HOUSTON, April 29, 2020 /PRNewswire/ -- Kraton
Corporation (NYSE: KRA), a leading global sustainable producer
of specialty polymers and high-value biobased products
derived from pine wood pulping co-products, announces financial
results for the quarter ended March 31, 2020.
FIRST QUARTER 2020 SUMMARY
- First quarter 2020 results reflect the benefit of geographic
and end-market diversification, with no material impact associated
with COVID-19 during the quarter. Our plants continued to operate
at normal capacities, and our supply chain remained largely intact,
with adequate availability of key raw materials.
- First quarter consolidated net income of $209.0 million, compared to $13.6 million in the first quarter of 2019.
-
- Included in consolidated net income is the gain on disposition
of our Cariflex™ business of $175.2
million. See further discussion within Cash Flow and Capital
Structure.
- First quarter consolidated Adjusted EBITDA(1) of
$77.9 million, down 12.9% compared to
the first quarter of 2019.
- Polymer segment operating income of $17.9 million, up 93.8% compared to the first
quarter of 2019, and Adjusted EBITDA(1) of $51.2 million, up 6.3% compared to $48.2 million in the first quarter of 2019.
-
- Stable unit margins across all product lines and lower fixed
costs due to fixed costs management initiatives and timing.
- Chemical segment operating income of $10.3 million, down 60.1% compared to the first
quarter of 2019, and Adjusted EBITDA(1) of $26.7 million, down 35.3% compared to
$41.3 million in the first quarter of
2019.
-
- Unit margins were lower compared to the first quarter of 2019,
primarily in the Crude Sulfate Turpentine chain.
- Sales volumes were up 6.3% for the first quarter of 2020, due
to increased sales of raw materials, compared to constrained raw
material availability for the first quarter of 2019, and to
increase sales of Tall Oil Rosin upgrades.
- In connection with the sale of our Cariflex business on
March 6, 2020, during the first
quarter, consolidated debt was reduced by $378.8 million. Consolidated Net
Debt(1) excluding the effect of foreign currency was
reduced by $484.6 million.
- $350 million of liquidity at
quarter end, comprised of $150 in
cash and approximately $200 million
of borrowing availability under the $250
million ABL Facility.
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands,
except percentages and per share amounts)
|
Revenue
|
$
|
427,269
|
|
|
$
|
456,411
|
|
Polymer segment
operating income
|
$
|
17,925
|
|
|
$
|
9,250
|
|
Chemical segment
operating income
|
$
|
10,316
|
|
|
$
|
25,885
|
|
Consolidated net
income
|
$
|
209,020
|
|
|
$
|
13,612
|
|
Adjusted EBITDA
(non-GAAP)(1)
|
$
|
77,879
|
|
|
$
|
89,432
|
|
Adjusted EBITDA
margin (non-GAAP)(2)(3)
|
18.2
|
%
|
|
19.6
|
%
|
Diluted earnings per
share
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Adjusted diluted
earnings per share (non-GAAP)(1)
|
$
|
0.27
|
|
|
$
|
0.88
|
|
|
__________________________________________________
|
(1)
|
See non-GAAP
reconciliations included in the accompanying financial tables for
the reconciliation of each non-GAAP measure to its most directly
comparable GAAP measure.
|
(2)
|
Defined as Adjusted
EBITDA as a percentage of revenue.
|
(3)
|
For the three months
ended March 31, 2020, Adjusted EBITDA margin adjusted for the
Isoprene Rubber Supply Agreement ("IRSA") entered into in
connection with the sale of our Cariflex business would be 17.7%.
For the three months ended March 31, 2019, Adjusted EBITDA margin
adjusted for lost revenues from Hurricane Michael would be
19.2%.
|
"Our first core value at Kraton is Safety," said Kevin M. Fogarty, Kraton's President and Chief
Executive Officer. "In today's COVID-19 world, we have taken
extraordinary steps to ensure the health and safety of all our
employees globally. Approximately half our colleagues today
continue to work remotely, while those essential to operate our
polymer and chemical plants and innovation centers globally are
taking additional cautious measures to mitigate any possible
exposure to the coronavirus. We are grateful that because of these
actions we undertook, first in China, and later extending across our global
network, we have had very few confirmed COVID-19 cases. Moreover,
our dedicated colleagues continue to keep our global business fully
operational, supplying customers in all regions, in many cases with
chemical and polymer raw materials essential to slow the spread of
the virus, or that are sadly needed to respond to increased demand
in vital medical supply chains," added Fogarty.
"As for our overall first quarter 2020 results, we are very
pleased to have delivered $77.9
million of Adjusted EBITDA, especially considering this to
be against a backdrop of such a uniquely challenging global
operating environment. Kraton's results for the quarter reflect the
benefit of our broad geographic and end market diversification,
evidence of the sustainability of our business model. During the
quarter we saw positive demand trends in a number of end markets,
including medical applications such as IV bags and in personal care
and hygiene products. We also saw growing sales into adhesive
markets, driven by tapes and labels for packaging applications as
well as construction adhesives used in applications such as medical
gowns and masks. Our first quarter results also benefited from our
disciplined approach to cost management, and we project we remain
on track to deliver $20 million of
run rate cost savings in 2020. As a critical supplier of key inputs
into a wide range of products that are vital in the current market,
our production facilities around the globe have continued to
operate at normal capacities. Currently, we have adequate access to
key raw materials, and we have had minimal disruption in our global
supply chain and customer fulfillment capability. We are also very
pleased to have completed the sale of our Cariflex business in the
quarter, providing for a substantial debt reduction and improving
our capital structure and liquidity position," said Fogarty.
