KraneShares Emerging Markets Consumer Technology ETF

Q4 revenue was $293.2 million, down 17.6% year over year and down 0.5% sequentially. GAAP net loss was $0.3 million, or $0.01 per share, versus GAAP net income of $93.4 million, or $1.58 per diluted share, a year ago. Non-GAAP adjusted net income was $22.2 million, or $0.37 per diluted share, versus $61.4 million, or $1.04 per diluted share last year. GAAP gross margin was 31.4% versus 35.5% a year ago; non-GAAP gross margin was 31.9%, down 290 basis points year over year and flat sequentially. For fiscal 2020, net sales were $1.26 billion versus $1.38 billion, down 8.8%; GAAP net income was $41.4 million, or $0.70 per diluted share, versus $206.6 million, or $3.50 per diluted share; and adjusted net income was $137.3 million, or $2.31 per diluted share, versus $207.1 million, or $3.51 per diluted share. Q4 adjusted EBITDA was $54.1 million, down 31.4% year over year. For Q1, management guided revenue to $278 million to $295 million, non-GAAP gross margin to 28% to 30%, SG&A to $43 million to $45 million, R&D to $12.5 million to $13.5 million, and non-GAAP tax rate to 35% to 39%; full-year capex was guided to $50 million to $70 million excluding about $15 million of customer-funded capacity expansion.

Bill Lowe emphasized employee safety and operational continuity, saying Kemet remained fully operational after early COVID-19 precautions and that only five of 13,000 employees worldwide had been affected. He framed the company as structurally improved, with those changes supporting “excellent gross margins,” and said the business is well positioned with a strong balance sheet. He also reiterated that the Yageo acquisition was awaiting only Taiwan Investment Authority approval and was expected to close sometime in the summer.

Greg Thompson focused on the quarter’s beat versus expectations, noting results came in above the top end of guidance despite COVID-19 impacts. He highlighted the main year-over-year profit pressure from lower revenue, $17.6 million of long-lived asset write-downs, and a higher tax expense of $14.6 million in Q4 versus a $48.7 million tax benefit last year. On liquidity and capital allocation, he cited $222.4 million of cash and cash equivalents, $68.2 million of operating cash flow, $265 million of debt, net debt of $42.4 million, and no borrowings on the ABL facility; he also guided Q1 capex to $20 million to $30 million and full-year capex to $50 million to $70 million excluding customer-funded expansion.

Analysts pressed on whether work-from-home demand in PCs, servers, and medical would persist; management said demand looked strong through at least August-September, but possibly a temporary bubble tied to remote work and inventory rebuilding. They also asked about underlying demand after channel inventory normalization, and management said automotive weakness had not fully flowed through yet, while distribution was seeing some cautious stocking and some push-outs rather than major cancellations. On book-to-bill, management said the overall year-end figure was 1.3, with DSTI at 1.44, OEM at 1.25, and EMS at 1.03; they also said automotive-related ceramics were running well below 1. Questions on factory risk drew a response that any infection-related shutdown would likely be short for disinfection, while government-mandated closures were becoming less likely as Kemet was considered an essential business.