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SMTC Corporation Reports Third Quarter Results

TORONTO, Nov. 11, 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 third quarter 2019 results.

Third Quarter Financial Highlights

           
$s in millions Q3 2019 Q3 2018
(as reported)
Change Q3 2018
Proforma1
Change
Revenue $88.7 $53.7 65.2% $93.7 (5.4%)
Gross Profit $8.9 $5.2 70.1% $10.3 (13.3%)
Gross Profit Percentage 10.0% 9.8%   11.0%  
Adjusted Gross Profit2 $10.8 $5.1 109.6% $10.2 5.8%
Adjusted Gross Profit Percentage2 12.1% 9.6%   10.8%  
Net Income (Loss) ($5.7) $0.9   $1.2 nm
Adjusted Net Income2 $2.1 $0.9 139.3% $1.2 177.3%
Adjusted EBITDA2 $6.3 $2.4 161.1% $5.5 13.6%
Adjusted EBITDA Percentage2 7.1% 4.5%   5.9%  
Net Debt $84.4 $11.8   $3.0  
           

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

2Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA and EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma EBITDA, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage (each defined below) are non-GAAP measures. Please refer to the section below labeled “Non-GAAP Information” and the various reconciliations to the applicable most directly comparable GAAP measures shown below in this press release.

SMTC Corporation (“SMTC”) reported a 65.2% year-over-year increase in revenue, compared to the third quarter of 2018.  On a proforma basis, revenue declined 5.4% compared to the third quarter of 2018. Factors contributing to the year-over-year revenue decline on a proforma basis included customer inventory rebalancing as lead-times in the supply-chain shortened, customer concerns about uncertainties relating to the prolonged impact of tariffs and macro-economic conditions in certain end-markets, including the semiconductor sector which was supply constrained in 2018.

Adjusted EBITDA increased from $2.4 million to $6.3 million or by 161.1% and from $5.5 million to $6.3 million on a proforma basis or 13.6%, compared to the third quarter of 2018 as noted in the table above. The improvement in Adjusted EBITDA was due to gains from operational efficiencies and synergies achieved and increased scale from the completed integration of MC Assembly following the November 2018 acquisition.

“One year since closing on the acquisition of MC Assembly, we are pleased to report our results on a higher year-to-date revenue base that is allowing us to scale our business.  During the first nine months of 2019 we achieved an increase in our revenues to $282.3 million or 14.5% on a proforma basis and we’ve seen an even steeper improvement to our Adjusted EBITDA, which grew 54% to $17.8 million on a proforma basis,” said Ed Smith, SMTC President and CEO.  “The expansion of our customer base was led by important customer wins in the Aerospace and Defense, Industrial, Power and Clean Technology and Test and Measurement markets over the same period a year ago,” noted Smith.

“Also, as indicated in our September 19, 2019 press release, the current geo-political environment caused a number of our customers to re-source their manufacturing away from vendors who are operating in China, and as a result, we have seen a decline in demand for product built in our China site.  We have been working with our customers to transfer production out of our Dongguan, China manufacturing operations, and we are currently winding down this facility, with completion expected by the end of this year.  Revenue attributable to the Dongguan manufacturing operations accounted for 5.3% of our revenue in the first three quarters of 2019,” said Ed Smith, SMTC President and CEO.  

SMTC recorded $5.5 million of charges in the third quarter related to the closure of its China manufacturing operations which includes $3.5 million of non-cash accelerated asset write-downs and $2.0 million of cash-based expenses and employee-related costs.

“Despite current challenges facing the EMS industry, we exited the third quarter in a stronger position to support our growth plans by eliminating our previously outstanding Term B debt and expanding our borrowing capacity under our amended asset-based revolving credit facilities from $45 million to $65 million, along with more favorable financial covenants with our lenders. As we look ahead, we expect another year of growth in 2020 as our funnel of new business continues to grow. With $22 million of new orders already secured, including the $15 million of awards referenced in our September 19th press release, the integration of MC Assembly acquisition completed and our plans to implement further operational efficiencies, we are reiterating our prior 2019 and initial 2020 guidance issued on September 19th and have the elements are now in place to make 2020 a more profitable year,” added Smith.

Financial Results Conference Call

SMTC will host a conference call which will start at 5:00 p.m. Eastern Time on Monday, November 11, 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 Third 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 Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage 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. Adjusted Net Income is computed as net income (loss) excluding restructuring charges, unrealized foreign exchange gains/losses on unsettled forward foreign exchange contracts, stock-based compensation, change in fair value of warrant liability, amortization of intangible assets, merger and acquisition related expenses and change in fair value of contingent consideration. 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, change in fair value of warrant liability, interest, income tax expense and merger and acquisition related expenses and change in fair value of contingent consideration. Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage are computed as Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA and Adjusted EBITDA Percentage, in each case, after assuming that MC Assembly, acquired on November 9, 2018 had been acquired by SMTC on July 1, 2018, the first day of the third quarter of 2018. Reconciliations of Adjusted Gross Profit to gross profit, Adjusted Gross Profit Percentage to gross profit percentage, Adjusted Net Income to net income (loss) EBITDA to net income (loss), Adjusted EBITDA to net income (loss), Adjusted EBITDA Percentage to net income (loss) percentage, Proforma Adjusted Gross Profit to gross profit, Proforma Adjusted Gross Profit Percentage to gross profit percentage, Proforma Adjusted Net Income to net income (loss), Proforma EBITDA to net income (loss), Proforma Adjusted EBITDA to net income (loss) and Proforma Adjusted EBITDA Percentage to net income (loss) percentage are each 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 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, EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage along with other financial performance measures, including [revenue,] gross profit and net income (loss), as reflected in SMTC’s interim consolidated financial statements prepared in accordance with GAAP and included in the attachment.