"Following the sale of our Cariflex business in early March, we
paid off the USD Tranche under our Term Loan Facility and paid
approximately $84.7 million under the
Euro Tranche. As a result, we reduced consolidated net debt by
$495.3 million during the quarter.
Furthermore, we ended the first quarter with liquidity of
approximately $350 million, with cash
of $151.5 million, and a borrowing
base of $198 million under our
$250 million ABL facility. In
addition, and as announced on April
15th, we have renewed our ABL facility, extending
the maturity date until January of 2023," said Fogarty.
Polymer segment Adjusted EBITDA was $51.2
million in the first quarter of 2020, up $3.0 million or 6.3% compared to the first
quarter of 2019. Lower fixed costs and continued stability in
Polymer segment unit margins, as evidenced by Gross Profit of
$68.7 million and Adjusted Gross
Profit of $1,070 per ton, contributed
to an Adjusted EBITDA margin of 21.3% for the quarter. Although
sales volume for the segment was down 4.0% compared to the first
quarter of 2019, the decrease was attributable to lower paving
sales in our Performance Products business relative to the first
quarter of 2019, during which customers built significant
inventories in anticipation of a strong 2019 paving season,
which was partially offset by higher sales of
styrene-isoprene-styrene ("SIS") grades into adhesive applications,
particularly into medical products. Specialty Polymers sales volume
was up modestly compared to the first quarter of 2019, largely due
to the timing of sales to a large lubricant additive customer, and
we did see encouraging signs that our Hydrogenated Styrenic Block
Copolymer customers in China are
working to resume production earlier than expected. With regard to
our Cariflex business, we completed the sale to Daelim Industrial
Co., Ltd. ("Daelim") in early March. As we did not own the Cariflex
business for the entirety of the first quarter of 2020, Cariflex
sales volume was down 9.8% compared to the first quarter of
2019.
Adjusted EBITDA for the Chemical segment was $26.7 million in the first quarter of 2020, down
$14.6 million or 35.3% compared to
the first quarter of 2019. Sales volume was up 6.3% compared to the
first quarter of 2019 in which we experienced constrained
availability of Crude Tall Oil. However, the impact of higher sales
volume and lower average raw material costs was more than offset by
lower selling prices and margins in our Crude Sulfate Turpentine
chain, and to a lesser extent our Tall Oil Rosin chain. Sales
volume for Adhesives was up 4.3% compared to the year-ago quarter,
reflecting demand in packaging and construction applications.
Performance Chemicals sales volume was up 7.5% compared to the
first quarter of 2019, with lower Tall Oil Fatty Acid ("TOFA") and
derivative sales more than offset by higher opportunistic sales of
raw materials, while sales volume for Tires was up 1.3% versus the
first quarter of 2019.
Polymer Segment
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands,
except percentages)
|
Performance
Products
|
$
|
118,760
|
|
|
$
|
138,092
|
|
Specialty
Polymers
|
77,917
|
|
|
82,010
|
|
Cariflex(1)
|
36,930
|
|
|
40,867
|
|
Isoprene
Rubber(1)
|
6,859
|
|
|
—
|
|
Other
|
(86)
|
|
|
86
|
|
Polymer Segment
Revenue
|
$
|
240,380
|
|
|
$
|
261,055
|
|
|
|
|
|
Operating
income
|
$
|
17,925
|
|
|
$
|
9,250
|
|
Adjusted EBITDA
(non-GAAP)(1)(2)
|
$
|
51,169
|
|
|
$
|
48,153
|
|
Adjusted EBITDA
margin (non-GAAP)(3)(4)
|
21.3
|
%
|
|
18.4
|
%
|
|
__________________________________________________
|
(1)
|
Our Cariflex revenue
represents sales through March 6, 2020. Following the completion of
our Cariflex business sale to Daelim subsequent to March 6, 2020,
we commenced Isoprene Rubber sales to Daelim under the IRSA. Sales
under the IRSA are transacted at cost. Included in Adjusted EBITDA
is the amortization of non-cash deferred income of $3.4 million,
which represents revenue deferred until the products are sold under
the IRSA.
|
(2)
|
See non-GAAP
reconciliations included in the accompanying financial tables for
the reconciliation of each non-GAAP measure to its most directly
comparable GAAP measure.
|
(3)
|
Defined as Adjusted
EBITDA as a percentage of revenue.
|
(4)
|
For the three months
ended March 31, 2020, Adjusted EBITDA margin adjusted for the IRSA
would be 20.5%.
|
Q1 2020 VERSUS Q1 2019 RESULTS
Revenue for the Polymer segment was $240.4 million for the three months ended
March 31, 2020 compared to
$261.1 million for the three months
ended March 31, 2019. The decrease
was driven by lower sales volumes in Performance Products, and
lower average sales prices resulting from lower raw material costs
across all product lines. Sales volumes of 70.8 kilotons for the
three months ended March 31, 2020
decreased 4.0% compared to the three months ended March 31, 2019. The 7.9% decline in Performance
Products sales volumes was driven by higher relative pre-buy
activity during the three months ended March
31, 2019, partially offset by stronger sales of SIS into
adhesives applications. Specialty Products sales volumes increased
3.9% due to timing of purchases by a significant lubricant
additives customer. Cariflex sales volumes decreased 9.8% due to
the completion of the sale of Cariflex on March 6, 2020. With the completion of the
Cariflex sale, the IRSA provided one kiloton of sales volume for
the three months ended March 31,
2020. The negative impact from changes in currency exchange
rates between the periods was $4.3
million.
