventory are eliminated from pro forma results in the periods presented. Certain recurring historical KMG expenses related to depreciation, amortization, financing costs and costs of sales have been adjusted as if the Acquisition had occurred on October 1, 2017.

In contrast, under the ASC 805 presentation in Note 4, Business Combination, to the consolidated financial statements, these expenses are required to be included in prior year pro forma results.

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 our consolidated financial statements included in this Form 10-Q and 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 Statement of Income
For the Three and Nine Months Ended June 30, 2019 and June 30, 2018
(in thousands, except per share data)

  Three Months Ended
June 30,
  Nine Months Ended
June 30,
  2019 2018   2019   2018
               
Revenue $271,882     $272,589       $821,029     $784,694  
Cost of sales 156,450     152,414       457,372     443,059  
Gross profit 115,432     120,175       363,657     341,635  
Operating expenses:                
Research, development and technical 12,191     13,059       39,009     38,578  
Selling, general and administrative expenses 54,655     53,024       166,189     155,695  
Total operating expenses 66,846     66,083       205,198     194,273  
Operating income 48,586     54,092       158,459     147,362  
Interest expense 12,759     13,350       38,372     41,391  
Interest income 417     1,150       2,055     3,260  
Other income (expense), net (472 )   396       (3,155 )   (890 )
Income before income taxes 35,772     42,288       118,987     108,341  
Provision for income taxes 19,695     7,585       30,049     37,462  
Net income $16,077     $34,703       $88,938     $70,879  
                 
Basic earnings per share $0.55     $1.20       $3.07     $2.47  
                 
Weighted average basic shares outstanding 29,064     28,849       28,944     28,716  
                 
Diluted earnings per share $0.54     $1.17       $3.02     $2.41  
                 
Weighted average diluted shares outstanding 29,568     29,556       29,469     29,459  


CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three Months Ended June 30, 2019
(in thousands, except per share data)

  Cabot
Microelectronics
         
  Three Months
Ended June 30,
2019
  Pro Forma
Adjustments (1)
  Pro Forma
Combined
             
Revenue $271,882     $ —     $271,882  
Cost of sales 156,492     (42 )   156,450  
Gross profit 115,390     42     115,432  
Operating expenses:            
Research, development and technical 12,191         12,191  
Selling, general and administrative expenses 50,959     3,696     54,655  
Total operating expenses 63,150     3,696     66,846  
Operating income 52,240     (3,654 )   48,586  
Interest expense 12,757     2     12,759  
Interest income 417         417  
Other income (expense), net (472 )       (472 )
Income before income taxes 39,428     (3,656 )   35,772  
Provision for income taxes 20,550     (855 )   19,695  
Net income $18,878     $(2,801 )   $16,077  
             
Basic earnings per share $0.65           $0.55  
             
Weighted average basic shares outstanding 29,064           29,064  
             
Diluted earnings per share $0.64           $0.54  
             
Weighted average diluted shares outstanding 29,568           29,568  

1 Pro forma adjustments are related to non-recurring items directly attributable to the transaction as well as recurring differences related to amortization or financing costs that were included as if the companies were combined as of October 1, 2017.


CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Nine Months Ended June 30, 2019
(in thousands, except per share data)

  Cabot
Microelectronics
(1)
  KMG
Chemicals (2)
           
  Nine Months
Ended June 30,
2019
  October 1, 2018
to

November 14,
2018
  Presentation
Reclassification

(3)
  Pro Forma
Adjustments (4)
  Pro Forma
Combined
                   
Revenue $759,051     $61,978     $ —     $ —     $821,029  
Cost of sales 429,508     36,534     4,741     (13,411 )   457,372  
Gross profit 329,543     25,444     (4,741 )   13,411     363,657  
Operating expenses:                  
Distribution expenses     4,741     (4,741 )        
Research, development and technical 39,009                 39,009  
Selling, general and administrative expenses 162,415     40,504         (36,730 )   166,189  
Amortization of intangibles     1,943         (1,943 )    
Total operating expenses 201,424     47,188     (4,741 )   (38,673 )   205,198  
Operating income 128,119     (21,744 )       52,084     158,459  
Interest expense 32,978     8,537         (3,143 )   38,372  
Interest income 2,004     51             2,055  
Derivative fair value gain     567         (567 )    
Other income (expense), net (2,897 )   (258 )           (3,155 )
Income before income taxes 94,248     (29,921 )       54,660     118,987  
Provision for income taxes (benefit) 34,790     (6,847 )       2,106     30,049  
Net income $59,458     $(23,074 )   $ —     $52,554     $88,938  
                   
