EX-99.1 2 fy2020q3ex991earningsr.htm EXHIBIT 99.1 Exhibit
News Release
image0a23.jpg

Exhibit 99.1

FOR IMMEDIATE RELEASE
 
Contact:
Gregory C. Thompson
Richard Vatinelle
 
Executive Vice President and
Vice President and
 
Chief Financial Officer
Treasurer
 
GregThompson@KEMET.com
InvestorRelations@KEMET.com
 
954-595-5081
954-766-2819
 
KEMET ANNOUNCES THIRD QUARTER RESULTS
Third Quarter Highlights
Net sales of $294.7 million within the upper range of Management's guidance
GAAP Gross margin of 31.6%
GAAP EPS of $0.28 per diluted share
Non-GAAP Adjusted EPS of $0.46 per diluted share
GAAP Operating margin of 9.7% and non-GAAP Adjusted operating margin of 13.7%
Fort Lauderdale, Florida (February 6, 2020) - KEMET Corporation (“KEMET” or the “Company”) (NYSE: KEM), a leading global supplier of passive electronic components, today reported results for its third fiscal quarter ended December 31, 2019.
"Our overall non-GAAP adjusted gross margin and adjusted EBITDA margin remained strong at 31.9% and 19.3%, respectively, during the third fiscal quarter, despite a decrease in sales due to the general slow-down in the electronics industry and distribution inventory corrections. These strong margins are further proof that the structural changes we have made in our operations are firmly ingrained in our margin structure. We are collaborating with our distribution partners to further decrease inventory in the channel during our fourth fiscal quarter. Closer alignment of end-customer demand with our shipments should enable us to create opportunities for revenue growth as we enter our next fiscal year in April,” stated William M. Lowe Jr., KEMET’s Chief Executive Officer. “We are closely monitoring the Coronavirus situation as it impacts our China facilities and we are conforming to the regulations imposed by the governmental authorities for the timing of employees returning back to work with the extension of the New Year's holiday. It is too early to know whether it will have a measurable impact to our fourth fiscal quarter revenue,” continued Lowe.
For the three-month and nine-month periods ended December 31, 2019, net sales were $294.7 million and $967.4 million, respectively, compared to $350.2 million and $1.0 billion, respectively, for the same period last year.
GAAP operating margin for the quarter ended December 31, 2019 decreased to 9.7% compared to 17.6% for the quarter ended December 31, 2018. Non-GAAP adjusted operating margin for the quarter ended December 31, 2019 decreased to 13.7% compared to 19.9% for the quarter ended December 31, 2018. Cash on the balance sheet was $208.4 million at December 31, 2019.
GAAP net income was $16.6 million or $0.28 per diluted share for the quarter ended December 31, 2019, compared to GAAP net income of $40.8 million or $0.69 per diluted share for the quarter ended December 31, 2018.
Non-GAAP adjusted net income was $27.6 million or $0.46 per diluted share for the quarter ended December 31, 2019, compared to non-GAAP adjusted net income of $62.7 million or $1.06 per diluted share for the quarter ended December 31, 2018.
Net income for the quarters ended December 31, 2019, September 30, 2019, and December 31, 2018 include various items affecting comparability as denoted in the GAAP to non-GAAP reconciliation table included hereafter.



Yageo Merger Update
In a separate release dated February 4, 2020, KEMET also announced the merger transaction with Yageo is proceeding per plan with several key milestones already completed. The transaction is on track to close in the second half of 2020.
Presentation of Non-GAAP Financial Measures
The Company has presented certain historical financial measures that have not been prepared in accordance with GAAP, including adjusted gross margin, adjusted operating margin, adjusted earnings per share, and adjusted EBITDA margin. Definitions of our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures are included in the financial schedules accompanying this news release.
About KEMET 
The Company’s common stock is listed on the NYSE under the ticker symbol “KEM” (NYSE: KEM). At the Investor Relations section of our web site at http://www.kemet.com/IR, users may subscribe to KEMET news releases and find additional information about our Company. KEMET offers our customers the broadest selection of capacitor technologies in the industry, along with an expanding range of sensors, actuators, and electromagnetic compatibility solutions. KEMET operates manufacturing facilities and sales and distribution centers around the world. Additional information about KEMET can be found at http://www.kemet.com. 
Cautionary Statement on Forward-Looking Statements 
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the Company's 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" or other similar expressions and future or conditional verbs such as “will,” “should,” “would,” and “could” 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) the failure to complete our merger with Yageo Corporation (the “Merger”), (ii) certain business uncertainties and contractual restrictions related to the pendency of the Merger, (iii) our inability to pursue alternatives to the Merger during the pendency of the Merger, (iv) lawsuits filed against us relating to the Merger, (v) 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 could cause a write down of long-lived assets or goodwill; (vi) an increase in the cost or a decrease in the availability of our principal or single-sourced purchased raw materials; (vii) changes in the competitive environment; (viii) uncertainty of the timing of customer product qualifications in heavily regulated industries; (ix) economic, political, or regulatory changes in the countries in which we operate; (x) difficulties, delays, or unexpected costs in completing the Company’s restructuring plans; (xi) acquisitions and other strategic transactions expose us to a variety of risks, including the ability to successfully integrate and maintain adequate internal controls over financial reporting in compliance with applicable regulations; (xii) our acquisition of TOKIN Corporation may not achieve all of the anticipated results; (xiii) our business could be negatively impacted by increased regulatory scrutiny and litigation; (xiv) difficulties associated with retaining, attracting, and training effective employees and management; (xv) the need to develop innovative products to maintain customer relationships and offset potential price erosion in older products; (xvi) exposure to claims alleging product defects; (xvii) the impact of laws and regulations that apply to our business, including those relating to environmental




