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

• 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 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



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)

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)

^{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)

^{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)

^{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)

^{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)

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)

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)

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)

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)