For the three months ended March 31,
2020, the Polymer segment generated Adjusted EBITDA
(non-GAAP) of $51.2 million compared
to $48.2 million for the three months
ended March 31, 2019. The 6.3%
increase in Adjusted EBITDA is attributed to lower fixed costs due
to fixed costs management initiatives and timing, stronger sales of
SIS into adhesives applications, and stable unit margins across all
product lines, partially offset by lower volumes in Performance
Products due to timing of pre-buy activity. Also included in
Adjusted EBITDA is the amortization of non-cash deferred income of
$3.4 million, which represents
revenue deferred until the products are sold under the IRSA. The
negative effect from changes in currency exchange rates between the
periods was $1.9 million. During the
first quarter 2020, COVID-19 did not have a material impact on our
business and results of operations. See a reconciliation of GAAP
operating income to non-GAAP Adjusted EBITDA below.
Chemical Segment
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(In thousands,
except percentages)
|
Adhesives
|
$
|
64,895
|
|
|
$
|
65,576
|
|
Performance
Chemicals
|
110,742
|
|
|
116,753
|
|
Tires
|
11,252
|
|
|
13,027
|
|
Chemical Segment
Revenue
|
$
|
186,889
|
|
|
$
|
195,356
|
|
|
|
|
|
Operating
income
|
$
|
10,316
|
|
|
$
|
25,885
|
|
Adjusted EBITDA
(non-GAAP)(1)(2)
|
$
|
26,710
|
|
|
$
|
41,279
|
|
Adjusted EBITDA
margin (non-GAAP)(2)(3)
|
14.3
|
%
|
|
21.1
|
%
|
|
__________________________________________________
|
(1)
|
See non-GAAP
reconciliations included in the accompanying financial tables for
the reconciliation of each non-GAAP measure to its most directly
comparable GAAP measure.
|
(2)
|
Defined as Adjusted
EBITDA as a percentage of revenue.
|
(3)
|
For the three months
ended March 31, 2019, Adjusted EBITDA margin adjusted for lost
revenues from Hurricane Michael would be 20.2%.
|
Q1 2020 VERSUS Q1 2019 RESULTS
Revenue for the Chemical segment was $186.9 million for the three months ended
March 31, 2020 compared to
$195.4 million for the three months
ended March 31, 2019. The decrease in
Chemical segment revenue was primarily attributable to lower
average selling prices for derivatives in our CST and TOR chains,
partially offset by higher sales volumes. Sales volumes were 110.1
kilotons for the three months ended March
31, 2020, an increase of 6.5 kilotons or 6.3%, due to higher
raw material and TOR sales in Performance Chemicals and Adhesives,
partially offset by TOFA and TOFA derivatives. As a result,
Performance Chemicals, Adhesives, and Tires sales volumes increased
7.5%, 4.3%, and 1.3%, respectively. The negative effect from
changes in currency exchange rates between the periods was
$2.8 million.
For the three months ended March 31,
2020, the Chemical segment generated $26.7 million of Adjusted EBITDA (non-GAAP)
compared to $41.3 million for the
three months ended March 31, 2019.
The 35.3% decrease in Adjusted EBITDA was due to lower unit margins
primarily driven by lower average selling prices, which adversely
impacted pricing for derivatives in our CST and TOR chains. This
decrease was partially offset by higher sales volumes of raw
materials and TOR upgrades. The positive effect from changes in
currency exchange rates between the periods was $0.3 million. During the first quarter 2020,
COVID-19 did not have a material impact on our business and results
of operations. See a reconciliation of GAAP operating income to
non-GAAP Adjusted EBITDA below.
CASH FLOW AND CAPITAL STRUCTURE
During the three months ended March 31,
2020, we reduced Kraton indebtedness by approximately
$378.8 million, and
Consolidated Net Debt excluding the effect of foreign currency
(non-GAAP) by $484.6 million.
Further, we had approximately $350.0 million of
available liquidity, comprised of $151.5 million of cash on hand and a
borrowing base of $198.3 million
largely undrawn on our ABL facility as of March 31, 2020.
On March 6, 2020, we completed the
sale of our Cariflex business to Daelim for gross proceeds of
$530.0 million, adjusted for
incremental working capital of $5.8
million, less contractual capital contributions of
$25.3 million. The transaction is
subject to a customary post-closing working capital adjustment and
a contractual capital contribution post-closing adjustment. Upon
closing, we recognized a gain of $175.2
million, and as part of the consideration received, entered
into a multi-year Isoprene Rubber Supply Agreement ("IRSA") with
Daelim. As the IRSA product sales are at cost, we deferred
approximately $180.6 million of
revenue, of which $158.2 million and
$22.4 million are recorded within
deferred income and other payables and accruals, respectively, on
the condensed consolidated balance sheet. The deferred income
will be amortized into revenue as a non-cash transaction when the
products are sold. In accordance with the IRSA, we will supply
Isoprene Rubber to Daelim for a period of five years, with an
optional extension for an additional five years.
We used the $510.5 million net
proceeds from the transaction principally for repayment of the full
outstanding balance of $290.0 million
under the U.S. dollar denominated tranche (the "USD Tranche") of
the Company's senior secured term loan facility (the "Term Loan
Facility") and repayment in the amount of €75.0 million, or
approximately $84.7 million, of
borrowings under the Euro dollar denominated tranche (the "Euro
Tranche") of the Term Loan Facility. We intend to use the remaining
proceeds in accordance with the terms of the Term Loan Facility to
make additional repayments of debt, invest in strategic assets of
the Company, and/or pay transaction costs.