matters, data protection, cyber security and privacy; (xviii) the impact of international laws relating to trade, export controls and foreign corrupt practices; (xix) 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; (xx) volatility of financial and credit markets affecting our access to capital; (xxi) default or failure of one or more of our counterparty financial institutions could cause us to incur significant losses; (xxii) the need to reduce the total costs of our products to remain competitive; (xxiii) potential limitation on the use of net operating losses to offset possible future taxable income; (xxiv) restrictions in our debt agreements that could limit our flexibility in operating our business; (xxv) failure to maintain effective internal controls over financial reporting; (xxvi) service interruption, misappropriation of data, or breaches of security as it relates to our information systems could cause a disruption in our operations, financial losses, and damage to our reputation; (xxvii) economic and demographic experience for pension and other post-retirement benefit plans could be less favorable than our assumptions; (xxviii) fluctuation in distributor sales could adversely affect our results of operations; (xxix) earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations; and (xxx) volatility in our stock price.

3



KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Net sales
$
294,741

 
$
350,175

 
$
967,380

 
$
1,027,024

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of sales
201,560

 
226,425

 
638,901

 
694,888

Selling, general and administrative expenses
50,031

 
48,271

 
147,243

 
149,071

Research and development
12,624

 
11,357

 
37,073

 
33,040

Restructuring charges
802

 
1,718

 
5,930

 
1,622

(Gain) loss on write down and disposal of long-lived assets
1,076

 
788

 
2,095

 
1,611

Total operating costs and expenses
266,093

 
288,559

 
831,242

 
880,232

Operating income
28,648

 
61,616

 
136,138

 
146,792

Non-operating (income) expense
 

 
 

 
 
 
 
Interest income
(904
)
 
(572
)
 
(2,525
)
 
(1,325
)
Interest expense
2,803

 
4,480

 
8,099

 
18,803

Antitrust class action settlements and regulatory costs
1,597

 
281

 
64,695

 
4,563

Other (income) expense, net 
3,091

 
13,725

 
450

 
2,083

Income before income taxes and equity income (loss) from equity method investments
22,061

 
43,702

 
65,419

 
122,668

Income tax expense
5,400

 
2,600

 
23,900

 
9,200

Income before equity income (loss) from equity method investments
16,661

 
41,102

 
41,519

 
113,468

Equity income (loss) from equity method investments
(59
)
 
(296
)
 
163

 
(301
)
Net income
$
16,602

 
$
40,806

 
$
41,682

 
$
113,167

 
 
 
 
 
 
 
 
Net income per basic share
$
0.28

 
$
0.70

 
$
0.71

 
$
1.96

Net income per diluted share
$
0.28

 
$
0.69

 
$
0.70

 
$
1.91

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 

 
 

 
 
 
 
Basic
58,646

 
58,010

 
58,509

 
57,717

Diluted
59,529

 
59,111

 
59,328

 
59,116





4



KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share data)
(Unaudited)
 
 
December 31, 2019
 
March 31, 2019
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
208,448

 
$
207,918

Accounts receivable, net
142,007

 
154,059

Inventories, net
263,123

 
241,129

Prepaid expenses and other current assets
42,044

 
38,947

Total current assets  
655,622

 
642,053

Property, plant and equipment, net of accumulated depreciation of $911,634 and $880,451 as of December 31, 2019 and March 31, 2019, respectively
548,594