Basic earnings per share $2.09                 $3.07  
                   
Weighted average basic shares outstanding 28,399                 28,944  
                   
Diluted earnings per share $2.06                 $3.02  
                   
Weighted average diluted shares outstanding 28,924                 29,469  

1 Includes heritage Cabot Microelectronics from October 1, 2018 to June 30, 2019 and heritage KMG from November 15, 2018 to June 30, 2019. 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 June 30, 2019 period assuming that the Acquisition occurred on October 1, 2017. Additionally, nonrecurring pro forma adjustments have been made for deal costs, compensation expenses related to severance or accelerated stock compensation, and the fair value step-up of inventory directly attributable throughout the nine-month period.


CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three Months Ended June 30, 2018
(in thousands, except per share data)

  Cabot
Microelectronics
  KMG
Chemicals (1)
           
  Three Months
Ended June 30,
2018
  Three Months
Ended June 30,
2018
  Presentation
Reclassification

(2)
  Pro Forma
Adjustments (3)
  Pro Forma
Combined
                   
Revenue $150,437     $122,152     $ —     $ —     $272,589  
Cost of sales 69,737     69,964     9,308     3,405     152,414  
Gross profit 80,700     52,188     (9,308 )   (3,405 )   120,175  
Operating expenses:                  
Distribution expenses     9,308     (9,308 )        
Research, development and technical 13,059                 13,059  
Selling, general and administrative expenses 25,711     15,043         12,270     53,024  
Amortization of intangibles     3,863         (3,863 )    
Total operating expenses 38,770     28,214     (9,308 )   8,407     66,083  
Operating income 41,930     23,974         (11,812 )   54,092  
Interest expense 513     4,196         8,641     13,350  
Interest income 1,141     9             1,150  
Loss on the extinguishment of debt     194         (194 )    
Derivative fair value gain     1,450         (1,450 )    
Other income (expense), net 486     (90 )           396  
Income before income taxes 43,044     20,953         (21,709 )   42,288  
Provision for income taxes (benefit) 7,873     4,795         (5,083 )   7,585  
Net income $35,171     $16,158     $ —     $(16,626 )   $34,703  
                   
Basic earnings per share $1.37     $1.04             $1.20  
                   
Weighted average basic shares outstanding 25,612     15,505             28,849  
                   
Diluted earnings per share $1.34     $1.02             $1.17  
                   
Weighted average diluted shares outstanding 26,319     15,905             29,556  

1 Shares outstanding for KMG are from KMG's filed 10-Q for the three months ended April 30, 2018.   They are intended for illustrative purposes only and do not impact pro forma EPS calculations at right.  Three months ended June 30, 2018 KMG share calculations were not available.
2 Represents the reclassification of KMG distribution expenses from operating expenses to cost of sales, in order to conform with Cabot Microelectronics’ accounting policies.
3 Pro forma adjustments are related to items directly attributable to the transaction, such as recurring differences related to depreciation, amortization or financing costs that were included as if the companies were combined as of October 1, 2017.


CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Nine Months Ended June 30, 2018
(in thousands, except per share data)

  Cabot
Microelectronics
  KMG
Chemicals (1)
           
  Nine Months
Ended June 30,
2018
  Nine Months
Ended June 30,
2018
  Presentation
Reclassification
(2)
  Pro Forma Adjustments
(3)
  Pro Forma
 Combined
                   
