Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - KEMET CORP | fy2018_q1xex991xearningsre.htm |
| 8-K - 8-K - KEMET CORP | fy2018_q1x8kxearningsrelea.htm |
Earnings Conference Call
August 2, 2017
Quarter Ended June 30, 2017
Cautionary Statement
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about KEMET
Corporation's (the "Company") 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," variations of such words and other similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions,
which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied
by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect
management's judgment only as of the date hereof. The Company undertakes no obligation to update publicly any of these forward-looking
statements to reflect new information, future events or otherwise.
Factors that may cause actual outcomes and results to differ materially from those expressed in, or implied by, these forward-looking statements
include, but are not necessarily limited to the following: (i) adverse economic conditions could impact our ability to realize operating plans if
the demand for our products declines, and such conditions could adversely affect our liquidity and ability to continue to operate and cause
a write down of long-lived assets or goodwill; (ii) an increase in the cost or a decrease in the availability of our principal or single-sourced
purchased raw materials; (iii) changes in the competitive environment; (iv) uncertainty of the timing of customer product qualifications in
heavily regulated industries; (v) economic, political, or regulatory changes in the countries in which we operate; (vi) difficulties, delays or
unexpected costs in completing the restructuring plans; (vii) acquisitions and other strategic transactions expose us to a variety of risks; (viii)
acquisition of TOKIN may not achieve all of the anticipated results; (ix) our business could be negatively impacted by increased regulatory
scrutiny and litigation; (x) difficulties associated with retaining, attracting and training effective employees and management; (xi) the need to
develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xii) exposure to claims
alleging product defects; (xiii) the impact of laws and regulations that apply to our business, including those relating to environmental matters;
(xiv) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xv) changes impacting international trade
and corporate tax provisions related to the global manufacturing and sales of our products may have an adverse effect on our financial
condition and results of operations; (xvi) volatility of financial and credit markets affecting our access to capital; (xvii) the need to reduce the
total costs of our products to remain competitive; (xviii) potential limitation on the use of net operating losses to offset possible future taxable
income; (xix) restrictions in our debt agreements that could limit our flexibility in operating our business; (xx) disruption to our information
technology systems to function properly or control unauthorized access to our systems may cause business disruptions; (xxi) additional
exercise of the warrant by K Equity, LLC which could potentially result in the existence of a significant stockholder who could seek to influence
our corporate decisions; (xxii) fluctuation in distributor sales could adversely affect our results of operations, (xxiii) earthquakes and other
natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
Our acquisition accounting, including the acquisition gains, are preliminary as management continues to evaluate the fair value of the net
assets acquired and consideration transferred. In addition, the allocation of the purchase price is based on estimates and assumption that
are subject to change with the measurement period.
2
Income Statement Highlights
U.S. GAAP (Unaudited)
3
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Gross margin $ 76,676 $ 49,839 $ 42,523
Gross margin as a percentage of net sales 28.0% 25.2% 23.0%
Selling, general and administrative $ 37,870 $ 29,317 $ 25,914
SG&A as a percentage of net sales 13.8% 14.8% 14.0%
Operating income (loss) $ 27,784 $ 8,742 $ 8,898
Net income (loss) $ 221,404 $ 52,914 $ (12,205)
Per basic and diluted share data:
Net income (loss) per basic share $ 4.67 $ 1.13 $ (0.26)
Net income (loss) per diluted share 3.84 0.93 (0.26)
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 46,349
Income Statement Highlights
Non-GAAP (Unaudited)
4
For the Quarters Ended
(Amounts in thousands, except percentages and per share data) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Adjusted gross margin $ 76,986 $ 50,230 $ 43,215
Adjusted gross margin as a percentage of net sales 28.1% 25.4% 23.4%
Adjusted selling, general and administrative $ 35,984 $ 25,848 $ 21,980
Adjusted SG&A as a percentage of net sales 13.1% 13.1% 11.9%
Adjusted operating income (loss) $ 31,658 $ 17,912 $ 14,362
Adjusted net income (loss) $ 19,242 $ 7,845 $ 3,306
Adjusted EBITDA $ 43,291 $ 27,230 $ 24,272
Adjusted EBITDA margin as a percentage of net sales 15.8% 13.8% 13.1%
Per share data:
Adjusted net income (loss) - basic $ 0.41 $ 0.17 $ 0.07
Adjusted net income (loss) - diluted $ 0.33 $ 0.14 $ 0.06
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 52,097
Financial Highlights
(Unaudited)
(1) Calculated as accounts receivable, net, plus inventories, net, less accounts payable.