 
495,280

Goodwill
40,294

 
40,294

Intangible assets, net
55,117

 
53,749

Equity method investments
16,641

 
12,925

Deferred income taxes 
47,871

 
57,024

Other assets
48,193

 
16,770

Total assets 
$
1,412,332

 
$
1,318,095

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
29,032

 
$
28,430

Accounts payable
111,465

 
153,287

Accrued expenses
130,991

 
93,761

Income taxes payable
3,981

 
2,995

Total current liabilities
275,469

 
278,473

Long-term debt
282,746

 
266,041

Other non-current obligations
153,025

 
125,360

Deferred income taxes
13,779

 
8,806

Total liabilities
725,019

 
678,680

Stockholders’ equity:
 

 
 

Preferred stock, par value $0.01, authorized 10,000 shares, none issued

 

Common stock, par value $0.01, authorized 175,000 shares, issued 58,267 and 57,822 shares at December 31, 2019 and March 31, 2019, respectively
583

 
578

Additional paid-in capital
471,641

 
465,366

Retained earnings
240,074

 
204,195

Accumulated other comprehensive income (loss)
(24,985
)
 
(30,724
)
Total stockholders’ equity
687,313

 
639,415

Total liabilities and stockholders’ equity  
$
1,412,332

 
$
1,318,095


 

5



KEMET CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 
Nine months ended December 31,
Operating Activities:
2019
 
2018
Net income
$
41,682

 
$
113,167

Adjustments to reconcile net income to net cash provided by (used in) operating activities, net of effect of acquisitions:
 

 
 

Depreciation and amortization
45,530

 
38,405

Equity (income) loss from equity method investments
(163
)
 
301

Non-cash debt and financing costs
3,013

 
1,085

(Gain) loss on early extinguishment of debt

 
15,988

Stock-based compensation expense
9,258

 
10,011

(Gain) loss on write down and disposal of long-lived assets
2,095

 
1,611

Pension and other post-retirement benefits
4,009

 
3,823

Change in deferred income taxes
13,430

 
1,395

Change in operating assets
(7,697
)
 
(42,130
)
Change in operating liabilities
(20,327
)
 
(61,485
)
Other
(95
)
 
556

Net cash provided by (used in) operating activities
90,735

 
82,727

Investing activities:
 

 
 

Capital expenditures
(104,129
)
 
(77,650
)
Proceeds from sale of assets

 
169

Acquisitions, net of cash received
(1,294
)
 

Proceeds from dividend 
433

 
776

Contributions to equity method investments
(5,000
)
 
(2,000
)
Net investment hedge settlement
4,536

 

Net cash provided by (used in) investing activities
(105,454
)
 
(78,705
)
Financing activities:
 

 
 

Payments of long-term debt
(13,149
)
 
(332,063
)
Proceeds from long-term debt

 
283,853

Customer advances related to customer capacity agreements
31,611

 
9,495

Proceeds from termination of derivative instruments
6,476

 

Early extinguishment of debt issuance costs

 
(3,234
)
Debt issuance costs

 
(1,797
)
Cash flow hedge settlement
(2,839
)
 

Principal payments on finance leases
(1,153
)
 

Proceeds from exercise of stock options
298

 
480

Payment of dividends
(5,803
)
 
(2,873
)
Net cash provided by (used in) financing activities
15,441

 
(46,139
)
Net increase (decrease) in cash, cash equivalents and restricted cash
722

 
(42,117
)
Effect of foreign currency fluctuations on cash, cash equivalents and restricted cash
1,221

 
(7,236
)
Cash, cash equivalents, and restricted cash, at beginning of fiscal period
207,918

 
286,846

Cash, cash equivalents, and restricted cash, at end of fiscal period
209,861

 
237,493

Less: Restricted cash at end of period
1,413

 
3,134

Cash and cash equivalents at end of period
$
208,448

 
$
234,359


6



Non-GAAP Financial Measures
The Company utilizes certain Non-GAAP financial measures, including “Adjusted gross margin,” “Adjusted SG&A expenses,” “Adjusted operating income,” “Adjusted net income,” “Adjusted net income per basic and diluted share,” “EBITDA,” and “Adjusted EBITDA,” and certain related ratios. Management believes that investors may find it useful to review the Company’s financial results as adjusted to exclude items as determined by management as further 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 below. 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 below 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.
The following table provides a reconciliation from non-GAAP adjusted gross margin to GAAP gross margin, the most directly comparable GAAP measure (amounts in thousands, except percentages):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
Net sales
$
294,741

