SMTC Corporation Reports Second Quarter Results

Published

 MC Assembly Integration Completed;Strong Year-over-Year Growth

TORONTO, Aug. 08, 2019 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider and winners of the Frost & Sullivan’s 2019 Best Practices Award for Customer Value Leadership in the Electronics Manufacturing Services Industry, today announced its second quarter 2019 results.

Second Quarter Financial Highlights

 
     Q2 2018    Q2 2018  
  $s in millions Q2 2019 (as reported) Change Proforma1 Change
  Revenue $90.9 $44.5 104.4% $82.0 10.9%
  Gross Profit $9.0 $4.3 109.2% $8.3 8.4%
  Gross Margin 9.9% 9.6%   10.1%  
  Adjusted Gross Profit2 $10.8 $4.4 145.5% $8.4 28.6%
  Adjusted Gross Profit Percentage2 11.9% 9.8%   10.3%  
  Net Loss ($2.5) ($0.1) 2398% ($1.1) 127%
  Adjusted Net Income (Loss)2 $1.1 $0.2 450.0% ($0.7)  
  Adjusted EBITDA2 $6.1 $1.6 279.8% $3.5 73.6%
  Net Debt $86.0 $19.7   $89.5  

1Proforma assumes MC Assembly Holdings, Inc. (“MC Assembly”), acquired on November 9, 2018 had been acquired by SMTC on April 1, 2018, the first day of the second quarter of 2018.

2Adjusted Gross Profit, Adjusted Gross Profit percentage, and Adjusted Net Income (Loss) and Adjusted EBITDA are non-GAAP measures. Please refer to the section below labeled Non-GAAP information and the various reconciliations shown below in this press release.

SMTC Corporation (“SMTC”) experienced robust year-over-year revenue growth, up 104.4% from its reported revenue in the second quarter of 2018 and up 10.9% on a proforma basis which assumes that MC Assembly, acquired in the fourth quarter of 2018, had been part of STMC in the second quarter of 2018. Revenue from Test and Measurement, Industrial, Power and Clean Tech and Aerospace and Defense customers were large contributors to the year-over-year growth in revenue.

As reported and Proforma Adjusted EBITDA both increased significantly over the second quarter of 2018. The improvement in Adjusted EBITDA metrics was due to higher revenue and gains from operational efficiencies resulting from various company initiatives, synergies achieved and increased scale from the completed integration of the of MC Assembly.

“During Q2 we completed the integration of MC Assembly and turned our attention toward executing our strategic growth plans. We invested $1.3 million in capital improvements initiatives that are intended to improve operating efficiencies, enhance service to support our growing customer base, and create value for our shareholders in the second quarter,” said Ed Smith, STMC President and CEO.

“With tariff concerns high on the mind of our customers, we incurred additional costs in the second quarter as we shifted some customer production to Mexico. To address this growing customer concern about tariffs, we have expanded our North American capabilities and production capacity at two facilities acquired in the 2018 acquisition of MC Assembly. This quarter we are adding a new capability in our Billerica, United States location that provides our customers with world-class 'Quick-turn' manufacturing and should enable an accelerated launch timetable for our customers’ products with the flexibility to scale into a low-cost geography that is available from other SMTC sites. We also upgraded and expanded our capacity at its Fresnillo facility in Zacatecas, Mexico enabling a 25% increase in capacity, which we started to ramp up during the third quarter,” added Smith.

“As part of our strategy to improve our capital structure, at the end of June we completed a Rights Offering and Registered Direct Offering that generated aggregate proceeds of approximately $14.6 million. On July 3, 2019 we used $12 million of these proceeds to accelerate pay-off of our outstanding Term B debt. This week we refinanced our credit agreements which reduced the Term A outstanding balance to $40 million from $50 million, reduced our interest costs and expanded borrowing capacity under the asset-based revolver facilities to $65 million to better support our future growth,” Smith commented.

Outlook

“Customer concerns about the continuing impact of tariffs and macro-economic factors has caused, as we experienced in the second quarter, many customers to review and begin to revise where they outsource their manufacturing. While we believe SMTC is well positioned with our North American facilities, we expect customer demand may be impacted over the second half of the year as customers continue to react and adjust to the ongoing geo-political impacts on global trade. As a result, our current expectation for revenue and Adjusted EBITDA for 2019 will more likely approach the lower end of our prior guidance of $393 to $408 million in revenue and $27 to $29 million for Adjusted EBITDA,” noted Smith.