(2) Current quarter's accounts receivable divided by annualized current quarter’s Net sales multiplied
by 365.
(3) Current quarter's accounts payable divided by annualized current quarter's cost of goods sold
multiplied by 365.5
(Amounts in millions, except DSO and DPO) Jun 2017 Mar 2017 FX Impact
Cash, cash equivalents $ 225.6 $ 109.8 $ 0.9
Capital expenditures $ 7.3 $ 10.6
Short-term debt $ 20.4 $ 2.0
Long-term debt 330.3 387.3
Debt (discount)/premium and issuance costs (15.1) (1.1)
Total debt $ 335.6 $ 388.2 $ —
Equity $ 386.5 $ 154.7 $ 5.8
Net working capital (1) $ 194.1 $ 170.8 $ (2.4)
Days in receivables (DSO)(2) 46 43
Days in payables (DPO)(3) 63 43
LTM Operating Income Margins
U.S. GAAP (Unaudited)
6
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
Jun
2016
Sep
2016
Dec
2016
Mar
2017
Jun
2017
5.5%
4.0%
4.6% 4.6%
6.3%
LTM Adjusted EBITDA Margins
Non-GAAP (Unaudited)
7
15.0%
14.5%
14.0%
13.5%
13.0%
12.5%
Jun
2016
Sep
2016
Dec
2016
Mar
2017
Jun
2017
13.0%
13.3%
13.6%
13.9%
14.7%
Adjusted Gross Margin - GAAP Reconciliation
Solid Capacitors (Unaudited)
8
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Net sales $ 182,119 $ 148,970 $ 141,944
Gross margin (U.S. GAAP) 62,245 45,804 40,945
Gross margin as a percentage of net sales 34.2% 30.7 % 28.8%
Adjustments:
Stock-based compensation expense 213 261 265
Adjusted gross margin (non-GAAP) $ 62,458 $ 46,065 $ 41,210
Adjusted gross margin as a percentage of net sales 34.3% 30.9 % 29.0%
Adjusted Gross Margin - GAAP Reconciliation
Film & Electrolytics (Unaudited)
9
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Net sales $ 48,010 $ 48,549 $ 42,991
Gross margin (U.S. GAAP) 5,092 4,035 1,578
Gross margin as a percentage of net sales 10.6% 8.3% 3.7%
Adjustments:
Stock-based compensation expense 97 130 119
Plant start-up costs — — 308
Adjusted gross margin (non-GAAP) $ 5,189 $ 4,165 $ 2,005
Adjusted gross margin as a percentage of net sales 10.8% 8.6% 4.7%
Gross Margin - U.S. GAAP
Electro-magnetic, Sensors & Actuators(1) (Unaudited)
10
For the
Quarter
Ended
(Amounts in thousands) Jun 2017
Net sales $ 43,871
Gross margin 9,339
Gross margin as a percentage of net sales 21.3%
(1) Electro-magnetic, Sensors & Actuators ("MSA") is a new segment which is comprised of TOKIN’s non-tantalum
capacitor business acquired in connection with the TOKIN Acquisition on April 19, 2017.