Summary of principal amounts for indebtedness and a
reconciliation of Kraton debt to Consolidated Net Debt
(non-GAAP):
|
March 31,
2020
|
|
December 31,
2019
|
|
(In
thousands)
|
Kraton
debt
|
$
|
916,583
|
|
|
$
|
1,288,277
|
|
KFPC(1)(2)
loans
|
95,238
|
|
|
102,385
|
|
Consolidated
debt
|
1,011,821
|
|
|
1,390,662
|
|
|
|
|
|
Kraton
cash
|
148,351
|
|
|
24,631
|
|
KFPC(1)
cash
|
3,151
|
|
|
10,402
|
|
Consolidated
cash
|
151,502
|
|
|
35,033
|
|
|
|
|
|
Consolidated net
debt
|
$
|
860,319
|
|
|
$
|
1,355,629
|
|
|
|
|
|
Effect of foreign
currency on consolidated net debt
|
10,740
|
|
|
|
Consolidated net debt
excluding effect of foreign currency
|
$
|
871,059
|
|
|
|
|
|
|
|
|
|
__________________________________________________
|
(1)
|
Kraton Formosa
Polymers Corporation ("KFPC") joint venture, located in Mailiao,
Taiwan, which we own a 50% stake in and consolidate within our
financial statements.
|
(2)
|
KFPC executed
revolving credit facilities to provide funding for working capital
requirements and/or general corporate purposes. These are in
addition to the 5.5 billion NTD KFPC Loan Agreement.
|
OUTLOOK
While our first quarter results were not materially impacted by
COVID-19, the progression of COVID-19 may result in significant
disruption in global demand fundamentals for the balance of 2020.
As it is not possible to determine the magnitude or duration of the
impact that COVID-19 may have for the balance of 2020, we are not
providing full year 2020 Adjusted EBITDA guidance at this time.
This decision is based solely on our inability to effectively
determine likely outcomes from COVID-19 progression, or to
translate a wide range of possible scenarios into an accurate
financial forecast, and is not a reflection of any specific
concerns or known adverse developments in our business.
We will continue to monitor the potential impacts of COVID-19 on
customer demand and we intend to maintain transparency around
demand trends and market developments and our expectations for
their impact on our business results as the year progresses.
USE OF NON-GAAP FINANCIAL MEASURES
This press release includes the use of both GAAP and non-GAAP
financial measures. The non-GAAP financial measures used are
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Diluted
Earnings per Share, Consolidated Net Debt (including as adjusted to
exclude the effect of foreign currency), and Adjusted Gross Profit.
Tables included in this earnings release reconcile each of these
non-GAAP financial measures with the most directly comparable U.S.
GAAP financial measure. For additional information on the impact of
the spread between FIFO and ECRC, see Management's Discussion and
Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2019.
We consider these non-GAAP financial measures to be important
supplemental measures of our performance and believe they are
frequently used by investors, securities analysts, and other
interested parties in the evaluation of our performance including
period-to-period comparisons and/or that of other companies in our
industry. Further, management uses these measures to evaluate
operating performance, and our incentive compensation plan based
incentive compensation payments on our Adjusted EBITDA performance
and attainment of net debt reduction, along with other factors.
These non-GAAP financial measures have limitations as analytical
tools and in some cases can vary substantially from other measures
of our performance. You should not consider them in isolation, or
as a substitute for analysis of our results under U.S. GAAP in
the United States.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin: For
our consolidated results, EBITDA represents net income (loss)
before interest, taxes, depreciation, and amortization. For each
reporting segment, EBITDA represents operating income (loss) before
depreciation and amortization, and earnings of unconsolidated joint
ventures. Among other limitations EBITDA does not: reflect the
significant interest expense on our debt or reflect the significant
depreciation and amortization expense associated with our
long-lived assets; and EBITDA included herein should not be used
for purposes of assessing compliance or non-compliance with
financial covenants under our debt agreements, which can vary from
the terms used herein. The calculation of EBITDA in our debt
agreements includes adjustments, such as extraordinary,
non-recurring or one-time charges, proforma cost savings, certain
non-cash items, turnaround costs, and other items included in the
definition of EBITDA in the debt agreements. Other companies in our
industry may calculate EBITDA differently than we do, limiting its
usefulness as a comparative measure. As an analytical tool,
Adjusted EBITDA is subject to all the limitations applicable to
EBITDA. We prepare Adjusted EBITDA by eliminating from EBITDA the
impact of a number of items we do not consider indicative of our
on-going performance, including the spread between FIFO and ECRC,
but 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 unusual or non-recurring
items. In addition, due to volatility in raw material prices,
Adjusted EBITDA may, and often does, vary substantially from EBITDA
and other performance measures, including net income calculated in
accordance with U.S. GAAP. We define Adjusted EBITDA Margin as
Adjusted EBITDA as a percentage of revenue (for each reporting
segment or on a consolidated basis, if applicable). Because of
these and other limitations, EBITDA and Adjusted EBITDA should not
be considered as a measure of discretionary cash available to us to
invest in the growth of our business.