Revenue $433,394     $351,300     $ —     $ —     $784,694  
Cost of sales 203,635     202,182     26,983     10,259     443,059  
Gross profit 229,759     149,118     (26,983 )   (10,259 )   341,635  
Operating expenses:                  
Distribution expenses     26,983     (26,983 )        
Research, development and technical 38,578                 38,578  
Selling, general and administrative expenses 75,051     43,823         36,821     155,695  
Amortization of intangibles     10,835         (10,835 )    
Total operating expenses 113,629     81,641     (26,983 )   25,986     194,273  
Operating income 116,130     67,477         (36,245 )   147,362  
Interest expense 2,803     14,733         23,855     41,391  
Interest income 3,248     12             3,260  
Loss on the extinguishment of debt     6,503         (6,503 )    
Derivative fair value gain     5,332         (5,332 )    
Other income (expense), net 113     (1,003 )           (890 )
Income before income taxes 116,688     50,582         (58,929 )   108,341  
Provision for income taxes (benefit) 54,863     (3,604 )       (13,797 )   37,462  
Net income $61,825     $54,186     $ —     $(45,132 )   $70,879  
                   
Basic earnings per share $2.42     $3.75             $2.47  
                   
Weighted average basic shares outstanding 25,479     14,439             28,716  
                   
Diluted earnings per share $2.35     $3.66             $2.41  
                   
Weighted average diluted shares outstanding 26,222     14,814             29,459  

1 Shares outstanding for KMG are from KMG's filed 10-Q for the nine months ended April 30, 2018.   They are intended for illustrative purposes only and do not impact pro forma EPS calculations at right.  Nine months ended June 30, 2018 KMG share calculations were not available.
2 Represents the reclassification of KMG distribution expenses from operating expenses to cost of sales, in order to conform with Cabot Microelectronics’ accounting policies.
3 Pro forma adjustments are related to items directly attributable to the transaction, such as recurring differences related to depreciation, amortization, compensation or financing costs that were included as if the companies were combined as of October 1, 2017.


CABOT MICROELECTRONICS CORPORATION
Summary of Pro Forma Adjustments
(in thousands, except per share data)

  Three Months
Ended June 30,
2019
  Three Months
Ended June 30,
2018
  Nine Months
Ended June 30,
2019
  Nine Months
Ended June 30,
2018
Impact to cost of sales:              
Depreciation and amortization, net(a) $ —     $3,405     $1,459     $10,259  
Inventory step-up(b) (42 )       (14,870 )    
Impact to cost of sales $(42 )   $3,405     $(13,411 )   $10,259  
               
Impact to operating expense:              
Depreciation and amortization step up(a) 6,488     12,204     24,416     36,624  
Compensation expense(c)     66     33     197  
Deal costs(d) (2,792 )       (61,179 )    
Historical KMG amortization in other operating expenses removal(a)     (3,863 )   (1,943 )   (10,835 )
Impact to operating expense $3,696     $8,407     $(38,673 )   $25,986  
               
Impact to other expense:              
Loss on the extinguishment of debt(e)     (194 )       (6,503 )
Derivative fair value gain(e)     1,450     567     5,332  
Impact to other expense $ —     $1,256     $567     $(1,171 )
               
Impact to interest, net:              
Interest expense(f) 2     8,641     (3,143 )   23,855  
Impact to interest $2     $8,641     $(3,143 )   $23,855  

Adjustments included in the accompanying Unaudited Pro Forma Condensed Combined Statements of Income are as follows:

  1. Depreciation and amortization expense are adjusted by removing depreciation and amortization associated with legacy KMG assets and assigning a pro forma expense based on the fair value of the assets on the date of the Acquisition. For periods after the date of the Acquisition, there is no pro forma adjustment for Depreciation and actual booked depreciation is reflected on a straight line basis. Depreciation costs are allocated to costs of sales and selling, general and administrative expenses based on historical KMG allocations. Amortization costs are allocated to costs of sales or selling, general and administrative expense based on the use of the asset, where applicable.
  2. 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.
  3. 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 Cabot stock awards in connection with the Acquisition, the vesting for on-going service expenses are added as a pro forma adjustment.
  4. The elimination of non-recurring deal costs incurred in connection with the Acquisition.
  5. 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.
  6. Changes in interest expense as a result of financing associated with the Acquisition. The adjustments remove legacy KMG interest costs, including unused revolver fees and adds the costs associated with the new financing facilities as if the Acquisition occurred on October 1, 2017.