Financial Results Conference Call

SMTC will host a conference call which will start at 5:00 p.m. Eastern Time on Thursday, August 8, 2019. The conference call can be accessed by visiting the Investor Relations section of SMTC’s web site on the Investor Relations Calendar page at https://www.smtc.com/investors/news-events/ir-calendar or dialing 1-877-317-6789 (for U.S. participants) or 1-412-317-6789 (for participants outside of the U.S ten minutes prior to the start of the call and request to join the SMTC Corporation’s Second Quarter 2019 Results Conference Call).

The conference call will be available for rebroadcast from the Investor Relations section of SMTC’s web site on the Investor Relations Calendar page.

Non-GAAP information

Adjusted Gross Profit, Adjusted Gross Profit Percent, Adjusted Net Income (Loss), EBITDA, and Adjusted EBITDA are non-GAAP measures. Adjusted Gross Profit is computed as gross profit excluding unrealized gains or losses on unsettled forward foreign exchange contracts and amortization of intangible assets. Adjusted Gross Profit Percentage is computed as Adjusted Gross Profit divided by revenue. A reconciliation of Adjusted Gross Profit to gross profit is included in the attachment. Adjusted Net Income (Loss) is computed as Net Income (Loss) excluding restructuring charges, unrealized foreign exchange gains/losses on unsettled forward foreign exchange contracts, stock-based compensation, stock-based compensation – warrant revaluation, amortization of intangible assets, merger and acquisition related expenses and gains or losses on contingent consideration. A reconciliation of Adjusted Net Income (Loss) to Net Income (Loss) is included in the attachment.  EBITDA is defined as net income (loss) before Interest, taxes, depreciation and amortization. Adjusted EBITDA is computed as net income (loss) from operations excluding depreciation and amortization, restructuring charges, unrealized foreign exchange gains/losses on unsettled forward foreign exchange contracts, stock-based compensation, stock-based compensation – warrant revaluation, interest, income tax expense and merger and acquisition related expenses and gains or losses on contingent consideration. SMTC Corporation has provided in this release a non-GAAP calculation of Adjusted EBITDA as supplemental information regarding the operational performance of SMTC’s core business. A reconciliation of Adjusted EBITDA to Net Income (Loss) is included in the attachment. Management uses these non-GAAP financial measures internally in analyzing SMTC’s financial results to assess operational performance and liquidity as well as to provide a consistent method of comparison to historical periods and to the performance of competitors and peer group companies. SMTC believes that these non-GAAP financial measures are useful for management and investors in assessing SMTC’s performance and when planning, forecasting and analyzing future periods. SMTC believes these non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial metrics we use in making operating decisions and because investors and analysts use it to help assess the health of our business. Non-GAAP measures are subject to limitations as these measures are not in accordance with, or an alternative for, United States Generally Accepted Accounting Principles (US GAAP) and may be different from non-GAAP measures used by other companies. Because of these limitations, investors should consider Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income (Loss) and Adjusted EBITDA along with other financial performance measures, including revenue, gross profit and net earnings (loss), as reflected in SMTC’s interim consolidated financial statements prepared in accordance with US GAAP.

Forward-Looking Statements

The statements contained in this release that are not purely historical are forward-looking statements, which involve risk and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These statements may be identified by their use of forward looking terminology such as  “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other and similar words, and include, but are not limited to, statements regarding the expected outcome of our capital expenditure initiatives, the anticipated benefits to our customers of recent facilities improvements, and other For these statements, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Risks and uncertainties that may cause future results to differ from forward looking statements include the challenges of managing quickly expanding operations and integrating acquired companies, fluctuations in demand for customers' products and changes in customers' product sources, competition in the electronics manufacturing services industry, component shortages, and others risks and uncertainties discussed in SMTC's most recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and SMTC assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements.