Adjusted Gross Profit and Adjusted Gross Profit Per Ton:
We define Adjusted Gross Profit Per Ton as Adjusted Gross Profit
divided by total sales volume (for each reporting segment or on a
consolidated basis, as applicable). We define Adjusted Gross Profit
as gross profit excluding certain charges and expenses. Adjusted
Gross Profit is limited because it often varies substantially from
gross profit calculated in accordance with U.S. GAAP due to
volatility in raw material prices.
Adjusted Diluted Earnings (Loss) Per Share: We prepare
Adjusted Diluted Earnings (Loss) per Share by eliminating from
Diluted Earnings (Loss) per Share the impact of a number of
non-recurring items we do not consider indicative of our on-going
performance, including the spread between FIFO and ECRC.
Consolidated Net Debt: We define Consolidated Net Debt as
total consolidated debt (including debt of KFPC) less consolidated
cash and cash equivalents. Management uses Consolidated Net Debt to
determine our outstanding debt obligations that would not readily
be satisfied by its cash and cash equivalents on hand. Management
believes that using Consolidated Net Debt is useful to investors in
determining our leverage since we could choose to use cash and cash
equivalents to retire debt. We also present Consolidated Net Debt,
as adjusted for foreign exchange impact accounts for the foreign
exchange effect on our foreign currency denominated debt
agreements.
CONFERENCE CALL AND WEBCAST INFORMATION
Kraton has scheduled a conference call on Thursday,
April 30, 2020 at 9:00 a.m. (Eastern
Time) to discuss first quarter 2020 financial results.
Kraton invites you to listen to the conference call, which will be
broadcast live over the internet at www.kraton.com, by
selecting the "Investor Relations" link at the top of the home page
and then selecting "Events" from the Investor Relations menu on the
Investor Relations page.
You may also listen to the conference call by telephone by
contacting the conference call operator 5 to 10 minutes prior to
the scheduled start time and asking for the Kraton Conference Call
– Passcode: 8680118. U.S./Canada
dial-in 800-857-6511. International dial-in #: 210-839-8886.
For those unable to listen to the live call, a replay will be
available beginning at approximately 11:00
a.m. (Eastern Time) on April 30, 2020 through
1:59 a.m. (Eastern Time) on
May 13, 2020. To hear a replay of the
call over the Internet, access Kraton's Website at www.kraton.com
by selecting the "Investor Relations" link at the top of the home
page and then selecting "Events" from the Investor Relations menu
on the Investor Relations page. To hear a telephonic replay of the
call, dial 888-566-0418 (toll free) or 203-369-3043 (toll).
ABOUT KRATON CORPORATION
Kraton Corporation (NYSE: KRA) is a leading global sustainable
producer of specialty polymers and high-value biobased
products derived from pine wood pulping co-products. Kraton's
polymers are used in a wide range of applications, including
adhesives, coatings, consumer and personal care products, sealants
and lubricants, and medical, packaging, automotive, paving and
roofing applications. As the largest global provider in the pine
chemicals industry, the company's pine-based specialty products are
sold into adhesives and tire markets, and it produces and sells a
broad range of performance chemicals into markets that include fuel
additives, oilfield chemicals, coatings, roads, construction,
metalworking fluids and lubricants, inks, and mining. Kraton offers
its products to a diverse customer base in numerous countries
worldwide.
Kraton, the Kraton logo and design, are all trademarks of Kraton
Polymers LLC or its affiliates.
FORWARD LOOKING STATEMENTS
This press release contains "forward-looking statements" within
the meaning of the U.S. Private Securities Litigation Reform Act of
1995 that reflect our plans, beliefs, expectations, and current
views with respect to, among other things, future events and
financial performance. Forward-looking statements are often
characterized by the use of words such as "outlook," "believes,"
"target," "estimates," "expects," "projects," "may," "intends,"
"plans," "on track" or "anticipates," or by discussions of
strategy, plans, or intentions. The statements in this press
release that are not historical statements, including, but not
limited to, statements regarding our expectations as to the
continued impact of the COVID-19 pandemic (including governmental
and regulatory actions) on demand for our products, on the economy
and on our customers, suppliers, employees, business and results of
operations (including full-year 2020 Adjusted EBITDA) and our
expectations regarding run rate cost savings for 2020 are
forward-looking statements.
All forward-looking statements in this press release are made
based on management's current expectations and estimates, which
involve known and unknown risks, uncertainties, assumptions and
other important factors that could cause actual results to differ
materially from those expressed in forward-looking statements.
Additional information concerning factors that could cause actual
results to differ materially from those expressed in
forward-looking statements is contained in our most recently filed
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in
other filings made by us with the U.S. Securities and Exchange
Commission (the "SEC"), and include, but are not limited to, risks
related to: our ability to repay or re-finance indebtedness and
risk associated with incurring additional indebtedness; our
reliance on third parties for the provision of significant
operating and other services; the impact of extraordinary events,
including health epidemics or pandemics such as COVID-19 (including
governmental and regulatory actions relating thereto), natural
disasters and other weather conditions and terrorist attacks;
conditions in the global economy and capital markets; fluctuations
in raw material costs; limitations in the availability of raw
materials; competition in our end-use markets; fluctuations in
global tariffs and logistics costs; and other factors of which we
are currently unaware or deem immaterial. Many of these risks and
uncertainties are currently amplified by and will continue to be
amplified by, or in the future may be amplified by, the COVID-19
pandemic. To the extent any inconsistency or conflict exists
between the information included in this press release and the
information included in our prior reports and other filings with
the SEC, the information contained in this press release updates
and supersede such information. Readers are cautioned not to place
undue reliance on forward-looking statements. Forward-looking
statements contained herein speak only as of the date of this press
release, and we assume no obligation to publicly update or revise
such forward-looking statements in light of new information or
future events.
