KEMET Corp. (NYSE:KEM) Q2 2019 Earnings Conference Call - Final Transcript

Oct 30, 2018 • 09:00 am ET


KEMET Corp. (NYSE:KEM) Q2 2019 Earnings Conference Call - Final Transcript


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Good morning. My name is Barbara, and I will be your conference operator today. At this time, I would like to welcome everyone to the KEMET Reports Preliminary Second Quarter Fiscal Year 2019 Results Conference Call.

(Operator Instructions) Ms. Robin Blackwell, you may begin your conference.

Robin R. Blackwell

This is Robin Blackwell, and welcome to KEMET's conference call to discuss the financial results for the second quarter fiscal year 2019, which concluded on September 30, 2018. Joining me today on the call is Per Loof, Chief Executive Officer and Bill Lowe, Executive Vice President and Chief Financial Officer.

As a reminder to you, a presentation is available on the website, which will help you follow along in the financial portion of the discussion.

(Forward-Looking Cautionary Statements)

Now I'll turn the call over to Per.

PerOlof Loof

Q2 results are strong, and we are proudly presenting the results. This is the 11th consecutive quarter of quarter-over-quarter growth. In our view, Q3 will be another strong quarter with expected additional revenue growth and continued margin expansion. We're bullish into calendar '19.

Revenue for this quarter was $349.2 million, up 6.6% over our June quarter and up 15.8% compared to Q2 of last year. GAAP gross margin was strong at 32.5%. Non GAAP came in at 33.1%, up 370 basis points from last quarter and up 480 basis points from a year ago. GAAP diluted EPS was $0.63 and non GAAP diluted EPS was $0.87, up $0.32 from last quarter and up $0.42 from a year ago.

Regarding refinance, we have previously reported of our intention to refinance our debt in Japan. And as announced yesterday, TOKIN Corporation, our Japanese subsidiary, has entered into a new term loan facility of JPY 33 billion, which is approximately $296 million, funded by a syndicated bank group in Japan led by Sumitomo Mitsui Trust Bank Limited.

We expect the closing and funding of the new term facility, which, of course, is subject to customer terms and conditions, to occur on or around November 7, 2018. The proceeds from the new term loan facility will be used, together with cash on hand, to prepay in full all of the outstanding amounts under our existing term loan credit agreement dated April 28, 2017.

The refinancing will decrease KEMET's interest expense by $21 million or $0.35 per diluted share compared to the current run rate on an annual basis. The company will also pay down an additional $28 million in that, and Bill will discuss the details later.

We are now positioned even better to take advantage of acquisition opportunities due to the flexible terms of this agreement. Both KEMET and Sumitomo Mitsui Trust Bank view this as the beginning of a long term relationship, which will broaden and deepen with time. This is the second debt financing since the acquisition of TOKIN in April 2017 and represents a combined annual interest savings of $31 million and a decrease of debt by $92 million.

KEMET is in a strong financial position. With the refinancing