About SMTC

SMTC Corporation was founded in 1985 and acquired MC Assembly Holdings, Inc. in November 2018.  Following this acquisition, SMTC has more than 50 manufacturing and assembly lines in United States, China and Mexico which creates a powerful low-to-medium volume, high-mix, end-to-end global electronics manufacturing services (EMS) provider. With local support and expanded manufacturing capabilities globally, including fully integrated contract manufacturing services with a focus on global original equipment manufacturers and emerging technology companies, including those in the Defense and Aerospace, Industrial, Power and Clean Technology, Medical and Safety, Retail and Payment Systems, Semiconductors and Telecom, Networking and Communications; and Test and Measurement industries. As a mid-size provider of end-to-end EMS, SMTC provides printed circuit boards assemblies production, systems integration and comprehensive testing services, enclosure fabrication, as well as product design, sustaining engineering and supply chain management services. SMTC services extend over the entire electronic product life cycle from the development and introduction of new products through to the growth, maturity and end-of-life phases.

SMTC is a public company incorporated in Delaware with its shares traded on the Nasdaq National Market System under the symbol SMTX and was added to the Russell Microcap® Index in 2018. For further information on SMTC Corporation, please visit our website at www.smtc.com.

       
Consolidated Statements of Operations and Comprehensive Income       
(Unaudited)              
  Three months ended   Six months ended
               
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts) June 30,2019   July 1,2018   June 30,2019   July 1,2018
               
Revenue $   90,936     $   44,479     $   193,585     $   81,599  
Cost of sales     81,939         40,196         175,964         73,466  
Gross profit     8,997         4,283         17,621         8,133  
Selling, general and administrative expenses      6,600         3,647         13,298         7,156  
Gain on Contingent Consideration     -         -         (3,050 )       -  
Restructuring charges     1,546         96         2,170         96  
               
Operating earnings      851         540         5,203         881  
Interest expense     2,800         403         5,670         710  
Net income (loss) before income taxes     (1,949 )       137         (467 )       171  
Income tax expense (recovery)              
Current     416         196         695         306  
Deferred     103         38         95         (46 )
      519         234         790         260  
Net loss and comprehensive loss $   (2,468 )   $   (97 )   $   (1,257 )   $   (89 )
               
Basic loss per share $   (0.10 )   $   (0.01 )   $   (0.05 )   $   (0.01 )
Diluted loss per share $   (0.10 )   $   (0.01 )   $   (0.05 )   $   (0.01 )
               
Weighted average number of shares outstanding              
Basic     23,557,944         17,222,439         23,403,431         17,131,971  
Diluted     23,557,944         17,222,439         23,403,431         17,131,971  
               

Consolidated Balance Sheets      
(Unaudited)      
       
(Expressed in thousands of U.S. dollars) June 30,2019   December 30,2018
Assets      
       
Current assets:      
Cash $   634     $   1,601  
Accounts receivable - net     64,951         72,986  
Unbilled contract assets     27,619         20,405  
Inventories - net     46,149         53,203  
Prepaid expenses and other assets      6,691         5,548  
Derivative assets     -         15  
Income taxes receivable     158         160  
      146,202         153,918  
Property, plant and equipment - net     26,855         28,160  
Operating lease right of use assets - net     4,445         -  
Goodwill     18,165         18,165  
Intangible assets - net     16,247         19,935  
Deferred financing costs - net     646         668  
Deferred income taxes - net     285         380  
Total assets $   212,845     $   221,226  
       
Liabilities and Shareholders' Equity      
       
Current liabilities:      
Revolving credit facility     13,748     $   25,020  
Accounts payable     66,639         76,893  
Accrued liabilities     12,174         13,040  
Warrant liability     1,948         2,009  
Contingent consideration     -         3,050  
Income taxes payable     213         12  
Current portion of long-term debt     1,368         1,368  
Current portion of operating lease obligations     1,891         -  
Current portion of finance lease obligations     1,401         1,547  
      99,382         122,939  
       
Long-term debt     55,887         56,039  
Operating lease obligations     3,019      
Finance lease obligations     9,284         9,947  
Total liabilities     167,572         188,925  
       
Shareholders’ equity:      
Capital stock     506         458  
Additional paid-in capital     292,829         278,648  
Deficit     (248,062 )       (246,805 )
      45,273         32,301  
Total liabilities and shareholders' equity $   212,845     $   221,226  
       