KRATON
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
(In thousands,
except per share data)
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Revenue
|
$
|
427,269
|
|
|
$
|
456,411
|
|
Cost of goods
sold
|
308,069
|
|
|
349,409
|
|
Gross
profit
|
119,200
|
|
|
107,002
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
10,792
|
|
|
10,551
|
|
Selling, general, and
administrative
|
49,058
|
|
|
40,894
|
|
Depreciation and
amortization
|
31,173
|
|
|
31,522
|
|
Gain on insurance
proceeds
|
—
|
|
|
(11,100)
|
|
Gain on disposal of
fixed assets
|
(64)
|
|
|
—
|
|
Operating
income
|
28,241
|
|
|
35,135
|
|
Other income
(expense)
|
327
|
|
|
(259)
|
|
Disposition and exit
of business activities
|
175,214
|
|
|
—
|
|
Gain (loss) on
extinguishment of debt
|
(13,954)
|
|
|
210
|
|
Earnings of
unconsolidated joint venture
|
101
|
|
|
121
|
|
Interest expense,
net
|
(17,461)
|
|
|
(18,941)
|
|
Income before income
taxes
|
172,468
|
|
|
16,266
|
|
Income tax benefit
(expense)
|
36,552
|
|
|
(2,654)
|
|
Consolidated net
income
|
209,020
|
|
|
13,612
|
|
Net income
attributable to noncontrolling interest
|
(934)
|
|
|
(944)
|
|
Net income
attributable to Kraton
|
$
|
208,086
|
|
|
$
|
12,668
|
|
Earnings per common
share:
|
|
|
|
Basic
|
$
|
6.55
|
|
|
$
|
0.40
|
|
Diluted
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
|
31,587
|
|
|
31,633
|
|
Diluted
|
31,949
|
|
|
31,901
|
|
KRATON
CORPORATION
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In thousands,
except par value)
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
151,502
|
|
|
$
|
35,033
|
|
Receivables, net of
allowances of $551 and $434
|
201,045
|
|
|
169,603
|
|
Inventories of
products, net
|
341,981
|
|
|
332,457
|
|
Inventories of
materials and supplies, net
|
31,991
|
|
|
32,211
|
|
Prepaid
expenses
|
9,088
|
|
|
6,991
|
|
Other current
assets
|
17,149
|
|
|
22,385
|
|
Current assets held
for sale
|
—
|
|
|
51,356
|
|
Total current
assets
|
752,756
|
|
|
650,036
|
|
Property, plant, and
equipment, less accumulated depreciation of $652,077 and
$639,197
|
907,150
|
|
|
925,940
|
|
Goodwill
|
772,045
|
|
|
772,418
|
|
Intangible assets,
less accumulated amortization of $296,010 and $285,819
|
315,966
|
|
|
325,877
|
|
Investment in
unconsolidated joint venture
|
11,390
|
|
|
11,971
|
|
Deferred income
taxes
|
70,091
|
|
|
8,863
|
|
Long-term operating
lease assets, net
|
86,204
|
|
|
85,003
|
|
Other long-term
assets
|
21,131
|
|
|
25,219
|
|
Long-term assets held
for sale
|
—
|
|
|
27,058
|
|
Total
assets
|
$
|
2,936,733
|
|
|
$
|
2,832,385
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Current portion of
long-term debt
|
$
|
62,816
|
|
|
$
|
53,139
|
|
Accounts
payable-trade
|
171,797
|
|
|
168,541
|
|
Other payables and
accruals
|
173,041
|
|
|
112,645
|
|
Due to related
party
|
20,228
|
|
|
17,470
|
|
Current liabilities
held for sale
|
—
|
|
|
14,849
|
|
Total current
liabilities
|
427,882
|
|
|
366,644
|
|
Long-term debt, net
of current portion
|
936,572
|
|
|
1,311,486
|
|
Deferred income
taxes
|
125,770
|
|
|
125,240
|
|
Long-term operating
lease liabilities
|
67,162
|
|
|
66,624
|
|
Deferred
income
|
160,779
|
|
|
11,049
|
|
Other long-term
liabilities
|
153,569
|
|
|
161,911
|
|
Long-term liabilities
held for sale
|
—
|
|
|
3
|
|
Total
liabilities
|
1,871,734
|
|
|
2,042,957
|
|
|
|
|
|
Equity:
|
|
|
|
Kraton stockholders'
equity:
|
|
|
|
Preferred stock,
$0.01 par value; 100,000 shares authorized; none issued
|
—
|
|
|
—
|
|
Common stock, $0.01
par value; 500,000 shares authorized; 31,855 shares issued and
outstanding at March 31, 2020; 31,751 shares issued and outstanding
at December 31, 2019
|
319
|
|
|
318
|
|
Additional paid in
capital
|
393,128
|
|
|
392,208
|
|
Retained
earnings
|
674,047
|
|
|
464,712
|
|
Accumulated other
comprehensive loss
|
(41,007)
|
|
|
(105,795)
|
|
Total Kraton
stockholders' equity
|
1,026,487
|
|
|
751,443
|
|
Noncontrolling
interest
|
38,512
|
|
|
37,985
|
|
Total
equity
|
1,064,999
|
|
|
789,428
|
|
Total liabilities and
equity
|
$
|
2,936,733
|
|
|
$
|
2,832,385
|
|
KRATON
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
(In
thousands)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