We calculated the income tax effect of the pro forma adjustments using a 22.1% and 23.4% tax rate, which represent the weighted average statutory tax rate for nine-month period ended June 30, 2019 and year-ended September 30, 2018, respectively.
Additionally, for the 2018 periods presented, we calculated the unaudited pro forma weighted average number of basic shares outstanding by adding the Cabot Microelectronics weighted average number of basic shares outstanding from the share amounts disclosed in the historical Quarterly Report on Form 10-Q to the amount of shares issued in connection with the Acquisition, as if the shares were held for the entire period.

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.


Cabot Microelectronics Corporation
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:

  • 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.
  • Removal of certain costs related to a warehouse fire at KMG-Bernuth.

Reconciliations for these items are provided in the tables below.


CABOT MICROELECTRONICS CORPORATION
Unaudited Reconciliation of Pro Forma Condensed Combined
Statement of Income to Non-GAAP Adjusted Pro Forma Condensed
Combined Statement of Income
For the Three Months Ended June 30, 2019
(in thousands, except per share data)

      Non-GAAP Adjustments      
  Pro Forma   Amortization of
Acquisition
Related
Intangibles
  Integration
Expenses
  U.S Tax
Reform
  Costs
Related to
KMG-
Bernuth
Warehouse
Fire
  Adjusted Pro forma
                           
Revenue $271,882     $ —     $ —     $ —     $ —     $271,882  
Cost of Sales 156,450     (3,470 )           (4,200 )   148,780  
Gross Profit 115,432     3,470             4,200     123,102  
Gross Profit, % of Revenue 42.5 %   1.3 %       %   1.5 %   45.3 %
Operating Expenses                          
Research, development and technical 12,191                     12,191  
Selling, general and administrative 54,655     (19,942 )   (117 )       (250 )   34,346  
Total Operating Expenses 66,846     (19,942 )   (117 )       (250 )   46,537  
Operating Income 48,586     23,412     117         4,450     76,565  
Interest Expense 12,759                     12,759  
Interest Income 417                     417  
Other Income (Expense), net (472 )                   (472 )
Income before income taxes 35,772     23,412     117         4,450     63,751  
Provision for income taxes 19,695     5,273     26     (9,128 )   1,002     16,868  
Net Income $16,077     $18,139     $91     $9,128     $3,448     $46,883  
Diluted Earnings per share $0.54     $0.62     $ —     $0.31     $0.12     $1.59  
Weighted Average Diluted Shares Outstanding 29,568     29,568     29,568     29,568     29,568     29,568  
Depreciation & amortization $33,076     $(23,412 )   $ —     $ —     $ —     $9,664  
EBITDA $81,190     $ —     $117         $4,450     $85,757  
EBITDA Margin 29.9 %       %       1.6 %   31.5 %


CABOT MICROELECTRONICS CORPORATION
Unaudited Reconciliation of Pro Forma Condensed Combined
Statement of Income to Non-GAAP Adjusted Pro Forma Condensed
Combined Statement of Income
For the Nine Months Ended June 30, 2019
(in thousands, except per share data)

      Non-GAAP Adjustments    
  Pro Forma   Amortization of Acquisition Related Intangibles   Integration Expenses   U.S. Tax Reform   Costs Related to KMG-Bernuth Warehouse Fire   Adjusted Pro forma
                       
