Kemet Corporation (KEM)

KEM 
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Kemet Corporation (KEM)

F3Q13 (Qtr End 12/31/2013) Earnings Call

January 31, 2013 9:00 AM ET

Executives

William Lowe - Executive Vice President and Chief Financial Officer

Per-Olof Loof - Chief Executive Officer and Director

Analysts

Wamsi Mohan - Bank of America Merrill Lynch

Hamed Khorsand - BWS Financial

Anthony Kure - KeyBanc

Matt Sheerin - Stifel Nicolaus

Marco Rodriguez - Stonegate Securities

Chelsea Shi - UBS

Ana Goshko - Bank of America Merrill Lynch

Tony Venturino - Federated Investors

Presentation

Operator

At this time, I would like to welcome everyone to the Kemet's third quarter for fiscal year 2013 conference call. (Operator Instructions) Mr. Bill Lowe, you may begin your conference.

William Lowe

Good morning, everyone, and welcome to Kemet's conference call to discuss our financial results for the third quarter for the fiscal year 2013. This is Bill Lowe, Executive Vice President and CFO; and on the call with today is Per Loof, our Chief Executive Officer. We are speaking with you today from Tokyo, Japan. For us, it is a very late Thursday evening, so konbanwa to our friends listening from Japan.

And as a reminder to all of you, our presentation is available on our website to enable you to follow along with the financial portion of our presentation this morning. Please go to kemet.com and click on the Investor Relations tab in the top right portion of our home page. Once there, please click on the third quarter conference call link. That will bring up a few slides that we will call to your attention to as we're covering those topics.

Before we begin, we would like to advise you that all statements that address expectations or projections about the future are forward-looking statements. Some of these statements include words such as expects, anticipates, plans, intends, projects and indicates. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks, uncertainties and assumptions. Please refer to our 10-Ks, 10-Qs, and recent registration statement or filings for additional information on risks and uncertainties.

Before I turn the call over to Per, I would like to mention that the company will be presenting at the Stifel Nicolaus Technology Conference in San Francisco, California, on February 6, at 3:50 PM Pacific Standard Time. A press release with the details was released on Tuesday, January 29.

Now, I'll turn the call over to Per.

Per-Olof Loof

Thank you, Bill, and good morning, everyone. As Bill said, as he introduced the call, we are in Tokyo, because we did finally obtain regulatory approval from the E.U., Japan and finally China, to enter into an agreement with NEC, whereby Kemet obtains a 34% ownership of NEC Tokin, and the agreement will be signed tomorrow, February 1, here in Tokyo.

The signing of the agreement is just the beginning. I'm here with several of my Kemet colleagues to meet with NEC Tokin's management team, to lay out our path forward. These are truly exciting times for our company, and I believe that tomorrow will be a landmark day for all Kemet's stakeholders, customers, employees and investors alike.

We are focused on growth, and the joint venture integration of NEC Tokin and Kemet is certainly a pivotal part of our strategy. With tomorrow's signing, we'll begin a three-step process to review the details of the acquisition.

And the first step, Kemet and NEC Tokin enter into a joint venture that has Kemet paying NEC $50 million for 34% interest in NEC Tokin, and a majority of Kemet representation on the NEC Tokin Board of Directors, and I will serve as Board Chairman.

I am sure you're aware by now that Kemet has the option to later increase our equity ownership stake to 49% for an additional $50 million, and then the third and final transaction to acquire the remaining 51%, giving us a 100% economic ownership, which will rebate from the multi-dollar NT's performance based on a trailing 12 months EBITDA. We may also elect to simply just jump to the final step of 100% ownership to recall option window that begins in August 2014.

Tomorrow truly starts a new chapter in the history of our company. NEC Tokin is more than capacitors. In fact approximately 40% of its business is capacitors. The rest of the business comprise of electromagnetic components and noise suppression sheets, transformers, coils, et cetera; and electromechanical devices such as automotive and signal relays at about 11% of their business; EMC at 35%. And also piezoelectric device actuated from translators and access devices. Piezoelectric device is about 7% of their revenue and access device is about 5%.

So what this means is that we are truly transitioning from a global manufacturer of capacitors to a global manufacture of electronic component solution. This opens many new opportunities for Kemet by cross-selling products and solutions across our expanding customer base as well as entering the design process sooner across many applications. All of this translates for selling more component solutions to more customers, that's good for our investors as well as for Kemet and NEC Tokin employees.

But first things first, let's take a look at our current business. Our third quarter of fiscal year 2013 saw net sales just over $200 million, which was in our forecasted range. However, our adjusted EBITDA for the quarter was $18 million, which is an increase of almost $2 million over the prior quarter, and generated both from operating margins that increased to 18% from 16.3% over the prior quarter and a reduction in SG&A expenses. And this with revenues that were $16 million lower than the previous quarter.

Read the rest of this transcript for free on seekingalpha.com