Sales Summary - Q1 FY2018
(Unaudited)
11
Appendix
Adjusted Gross Margin
Non-GAAP (Unaudited)
13
For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2017 Mar 2017 Jun 2016
Net Sales $ 274,000 $ 197,519 $ 184,935
Gross Margin (U.S. GAAP) $ 76,676 $ 49,839 $ 42,523
Gross margin as a percentage of net sales 28.0% 25.2% 23.0%
Adjustments:
Stock-based compensation expense 310 391 384
Plant start-up costs — — 308
Adjusted gross margin (non-GAAP) $ 76,986 $ 50,230 $ 43,215
Adjusted gross margin as a percentage of net sales 28.1% 25.4% 23.4%
Adjusted Selling, General & Administrative Expenses
Non-GAAP (Unaudited)
14
For the Quarters Ended
(Amounts in thousands, except percentages) Jun 2017 Mar 2017 Jun 2016
Net sales $ 274,000 $ 197,519 $ 184,935
Selling, general and administrative expenses (U.S. GAAP) $ 37,870 $ 29,317 $ 25,914
Selling, general, and administrative as a percentage of net sales 13.8% 14.8% 14.0%
Less adjustments:
ERP integration/IT transition costs — 1,760 1,768
Stock-based compensation expense 745 806 785
Legal expenses related to antitrust class actions 1,141 406 1,175
TOKIN investment-related expenses — 497 206
Adjusted selling, general and administrative expenses
(non-GAAP) $ 35,984 $ 25,848 $ 21,980
Adjusted selling, general, and administrative as a percentage of net sales 13.1% 13.1% 11.9%
Adjusted Operating Income (Loss)
Non-GAAP (Unaudited)
15
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Operating income (loss) (U.S. GAAP) $ 27,784 $ 8,742 $ 8,898
Adjustments:
Restructuring charges 1,613 1,087 688
Legal expenses related to antitrust class actions 1,141 406 1,175
Stock-based compensation expense 1,101 1,249 1,228
Net (gain) loss on sales and disposals of assets 19 85 91
ERP integration/IT transition costs — 1,760 1,768
TOKIN investment-related expenses — 497 206
Plant start-up costs — — 308
Write down of long-lived assets — 4,086 —
Adjusted operating income (loss) (non-GAAP) $ 31,658 $ 17,912 $ 14,362
Adjusted Net Income (Loss)
Non-GAAP (Unaudited)
For the Quarters Ended
(in thousands) Jun 2017 Mar 2017 Jun 2016
Net income (loss) (U.S. GAAP) $ 221,404 $ 52,914 $ (12,205)
Adjustments:
Equity (income) loss from TOKIN (75,417) (41,372) (223)
Acquisition Gain (136,386) — —
Net foreign exchange (gain) loss 5,043 1,507 (1,920)
Restructuring charges 1,613 1,087 688
Legal expenses related to antitrust class actions 1,141 406 1,175
Stock-based compensation expense 1,101 1,249 1,228
(Gain) loss on early extinguishment of debt 486 — —
Amortization included in interest expense 460 200 190
Income tax effect of non-U.S. GAAP adjustments (1) (222) (374) —
Net (gain) loss on sales and disposals of assets 19 85 91
Change in value of TOKIN option — (14,200) 12,000
ERP integration/IT transition costs — 1,760 1,768
TOKIN investment-related expenses — 497 206
Write down of long-lived assets — 4,086 —
Plant start-up costs — — 308
Adjusted net income (loss) (non-GAAP) $ 19,242 $ 7,845 $ 3,306
Adjusted net income (loss) per share - basic $ 0.41 $ 0.17 $ 0.07
Adjusted net income (loss) per share - diluted $ 0.33 $ 0.14 $ 0.06
Adjusted EBITDA (non-GAAP) $ 43,291 $ 27,230 $ 24,272
Weighted avg. shares - basic 47,381 46,803 46,349
Weighted avg. shares - diluted 57,731 57,130 52,097
16 (1) The income tax effect of the excluded items is calculated by applying the applicable jurisdictional income tax rate, considering the
deferred tax valuation for each applicable jurisdiction.