Revenue $821,029     $ —     $ —         $ —     $821,029  
Cost of Sales 457,372     (10,410 )           (4,200 )   442,762  
Gross Profit 363,657     10,410             4,200     378,267  
Gross Profit, % of Revenue 44.3 %   1.3 %           0.5 %   46.1 %
Operating Expenses                      
Research, development and technical 39,009                     39,009  
Selling, general and administrative 166,189     (59,826 )   (2,208 )       (250 )   103,905  
Total Operating Expenses 205,198     (59,826 )   (2,208 )       (250 )   142,914  
Operating Income 158,459     70,236     2,208         4,450     235,353  
Interest Expense 38,372                     38,372  
Interest Income 2,055                     2,055  
Other Income (Expense), net (3,155 )                   (3,155 )
Income before income taxes 118,987     70,236     2,208         4,450     195,881  
Provision for income taxes 30,049     15,818     497     (8,869 )   1,002     38,497  
Net Income $88,938     $54,418     $1,711     $8,869     $3,448     $157,384  
Diluted Earnings per share $3.02     $1.84     $0.06     $0.30     $0.12     $5.34  
Weighted Average Diluted Shares Outstanding 29,469     29,469     29,469     29,469     29,469     29,469  
Depreciation & amortization $100,100     $(70,236 )   $ —         $ —     $29,864  
EBITDA $255,404     $ —     $2,208     $ —     $4,450     $262,062  
EBITDA Margin 31.1 %       0.3 %       0.5 %   31.9 %


CABOT MICROELECTRONICS CORPORATION
Unaudited Reconciliation of Pro Forma Condensed Combined
Statement of Income to Non-GAAP Adjusted Pro Forma Condensed
Combined Statement of Income
For the Three Months Ended June 30, 2018
(in thousands, except per share data)

      Non-GAAP Adjustments    
  Pro Forma   Amortization
of Acquisition

Related
Intangibles
  U.S. Tax
Reform
  Adjusted Pro
forma
               
Revenue $272,589     $ —     $ —     $272,589  
Cost of Sales 152,414     (3,470 )       148,944  
Gross Profit 120,175     3,470         123,645  
Gross Profit, % of Revenue 44.1 %   1.3 %   %   45.4 %
Operating Expenses              
Research, development and technical 13,059             13,059  
Selling, general and administrative 53,024     (12,380 )       40,644  
Total Operating Expenses 66,083     (12,380 )       53,703  
Operating Income 54,092     15,850         69,942  
Interest Expense 13,350             13,350  
Interest Income 1,150             1,150  
Other Income (Expense), net 396             396  
Income before income taxes 42,288     15,850         58,138  
Provision for income taxes 7,585     3,569     511     11,665  
Net Income $34,703     $12,281     $(511 )   $46,473  
Diluted Earnings per share $1.17     $0.42     $(0.02 )   $1.57  
Weighted Average Diluted Shares Outstanding 29,556     29,556     29,556     29,556  
Depreciation & amortization $25,732     $(15,850 )   $ —     $9,882  
EBITDA $80,220     $ —     $ —     $80,220  
EBITDA Margin 29.4 %           29.4 %


CABOT MICROELECTRONICS CORPORATION
Unaudited Reconciliation of Pro Forma Condensed Combined
Statement of Income to Non-GAAP Adjusted Pro Forma Condensed
Combined Statement of Income
For the Nine Months Ended June 30, 2018
(in thousands, except per share data)

      Non-GAAP Adjustments    
  Pro Forma   Amortization of
Acquisition
Related
Intangibles
  U.S. Tax
Reform
  Adjusted
Pro forma
               
Revenue $784,694     $ —     $ —     $784,694  
Cost of Sales 443,059     (10,335 )       432,724  
Gross Profit 341,635     10,335         351,970  
Gross Profit, % of Revenue 43.5 %   1.3 %   %   44.9 %
               
Operating Expenses              
Research, development and technical 38,578             38,578  
Selling, general and administrative 155,695     (37,140 )       118,555  
Total Operating Expenses 194,273     (37,140 )       157,133  
               
Operating Income 147,362     47,475         194,837  
               
Interest Expense 41,391             41,391  
Interest Income 3,260             3,260  
Other Income (Expense), net (890 )           (890 )
Income before income taxes 108,341     47,475         155,816  
               
Provision for income taxes 37,462     10,692     (20,255 )   27,899  
Net Income $70,879     $36,783     $20,255     $127,917  
               
Diluted Earnings per share $2.41     $1.24     $0.69     $4.34  
Weighted Average Diluted Shares Outstanding 29,459     29,459     29,459     29,459  
               
Depreciation & amortization $77,511     $(47,475 )   $ —     $30,036  
EBITDA $223,983     $ —     $ —     $223,983  
EBITDA Margin 28.5 %           28.5 %

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