Consolidated net
income
|
$
|
209,020
|
|
|
$
|
13,612
|
|
Adjustments to
reconcile consolidated net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
31,173
|
|
|
31,522
|
|
Lease
amortization
|
6,164
|
|
|
4,767
|
|
Amortization of debt
original issue discount
|
148
|
|
|
267
|
|
Amortization of debt
issuance costs
|
1,031
|
|
|
1,110
|
|
Amortization of
deferred income
|
(3,497)
|
|
|
—
|
|
Gain on disposal of
property, plant, and equipment
|
(64)
|
|
|
—
|
|
(Gain) loss on
extinguishment of debt
|
13,954
|
|
|
(210)
|
|
Earnings from
unconsolidated joint venture, net of dividends received
|
406
|
|
|
410
|
|
Deferred income tax
provision
|
(64,319)
|
|
|
(595)
|
|
Gain on disposition
and exit of business activities
|
(175,214)
|
|
|
—
|
|
Share-based
compensation
|
2,848
|
|
|
3,309
|
|
Decrease
(increase) in:
|
|
|
|
Accounts
receivable
|
(32,359)
|
|
|
(63,164)
|
|
Inventories of
products, materials, and supplies
|
(18,914)
|
|
|
(5,877)
|
|
Other
assets
|
2,808
|
|
|
861
|
|
Increase
(decrease) in:
|
|
|
|
Accounts
payable-trade
|
5,023
|
|
|
(1,134)
|
|
Other payables and
accruals
|
24,561
|
|
|
(9,397)
|
|
Other long-term
liabilities
|
(4,206)
|
|
|
(2,177)
|
|
Due to related
party
|
2,619
|
|
|
(3,508)
|
|
Net cash provided by
(used in) operating activities
|
1,182
|
|
|
(30,204)
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
Kraton purchase of
property, plant, and equipment
|
(17,446)
|
|
|
(22,327)
|
|
KFPC purchase of
property, plant, and equipment
|
(52)
|
|
|
(783)
|
|
Purchase of software
and other intangibles
|
(2,089)
|
|
|
(3,287)
|
|
Cash proceeds from
disposition and exit of business activities
|
510,500
|
|
|
—
|
|
Net cash provided by
(used in) investing activities
|
490,913
|
|
|
(26,397)
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
Proceeds from
debt
|
76,000
|
|
|
19,500
|
|
Repayments of
debt
|
(436,174)
|
|
|
(4,310)
|
|
KFPC proceeds from
debt
|
34,873
|
|
|
14,600
|
|
KFPC repayments of
debt
|
(40,990)
|
|
|
(19,594)
|
|
Capital lease
payments
|
(44)
|
|
|
(41)
|
|
Purchase of treasury
stock
|
(678)
|
|
|
(2,684)
|
|
Proceeds from the
exercise of stock options
|
—
|
|
|
1,545
|
|
Settlement of
interest rate swap
|
(1,295)
|
|
|
—
|
|
Net cash provided by
(used in) financing activities
|
(368,308)
|
|
|
9,016
|
|
Effect of exchange
rate differences on cash
|
(7,318)
|
|
|
(1,145)
|
|
Net increase
(decrease) in cash and cash equivalents
|
116,469
|
|
|
(48,730)
|
|
Cash and cash
equivalents, beginning of period
|
35,033
|
|
|
85,891
|
|
Cash and cash
equivalents, end of period
|
$
|
151,502
|
|
|
$
|
37,161
|
|
KRATON
CORPORATION
|
RECONCILIATION OF
NET INCOME (LOSS) ATTRIBUTABLE TO KRATON AND OPERATING INCOME TO
NON-GAAP FINANCIAL MEASURES
|
(Unaudited)
|
(In
thousands)
|
|
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
Polymer
|
|
Chemical
|
|
Total
|
|
Polymer
|
|
Chemical
|
|
Total
|
Net income
attributable to Kraton
|
|
|
|
|
$
|
208,086
|
|
|
|
|
|
|
$
|
12,668
|
|
Net income
attributable to noncontrolling interest
|
|
|
|
|
934
|
|
|
|
|
|
|
944
|
|
Consolidated net
income
|
|
|
|
|
209,020
|
|
|
|
|
|
|
13,612
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
expense
|
|
|
|
|
(36,552)
|
|
|
|
|
|
|
2,654
|
|
Interest expense,
net
|
|
|
|
|
17,461
|
|
|
|
|
|
|
18,941
|
|
Earnings of
unconsolidated joint venture
|
|
|
|
|
(101)
|
|
|
|
|
|
|
(121)
|
|
(Gain) loss on
extinguishment of debt
|
|
|
|
|
13,954
|
|
|
|
|
|
|
(210)
|
|
Other income
(expense)
|
|
|
|
|
(327)
|
|
|
|
|
|
|
259
|
|
Disposition and exit
of business activities
|
|
|
|
|
(175,214)
|
|
|
|
|
|
|
—
|
|
Operating
income
|
$
|
17,925
|
|
|
$
|
10,316
|
|
|
$
|
28,241
|
|
|
$
|
9,250
|
|
|
$
|
25,885
|
|
|
$
|
35,135
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
13,347
|
|
|
17,826
|
|
|
31,173
|
|
|
13,971
|
|
|
17,551
|
|
|
31,522
|
|
Disposition and exit
of business activities
|
175,214
|
|
|
—
|
|
|
175,214
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other income
(expense)
|
55
|
|
|
272
|
|
|
327
|
|
|
(427)
|
|
|
168
|
|
|
(259)
|
|
Gain (loss) on
extinguishment of debt
|
(13,954)
|
|
|
—
|
|
|
(13,954)
|
|
|
210
|
|
|
—
|
|
|
210
|
|
Earnings of
unconsolidated joint venture