 
$
327,397

 
$
350,175

Cost of sales
201,560

 
213,727

 
226,425

Gross margin (GAAP)
93,181

 
113,670

 
123,750

Gross margin as a % of net sales
31.6
%
 
34.7
%
 
35.3
%
Non-GAAP adjustments:
 
 
 
 
 
Plant start-up costs
136

 
(34
)
 
305

Stock-based compensation expense
792

 
982

 
666

Adjusted gross margin (non-GAAP)
$
94,109

 
$
114,618

 
$
124,721

Adjusted gross margin (non-GAAP) as a % of net sales
31.9
%
 
35.0
%
 
35.6
%
Adjusted SG&A Expenses
Adjusted SG&A expenses represents SG&A expenses excluding adjustments which are outlined in the quantitative reconciliation provided below. Management uses adjusted SG&A expenses to facilitate our analysis and understanding of our business operations by excluding these items 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 SG&A expenses is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. Adjusted SG&A expenses should not be considered as an alternative to SG&A expenses or any other performance measure derived in accordance with GAAP.

7



The following table provides a reconciliation from non-GAAP adjusted SG&A expenses to GAAP SG&A expenses, the most directly comparable GAAP measure (amounts in thousands):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
SG&A expenses (GAAP)
$
50,031

 
$
49,327

 
$
48,271

Non-GAAP adjustments:
 
 
 
 
 
ERP integration costs/IT transition costs
2,029

 
1,508

 
2,453

Stock-based compensation expense
1,521

 
3,047

 
767

Legal expenses related to antitrust class actions
(29
)
 
2,528

 
1,268

Merger related expenses
5,283

 

 

Contingent consideration fair value adjustment
33

 
32

 

Adjusted SG&A expenses (non-GAAP)
$
41,194

 
$
42,212

 
$
43,783

Adjusted Operating Income
Adjusted operating income represents operating income, excluding adjustments which are outlined in the quantitative reconciliation provided below. We use adjusted operating income to facilitate our analysis and understanding of our business operations by excluding the items outlined in the quantitative reconciliation provided below, 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 our underlying operating performance and allows investors to 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 income or any other performance measure derived in accordance with GAAP.
The following table provides a reconciliation from non-GAAP adjusted operating income to GAAP operating income, the most directly comparable GAAP measure (amounts in thousands, except percentages):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
Net Sales
$
294,741

 
$
327,397

 
$
350,175

 
 
 
 
 
 
Operating income (GAAP)
$
28,648

 
$
49,090

 
$
61,616

Operating margin as a % of net sales
9.7
%
 
15.0
%
 
17.6
%
Non-GAAP adjustments:
 

 
 

 
 

Restructuring charges
802

 
2,920

 
1,718

ERP integration/IT transition costs
2,029

 
1,508

 
2,453

Stock-based compensation expense
2,387

 
4,146

 
1,534

Legal expenses related to antitrust class actions
(29
)
 
2,528

 
1,268

Plant start-up costs
136

 
(34
)
 
305

(Gain) loss on write down and disposal of long-lived assets
1,076

 
59

 
788

Merger related expenses
5,283

 

 

Contingent consideration fair value adjustment
33

 
32

 

Adjusted operating income (non-GAAP)
$
40,365

 
$
60,249

 
$
69,682

Adjusted operating margin (non-GAAP) as a % of net sales
13.7
%
 
18.4
%
 
19.9
%

8



Adjusted Net Income and Adjusted Net Income Per Share
Adjusted net income and adjusted net income per basic and diluted share represent net income (loss) and net income (loss) per basic and diluted share excluding adjustments which are outlined in the quantitative reconciliation provided below. The Company believes that these non-GAAP financial measures are useful to investors because they provide a supplemental way to understand the underlying operating performance of the Company and allow investors to monitor and understand changes in our ability to generate income from ongoing business operations. Management uses these non-GAAP financial measures to evaluate operating performance by excluding the items outlined in the quantitative reconciliation provided below which might otherwise make comparisons of our ongoing business with prior periods more difficult and obscure trends in ongoing operations. Non-GAAP financial measures should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

9



The following table provides a reconciliation from non-GAAP adjusted net income and adjusted net income per basic and diluted share to GAAP net income (loss) and GAAP net income (loss) per basic and diluted share, the most directly comparable GAAP measures (amounts in thousands, except per share data):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
GAAP
 
Net sales
$
294,741

 
$
327,397

 
$
350,175

Net income (loss)
$
16,602

 
$
(15,260
)
 
$
40,806

 
 
 
 
 
 
Net income (loss) per basic share
$
0.28

 
$
(0.26
)
 
$
0.70

Net income (loss) per diluted share
$
0.28

 
$
(0.26
)
 