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
17
For the Quarters Ended
(Amounts in thousands) Jun 2017 Mar 2017 Jun 2016
Net income (loss) (U.S. GAAP) $ 221,404 $ 52,914 $ (12,205)
Interest expense, net 10,894 9,994 9,920
Income tax expense (benefit) 1,150 (150) 1,800
Depreciation and amortization 12,243 9,367 9,436
EBITDA (non-GAAP) 245,691 72,125 8,951
Excluding the following items:
Equity (income) loss from TOKIN (75,417) (41,372) (223)
Acquisition Gain (136,386) — —
Net foreign exchange (gain) loss 5,043 1,507 (1,920)
Restructuring charges 1,613 1,087 688
Legal expenses related to antitrust class actions 1,141 406 1,175
Stock-based compensation expense 1,101 1,249 1,228
(Gain) loss on early extinguishment of debt 486 — —
Net (gain) loss on sales and disposals of assets 19 85 91
Change in value of TOKIN option — (14,200) 12,000
Write down of long-lived assets — 4,086 —
TOKIN investment-related expenses — 497 206
Plant start-up costs — — 308
ERP integration/IT transition costs — 1,760 1,768
Adjusted EBITDA (non-GAAP) $ 43,291 $ 27,230 $ 24,272
18
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
Quarter Ended LTM
(Amounts in thousands, except percentages) Sep 2015 Dec 2015 Mar 2016 Jun 2016 Jun 2016
Net Sales $ 186,123 $ 177,184 $ 183,926 $ 184,935 $ 732,168
Net income (loss) 7,194 (8,600) (15,173) (12,205) (28,784)
Income tax expense (benefit) 1,438 2,760 2,056 1,800 8,054
Interest expense, net 9,808 9,848 9,925 9,920 39,501
Depreciation and amortization 9,265 9,674 10,160 9,436 38,535
EBITDA 27,705 13,682 6,968 8,951 57,306
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (2,200) (700) — 12,000 9,100
Equity (gain) loss from NEC TOKIN (162) 6,505 11,648 (223) 17,768
Restructuring charges 23 1,714 617 688 3,042
ERP integration costs / IT transition costs 282 167 859 1,768 3,076
Stock-based compensation expense 1,328 1,154 1,013 1,228 4,723
Legal expenses related to antitrust class actions 541 1,300 482 1,175 3,498
Net foreign exchange (gain) loss (3,171) (1,036) 122 (1,920) (6,005)
NEC TOKIN investment-related expenses 186 225 265 206 882
Plant start-up costs 187 160 319 308 974
Plant shut-down costs — 231 141 — 372
Net (gain) loss on sales and disposals of assets (304) 129 608 91 524
Adjusted EBITDA (non-GAAP) $ 24,415 $ 23,531 $ 23,042 $ 24,272 $ 95,260
Adjusted EBITDA Margin (non-GAAP) 13.1% 13.3% 12.5% 13.1% 13.0%
Quarter Ended LTM
(Amounts in thousands, except percentages) Dec 2015 Mar 2016 Jun 2016 Sep 2016 Sep 2016
Net Sales $ 177,184 $ 183,926 $ 184,935 $ 187,308 $ 733,353
Net income (loss) (8,600) (15,173) (12,205) (4,998) (40,976)
Income tax expense (benefit) 2,760 2,056 1,800 830 7,446
Interest expense, net 9,848 9,925 9,920 9,904 39,597
Depreciation and amortization 9,674 10,160 9,436 9,440 38,710
EBITDA 13,682 6,968 8,951 15,176 44,777
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (700) — 12,000 (1,600) 9,700
Equity (gain) loss from NEC TOKIN 6,505 11,648 (223) (181) 17,749
Restructuring charges 1,714 617 688 3,998 7,017
ERP integration costs / IT transition costs 167 859 1,768 1,783 4,577
Stock-based compensation expense 1,154 1,013 1,228 1,104 4,499
Legal expenses related to antitrust class actions 1,300 482 1,175 766 3,723
Net foreign exchange (gain) loss (1,036) 122 (1,920) (724) (3,558)
NEC TOKIN investment-related expenses 225 265 206 194 890
Plant start-up costs 160 319 308 119 906
Plant shut-down costs 231 141 — — 372
Net (gain) loss on sales and disposals of assets 129 608 91 84 912
Write down of long-lived assets — — — 6,193 6,193
Adjusted EBITDA (non-GAAP) $ 23,531 $ 23,042 $ 24,272 $ 26,912 $ 97,757
Adjusted EBITDA Margin (non-GAAP) 13.3% 12.5% 13.1% 14.4% 13.3%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
19
Quarter Ended LTM
(Amounts in thousands, except percentages) Mar 2016 Jun 2016 Sep 2016 Dec 2016 Dec 2016
Net Sales $ 183,926 $ 184,935 $ 187,308 $ 188,029 $ 744,198
Net income (loss) (15,173) (12,205) (4,998) 12,278 (20,098)
Income tax expense (benefit) 2,056 1,800 830 1,810 6,496
Interest expense, net 9,925 9,920 9,904 9,913 39,662