               
Consolidated Statements of Cash Flows               
(Unaudited)              
  Three months ended   Six months ended
(Expressed in thousands of U.S. dollars)              
Cash provided by (used in): June 30,2019   July 1,2018   June 30,2019   July 1,2018
Operations:              
Net loss $   (2,468 )   $   (97 )   $  (1,257 )   $   (89 )
Items not involving cash:              
Depreciation on property, plant and equipment     1,626         769         3,253         1,543  
Amortization of acquired Intangible assets     1,844         -         3,688         -  
Unrealized foreign exchange gain on unsettled forward              
  exchange contracts     -         89         -         (230 )
Deferred income taxes (recovery)     103         38         95         (46 )
Amortization of deferred financing fees     274         12         545         21  
Stock-based compensation     97         77         185         203  
Change in fair value of warrant liability     40         -         (61 )       -  
Change in fair value of contingent consideration     -         -         (3,050 )       -  
               
Change in non-cash operating working capital:              
Accounts receivable     9,229         (1,223 )       8,035        (3,016 )
Unbilled contract assets     (3,411 )       (1,339 )       (7,214 )      (6,488 )
Inventories     2,511         (4,516 )       7,054        (2,851 )
Prepaid expenses and other assets     (61 )       (1,068 )       (1,128 )      (1,437 )
Income taxes payable     174         -         203         (48 )
Accounts payable     (12,100 )       4,383        (10,130 )       8,995  
Accrued liabilities     (952 )       177         (866 )       1,361  
Net change in operating lease right of use asset and liability     65         -         465         -  
      (3,029 )       (2,698 )       (183 )      (2,082 )
Financing:              
Advances (repayments) of revolving credit facility     (9,888 )       1,940        (11,272 )       (209 )
Repayments of long-term debt     (312 )       (500 )       (625 )      (1,000 )
Principal repayments of finance lease obligations     (392 )       (50 )       (809 )       (94 )
Proceeds from issuance of common stock      14,044         361         14,044         361  
Equipment facility advance     -         1,894         -         1,894  
Debt issuance and deferred financing fees     (50 )       (15 )       (50 )       (48 )
      3,402         3,630         1,288         904  
Investing:              
Purchase of property, plant and equipment     (1,335 )       (2,301 )       (2,072 )      (2,405 )
      (1,335 )       (2,301 )       (2,072 )      (2,405 )
Decrease in cash     (962 )       (1,369 )       (967 )      (3,583 )
Cash, beginning of period     1,596         3,322         1,601         5,536  
Cash, end of the period $   634     $   1,953     $   634       $ 1,953  
               

               
Supplementary Information:              
Reconciliation of Adjusted EBITDA               
  Three months ended   Six months ended
      Note 1       Note 1
  June 30,2019   July 1,2018   June 30,2019   July 1,2018
               
Net loss $   (2,468 )   $   (97 )   $   (1,257 )   $   (89 )
Add (deduct):              
Depreciation of property, plant and equipment     1,626         769         3,253         1,543  
Amortization of Intangible assets     1,844         -         3,688         -  
Interest     2,800         403         5,670         710  
Income tax expense     519         234         790         260  
               
EBITDA $   4,321     $   1,309     $   12,144     $   2,424  
               
Add (deduct):              
Stock compensation expense      97         77         185         203  
Stock compensation expense - warrant revaluation     40         -         (61 )       -  
Restructuring charges     1,546         96         2,170         96  
Merger and acquisitions related expenses     73         -         164         -  
Contingent Consideration reversal     -         -         (3,050 )       -  
Unrealized foreign exchange loss (gain)      -         89         -         (230 )
  on unsettled forward exchange contracts              
               
Adjusted EBITDA $   6,077     $   1,571     $   11,552     $   2,493  
               
Note 1:  Reflects historical SMTC results as filed              
               

               
Supplementary Information:              
Reconciliation of Adjusted Gross Profit              
               
       
  Three months ended   Six months ended
  June 30,2019   July 1,2018   June 30,2019   July 1,2018
               