$
0.69

 
 
 
 
 
 
Non-GAAP
 

 
 

 
 

Net income (loss) (GAAP)
$
16,602

 
$
(15,260
)
 
$
40,806

Non-GAAP adjustments:
 
 
 
 
 
Restructuring charges
802

 
2,920

 
1,718

R&D grant reimbursements and grant income
(7
)
 
19

 
(470
)
ERP integration/IT transition costs
2,029

 
1,508

 
2,453

Stock-based compensation expense
2,387

 
4,146

 
1,534

Settlements, regulatory costs, and legal expenses related to antitrust class actions
1,568

 
65,626

 
1,549

(Gain) loss on early extinguishment of debt

 

 
15,988

Net foreign exchange (gain) loss
4,113

 
(2,297
)
 
(2,218
)
Equity (income) loss from equity method investments
59

 
(472
)
 
296

Plant start-up costs
136

 
(34
)
 
305

(Gain) loss on write down and disposal of long-lived assets
1,076

 
59

 
788

Income tax effect of non-GAAP adjustments
(5,693
)
 
(16,958
)
 
(91
)
Merger related expenses
5,283

 

 

Unrealized gain on equity securities
(794
)
 

 

Contingent consideration fair value adjustment
33

 
32

 

Adjusted net income (non-GAAP)
$
27,594

 
$
39,289

 
$
62,658

Adjusted net income per basic share (non-GAAP)
$
0.47

 
$
0.67

 
$
1.08

Adjusted net income per diluted share (non-GAAP)
$
0.46

 
$
0.66

 
$
1.06

Weighted average shares outstanding:
 
 
 
 
 
Weighted average shares-basic
58,646

 
58,528

 
58,010

Weighted average shares-diluted (1)
59,529

 
59,271

 
59,111

_________________
(1) For the quarter ended September 30, 2019, diluted shares were used to compute adjusted net income per diluted share (non-GAAP).

10



EBITDA and Adjusted EBITDA
EBITDA represents net income before income tax expense, interest expense, net, and depreciation and amortization expense. We present EBITDA as a supplemental measure of our ability to service debt. We believe 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; and depreciation and amortization are non-cash charges.
We also present adjusted EBITDA, which is EBITDA excluding adjustments that are outlined in the following quantitative reconciliation provided, as a supplemental measure of our performance and because we believe this measure is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. The 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 noted below. 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. 
Our adjusted EBITDA measure has limitations as an analytical tool, and should not be considered 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 payments 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 as supplementary information.

11



The following table provides a reconciliation from EBITDA, non-GAAP adjusted EBITDA, and non-GAAP adjusted EBITDA Margin to GAAP net income (loss), the most directly comparable GAAP measure (amounts in thousands, except percentages):
 
Quarters Ended
 
(Unaudited)
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
Net sales
$
294,741

 
$
327,397

 
$
350,175

 
 
 
 
 
 
Net income (loss) (GAAP)
$
16,602

 
$
(15,260
)
 
$
40,806

Net income (loss) margin as a % of net sales
5.6
%
 
(4.7
)%
 
11.7
%
Non-GAAP adjustments:
 
 
 
 
 
Interest expense, net
1,899

 
1,939

 
3,908

Income tax expense
5,400

 
1,700

 
2,600

Depreciation and amortization
16,154

 
15,117

 
12,763

EBITDA (non-GAAP)
40,055

 
3,496

 
60,077

Excluding the following items:
 
 
 
 
 
Restructuring charges
802

 
2,920

 
1,718

R&D grant reimbursements and grant income
(7
)
 
19

 
(470
)
ERP integration/IT transition costs
2,029

 
1,508

 
2,453

Stock-based compensation expense
2,387

 
4,146

 
1,534

Settlements, regulatory costs, and legal expenses related to antitrust class actions
1,568

 
65,626

 
1,549

Net foreign exchange (gain) loss
4,113

 
(2,297
)
 
(2,218
)
Equity (income) loss from equity method investments
59

 
(472
)
 
296

(Gain) loss on early extinguishment of debt

 

 
15,988

Plant start-up costs
136

 
(34
)
 
305

(Gain) loss on write down and disposal of long-lived assets
1,076

 
59

 
788

Merger related expenses
5,283

 

 

Unrealized gain on equity securities
(794
)
 

 

Contingent consideration fair value adjustment
33

 
32

 

Adjusted EBITDA (non-GAAP) 
$
56,740

 
$
75,003

 
$
82,020

Adjusted EBITDA margin (non-GAAP) as a % of net sales
19.3
%
 
22.9
 %
 
23.4
%



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