Depreciation and amortization 10,160 9,436 9,440 9,095 38,131
EBITDA 6,968 8,951 15,176 33,096 64,191
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options — 12,000 (1,600) (6,900) 3,500
Equity (gain) loss from NEC TOKIN 11,648 (223) (181) 133 11,377
Restructuring charges 617 688 3,998 (369) 4,934
ERP integration costs / IT transition costs 859 1,768 1,783 1,734 6,144
Stock-based compensation expense 1,013 1,228 1,104 1,139 4,484
Legal expenses related to antitrust class actions 482 1,175 766 293 2,716
Net foreign exchange (gain) loss 122 (1,920) (724) (2,621) (5,143)
NEC TOKIN investment-related expenses 265 206 194 204 869
Plant start-up costs 319 308 119 — 746
Plant shut-down costs 141 — — — 141
Net (gain) loss on sales and disposals of assets 608 91 84 132 915
Write down of long-lived assets — — 6,193 — 6,193
Adjusted EBITDA (non-GAAP) $ 23,042 $ 24,272 $ 26,912 $ 26,841 $ 101,067
Adjusted EBITDA Margin (non-GAAP) 12.5% 13.1% 14.4% 14.3% 13.6%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
20
Quarter Ended LTM
(Amounts in thousands, except percentages) Sep 2016 Dec 2016 Mar 2017 Jun 2017 Jun 2017
Net Sales $ 187,308 $ 188,029 $ 197,519 $ 274,000 $ 846,856
Net income (loss) (4,998) 12,278 52,914 221,404 281,598
Income tax expense (benefit) 830 1,810 (150) 1,150 3,640
Interest expense, net 9,904 9,913 9,994 10,894 40,705
Depreciation and amortization 9,440 9,095 9,367 12,243 40,145
EBITDA 15,176 33,096 72,125 245,691 366,088
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (1,600) (6,900) (14,200) — (22,700)
Equity (gain) loss from NEC TOKIN (181) 133 (41,372) (75,417) (116,837)
Acquisition Gain — — — (136,386) (136,386)
Restructuring charges 3,998 (369) 1,087 1,613 6,329
ERP integration costs / IT transition costs 1,783 1,734 1,760 — 5,277
Stock-based compensation expense 1,104 1,139 1,249 1,101 4,593
Legal expenses related to antitrust class actions 766 293 406 1,141 2,606
Net foreign exchange (gain) loss (724) (2,621) 1,507 5,043 3,205
NEC TOKIN investment-related expenses 194 204 497 — 895
Plant start-up costs 119 — — — 119
Net (gain) loss on sales and disposals of assets 84 132 85 19 320
(Gain) loss on early extinguishment of debt — — — 486 486
Write down of long-lived assets 6,193 — 4,086 — 10,279
Adjusted EBITDA (non-GAAP) $ 26,912 $ 26,841 $ 27,230 $ 43,291 $ 124,274
Adjusted EBITDA Margin (non-GAAP) 14.4% 14.3% 13.8% 15.8% 14.7%
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
21
Adjusted EBITDA Reconciliation
Non-GAAP (Unaudited)
22
Fiscal Year
(Amounts in thousands, except percentages) 2017
Net Sales $ 757,791
Net income (loss) 47,989
Income tax expense (benefit) 4,290
Interest expense, net 39,731
Depreciation and amortization 37,338
EBITDA 129,348
Excluding the following items (Non-GAAP):
Change in value of NEC TOKIN options (10,700)
Equity (gain) loss from NEC TOKIN (41,643)
Restructuring charges 5,404
ERP integration costs / IT transition costs 7,045
Stock-based compensation expense 4,720
Legal expenses related to antitrust class actions 2,640
Net foreign exchange (gain) loss (3,758)
NEC TOKIN investment-related expenses 1,101
Plant start-up costs 427
Plant shut-down costs —
Net (gain) loss on sales and disposals of assets 392
Write down of long-lived assets 10,279
Pension plan adjustment —
(Income) loss from discontinued operations —
(Gain) loss on early extinguishment of debt —
Professional fees related to financing activities —
Adjusted EBITDA (non-GAAP) $ 105,255
Adjusted EBITDA Margin (non-GAAP) 13.9%
Non-GAAP Financial Measures
Non-GAAP Financial Measures
Included in this presentation are certain non-GAAP financial measures designed to complement the financial information presented in accordance
with generally accepted accounting principles in the United States of America because management believes such measures are useful to investors
for the reasons 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
earlier in this presentation. 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 earlier in this presentation 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.
