KMG repays $7 million of debt in Q3; further debt repayment eyed

By Devika Patel

Knoxville, Tenn., June 9 – KMG Chemicals, Inc. has repaid $38.8 million of long-term debt over the past seven quarters and will use future cash flow and possibly securities issued under its universal shelf registration to continue paying down its debt.

“During Q3, we repaid $7 million of debt, bringing our fiscal 2017 year-to-date debt reduction to $18.8 million,” vice president and chief financial officer Marcelino Rodriguez said on the company’s third-quarter earnings conference call on Friday.

“Supported by our strong cash generation, we have repaid long-term debt by $38.8 million over the past seven quarters,” he said.

Cash and cash equivalents were $14.1 million as of April 30.

Long-term debt was $34 million as of April 30, compared to $41 million as of Jan. 31.

Adjusted EBITDA set a record high at $14 million, up 24% from $11.2 million in the third quarter of fiscal 2016.

The company’s top executive added that KMG has a targeted debt to EBITDA ratio of 3.5x, and the company will use its cash flow to continue paying down its debt.

KMG management is “confident” of its cash flow projections and the speed at which it will de-lever.

“Our target [debt] level is to get down to a more reasonable level, 3.5x leverage,” president and chief executive officer Christopher T. Fraser said on the call.

“We feel very good about the cash flow generation of the business.

“We’ll be giving guidance in October, after we announce our fourth quarter, of what we project out the financials and at that time be able to give you some better line of sight into the cash flow generation and expected deleveraging, but let’s just say we’re very comfortable and confident of the projections on the cash flow and how quickly we’ll be able to de-lever with the existing business,” he said.

Fraser added that the company may use an April shelf registration to raise further funds for debt repayment.

“In addition, we have that universal shelf that we registered,” he said.

“We have those capabilities and the optionality to use that if we deem appropriate, given market conditions and everything else that we could use.

“It could provide us that flexibility to deleverage even quicker in addition to the generation of cash flow,” he said.

On April 6, the company filed an S-3 shelf registration for selling up to $200 million of debt securities, common stock, preferred stock, depositary shares and warrants, the proceeds of which may be used for general corporate purposes, including debt repayment, working capital, and capital expenditures.

KMG is a Fort Worth, Texas-based producer and distributor of specialty chemicals.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.