|
101
|
|
|
—
|
|
|
101
|
|
|
121
|
|
|
—
|
|
|
121
|
|
EBITDA (a)
|
192,688
|
|
|
28,414
|
|
|
221,102
|
|
|
23,125
|
|
|
43,604
|
|
|
66,729
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
|
|
Transaction,
acquisition related costs, restructuring, and other costs
(b)
|
10,148
|
|
|
762
|
|
|
10,910
|
|
|
714
|
|
|
398
|
|
|
1,112
|
|
Disposition and exit
of business activities
|
(175,214)
|
|
|
—
|
|
|
(175,214)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(Gain) loss on
extinguishment of debt
|
13,954
|
|
|
—
|
|
|
13,954
|
|
|
(210)
|
|
|
—
|
|
|
(210)
|
|
Hurricane related
costs (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,861
|
|
|
5,861
|
|
Hurricane
reimbursements (d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,220)
|
|
|
(5,220)
|
|
Non-cash compensation
expense
|
2,848
|
|
|
—
|
|
|
2,848
|
|
|
3,309
|
|
|
—
|
|
|
3,309
|
|
Spread between FIFO
and ECRC
|
6,745
|
|
|
(2,466)
|
|
|
4,279
|
|
|
21,215
|
|
|
(3,364)
|
|
|
17,851
|
|
Adjusted
EBITDA
|
$
|
51,169
|
|
|
$
|
26,710
|
|
|
$
|
77,879
|
|
|
$
|
48,153
|
|
|
$
|
41,279
|
|
|
$
|
89,432
|
|
|
__________________________________________________
|
(a)
|
Included in EBITDA is
a $11.1 million gain on insurance for the three months ended March
31, 2019, fully offsetting the lost margin in the first quarter of
2019, and reimbursement for a portion of the direct costs we have
incurred to date related to Hurricane Michael.
|
|
|
|
Also included in
EBITDA are Isoprene Rubber sales to Daelim under the IRSA. Sales
under the IRSA are transacted at cost. Included in Adjusted EBITDA
is the amortization of non-cash deferred income of $3.4 million,
which represents revenue deferred until the products are sold under
the IRSA.
|
|
|
(b)
|
Charges related to
the evaluation of acquisition transactions, severance expenses, and
other restructuring related charges.
|
(c)
|
Incremental costs
related to Hurricane Michael, which are recorded in cost of goods
sold.
|
(d)
|
Reimbursement of
incremental costs related to Hurricane Michael, which is recorded
in gain on insurance proceeds.
|
KRATON
CORPORATION
|
RECONCILIATION OF
DILUTED EARNINGS (LOSS) PER SHARE TO ADJUSTED DILUTED EARNINGS PER
SHARE
|
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Diluted Earnings Per
Share
|
$
|
6.47
|
|
|
$
|
0.39
|
|
Transaction,
acquisition related costs, restructuring, and other costs
(a)
|
0.26
|
|
|
0.03
|
|
Disposition and exit
of business activities
|
(4.96)
|
|
|
—
|
|
(Gain) loss on
extinguishment of debt
|
0.34
|
|
|
(0.01)
|
|
Tax
restructuring
|
(1.95)
|
|
|
—
|
|
Hurricane related
costs (b)
|
—
|
|
|
0.18
|
|
Hurricane
reimbursements (c)
|
—
|
|
|
(0.16)
|
|
Spread between FIFO
and ECRC
|
0.11
|
|
|
0.45
|
|
Adjusted Diluted
Earnings Per Share (non-GAAP)
|
$
|
0.27
|
|
|
$
|
0.88
|
|
|
__________________________________________________
|
(a)
|
Charges related to
the evaluation of acquisition transactions, severance expenses, and
other restructuring related charges.
|
(b)
|
Incremental costs
related to Hurricane Michael, which are recorded in cost of goods
sold.
|
(c)
|
Reimbursement of
incremental costs related to Hurricane Michael, which is recorded
in gain on insurance proceeds.
|
POLYMER SEGMENT
RECONCILIATION OF GROSS PROFIT TO ADJUSTED GROSS
PROFIT
(Unaudited)
(In
thousands)
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Gross
profit
|
$
|
68,731
|
|
|
$
|
53,886
|
|
|
|
|
|
Add
(deduct):
|
|
|
|
Transaction,
acquisition related costs, restructuring, and other
costs
|
130
|
|
|
—
|
|
Non-cash compensation
expense
|
171
|
|
|
199
|
|
Spread between FIFO
and ECRC
|
6,745
|
|
|
21,215
|
|
Adjusted gross profit
(non-GAAP) (a)
|
$
|
75,777
|
|
|
$
|
75,300
|
|
|
|
|
|
Sales volume
(kilotons)
|
70.8
|
|
|
73.8
|
|
Adjusted gross profit
per ton (a)
|
$
|
1,070
|
|
|
$
|
1,021
|
|
|
__________________________________________________
|
(a)
|
For the three months
ended March 31, 2020, adjusted gross profit and adjusted gross
profit per ton, adjusted for the IRSA, would be $72.4 million and
$1,037, respectively.
|
For further information:
H.Gene Shiels - (281)
504-4886
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SOURCE Kraton Corporation