Gross Profit $   8,997     $   4,283     $   17,621     $   8,133  
Add (deduct):              
  Amortization of intangible assets     1,844         -          3,688         -   
Unrealized foreign exchange loss (gain)               
  on unsettled forward exchange contracts     -         89         -         (230 )
               
Adjusted Gross Profit $   10,841     $   4,372     $   21,309     $   7,903  
               
Adjusted Gross Profit Percentage   11.9 %     9.8 %     11.0 %     9.7 %
         

               
Supplementary Information:              
Reconciliation of Adjusted Net (Loss) Income Three months ended   Six months ended
               
  June 30,2019   July 1,2018   June 30,2019   July 1,2018
Net Loss $   (2,468 )   $   (97 )   $   (1,257 )   $   (89 )
add back              
               
  Amortization of intangible assets     1,844         -         3,688         -  
Unrealized foreign exchange loss (gain)       
  on unsettled forward exchange contracts     -         89         -         (230 )
Stock compensation expense      97         77         185         203  
Stock Revaluation of Warrant     40         -         (61 )       -  
Restructuring charges     1,546         96         2,170         96  
Merger and acquisitions related expenses     73         -         164         -  
Contingent Consideration reversal     -         -         (3,050 )       -  
     
Adjusted Net Income (Loss)     1,132         165         1,839         (20 )
                               

         
Supplementary Information:        
Reconciliation of Net Debt  
 
              Proforma  
  June 30,2019 July 1, 2018 July 1, 2018  
 
  Revolver $   13,748     11,981     31,414  
  Term Debt     61,376     8,894     46,629  
  Discount (Term Debt)     (4,121 )   -      597  
  Capital Lease (Finance)     10,685     796     12,850  
  Capital Lease (Operating)     4,910     -      -   
  $   86,598     21,671     91,490  
  Cash     (634 )   (1,953 )   2,024  
  Net Debt $   85,964     19,718     89,466  
   

Consolidated Statements of Operations and Comprehensive Loss  
(Unaudited)      
       
  SMTC MC Proforma
  July 1, 2018 July 1, 2018 July 1, 2018
       
Revenue $   44,479   $   37,544   $   82,023  
Cost of sales     40,196       33,505       73,701  
Gross profit     4,283       4,038       8,321  
Selling, general and administrative expenses      3,647       2,946       6,593  
Restructuring charges     96       153       249  
       
Operating income     540       939       1,479  
Interest expense     403       1,835       2,238  
Income (loss) before income taxes     137       (895 )     (758 )
Income tax expense (recovery)      
Current     196       112       308  
Deferred     38       -       38  
      234       112       346  
Net loss from continuing operations     (97 )     (1,007 )     (1,104 )
Net loss, and comprehensive loss $   (97 ) $   (1,007 ) $   (1,104 )
       

       
Supplementary Information:      
Reconciliation of Adjusted EBITDA       
     
  SMTC MC Proforma
  July 1, 2018 July 1, 2018 July 1, 2018
       
Net loss $   (97 ) $   (1,007 ) $   (1,104 )
Add (deduct):      
Depreciation of property, plant and equipment   769     828       1,597  
Interest   403     1,835       2,238  
Income tax expense   234       112       346  
       
EBITDA $   1,309   $   1,767   $   3,076  
       
Add (deduct):      
Stock compensation expense    77       -      77  
Restructuring charges     96       153       249  
Unrealized foreign exchange loss   89       -        89  
  on unsettled forward exchange contracts      
       
Adjusted EBITDA     1,571       1,920       3,491  
                   

 

       
Reconciliation of Adjusted Gross Profit      
       
  SMTC MC Proforma
  July 1, 2018 July 1, 2018 July 1, 2018
       
Gross Profit $   4,283   $   4,038   $   8,321  
Add (deduct):      
Unrealized foreign exchange loss      
  on unsettled forward exchange contracts     89     -       89  
Adjusted Gross Profit $   4,372   $   4,038   $   8,410  
Adjusted Gross Profit %   9.8 %   10.8 %   10.3 %
                   

Investor Relations Contact

Peter SeltzbergManaging DirectorDarrow Associates, Inc.516-419-9915pseltzberg@darrowir.com

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SMTC Corporation

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