Adjusted selling, general and administrative expenses
Adjusted selling, general and administrative expenses represents selling, general and administrative expenses excluding adjustments which are
outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted selling, general and administrative expenses
to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided
earlier in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends
in ongoing operations. The Company believes that Adjusted selling, general and administrative expenses is useful to investors because it provides
a supplemental way to understand the underlying operating performance of the Company. Adjusted selling, general and administrative expenses
should not be considered as an alternative to selling, general and administrative expenses or any other performance measure derived in accordance
with GAAP.
Adjusted operating income (loss)
Adjusted operating income (loss) represents operating income (loss), excluding adjustments which are outlined in the quantitative reconciliation
provided earlier in this presentation. Management uses Adjusted operating income to facilitate our analysis and understanding of our business
operations by excluding the items outlined in the quantitative reconciliation provided earlier in this presentation which might otherwise make
comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. The Company believes that Adjusted
operating income is useful to investors to provide a supplemental way to understand the underlying operating performance of the Company and
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 loss or any other performance measure derived in accordance with GAAP.23
Non-GAAP Financial Measures
Continued
Adjusted net income (loss) and Adjusted EPS
Adjusted net income (loss) and Adjusted EPS represent net income (loss) and EPS, excluding adjustments which are more specifically
outlined in the quantitative reconciliation provided earlier in this presentation. Management uses Adjusted net income (loss) and
Adjusted EPS to evaluate the Company's operating performance by excluding the items outlined in the quantitative reconciliation
provided earlier in this presentation which might otherwise make comparisons of our ongoing business with prior periods more difficult
and obscure trends in ongoing operations. The Company believes that Adjusted net income (loss) and Adjusted EPS are useful to
investors because they provide a supplemental way to understand the underlying operating performance of the Company and allows
investors to monitor and understand changes in our ability to generate income from ongoing business operations. Adjusted net income
(loss) and Adjusted EPS should not be considered as alternatives to net income, operating income or any other performance measures
derived in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA represents net loss before income tax expense (benefit), interest expense, net, and depreciation and amortization
expense, excluding adjustments which are more specifically outlined in the quantitative reconciliation provided earlier in this
presentation. We present Adjusted EBITDA as a supplemental measure of our performance and ability to service debt. We also
present Adjusted EBITDA because we believe such measure is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry.
We believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because cash expenditures on interest
are, by definition, available to pay interest, and tax expense is inversely correlated to interest expense because tax expense goes
down as deductible interest expense goes up; depreciation and amortization are non-cash charges. The other 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 in this
presentation. 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.
24
Non-GAAP Financial Measures
Continued
Our Adjusted EBITDA measure has limitations as an analytical tool, and you should not consider it 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
payment on our debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often
have to be replaced in the future, and our Adjusted EBITDA measure does not reflect any cash requirements for such
replacements;
• it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
• it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our
ongoing operations;
• it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
• other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a
comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available
to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.
You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only
supplementally.
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