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 SMTC’s expected growth and profitability, the benefits of SMTC’s implementation of operational efficiencies and SMTC’s closure of business operations in Dongguan, China.  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, integrating acquired companies, ceasing manufacturing in China, 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.  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. 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     Nine months ended  
                       
(Expressed in thousands of U.S. dollars, except number of
shares and per share amounts)

September 29,
2019
    September 30,
2018
    September 29,
2019
    September 30,
2018
 
                       
Revenue $   88,682     $   53,677     $   282,267     $   135,276  
Cost of sales 79,776     48,440     255,740     121,906  
Gross profit 8,906     5,237     26,527     13,370  
Selling, general and administrative expenses 6,549     3,682     19,908     10,838  
Change in fair value of contingent consideration -     -     (3,050 )   -  
Change in fair value of warrant liability (858 )   -     (919 )   -  
Write-down of property,plant and equipment -     -     -     -  
Loss on disposal of property,plant and equipment -     3     -     3  
Restructuring charges 6,454     58     8,624     154  
                       
Operating earnings (loss) (3,239 )   1,494     1,964     2,375  
Interest expense 2,679     485     8,349     1,195  
Income (loss) before income taxes (5,918 )   1,009     (6,385 )   1,180  
Income tax expense (recovery)                      
Current (103 )   290     592     596  
Deferred (81 )   (145 )   14     (191 )
  (184 )   145     606     405  
Net income (loss) and comprehensive income (loss) $   (5,734 )   $   864     $   (6,991 )   $   775  
                       
Basic income (loss) per share $   (0.20 )   $   0.04     $   (0.28 )   $   0.04  
Diluted income (loss) per share $   (0.20 )   $   0.04     $   (0.28 )   $   0.04  
                       
Weighted average number of shares outstanding                      
Basic 28,057,763     19,335,253     24,954,875     17,866,399  
Diluted 28,057,763     19,986,756     24,954,875     18,517,902  
                       

 

 
Consolidated Balance Sheets
(Unaudited)
         
(Expressed in thousands of U.S. dollars) September 29,
2019
  December 30,
2018
 
Assets        
         
Current assets:        
Cash $   601   $   1,601  
Accounts receivable - net 61,208   72,986  
Unbilled contract assets 26,790   20,405  
Inventories - net 49,535   53,203  
Prepaid expenses and other assets 6,658   5,548  
Derivative assets -   15  
Income taxes receivable 358   160  
  145,150   153,918  
Property, plant and equipment - net 26,348   28,160  
Operating lease right of use assets - net 3,887   -  
Goodwill 18,165   18,165  
Intangible assets - net 14,403   19,935  
Deferred financing costs - net 899   668  
Deferred income taxes - net 366   380  
Total assets $   209,218   $   221,226  
         
Liabilities and Shareholders' Equity        
         
Current liabilities:        
Revolving credit facility 34,840   $   25,020  
Accounts payable 67,082   76,893  
Accrued liabilities 13,387   13,040  
Warrant liability 1,090   2,009  
Restructuring liability 2,736   -  
Contingent consideration -   3,050  
Income taxes payable 94   12  
Current portion of long-term debt 1,250   1,368  
Current portion of operating lease obligations 1,483   -  
Current portion of finance lease obligations 1,316   1,547  
  123,278   122,939  
         
Long-term debt 34,154   56,039  
Operating lease obligations 2,818   -  
Finance lease obligations 9,105   9,947  
Total liabilities 169,355   188,925  
         
Shareholders’ equity:        
Capital stock 507   458  
Additional paid-in capital 293,152   278,648  
Deficit (253,796 ) (246,805 )
  39,863   32,301  
Total liabilities and shareholders' equity $   209,218   $   221,226  
         


 
Consolidated Statements of Cash Flows 
(Unaudited)
  Three months ended     Nine months ended  
(Expressed in thousands of U.S. dollars)                      
Cash provided by (used in): September 29,
2019
    September 30,
  2018
    September 29,
  2019
    September 30,
  2018
 
Operations:                      
Net income (loss) $   (5,734 )   $   864     $   (6,991 )   $   775  
Items not involving cash:                      
Depreciation on property, plant and equipment 1,649     883     4,902     2,426  
Amortization of acquired Intangible assets 1,844     -     5,532     -  
Unrealized foreign exchange gain on unsettled forward                      
exchange contracts -     (108 )   -     (338 )
Write down of property, plant and equipment 261     -     261     -  
Loss on disposal of property, plant and equipment -     3     -     3  
Deferred income taxes (recovery) (81 )   (145 )   14     (191 )
Amortization of deferred financing fees 755     13     1,300     34  
Stock-based compensation 353     75     538     278  
Change in fair value of warrant liability (858 )   -     (919 )   -  
Change in fair value of contingent consideration -     -     (3,050 )   -  
                       
Change in non-cash operating working capital:                      
Accounts receivable 3,743     (9,081 )   11,778     (12,096 )
Unbilled contract assets 829     (1,695 )   (6,385 )   (8,183 )
Inventories (3,386 )   (3,158 )   3,668     (6,009 )
Prepaid expenses and other assets 33     435     (1,095 )   (1,002 )
Income taxes payable (319 )   16     (116 )   (32 )
Accounts payable 285     7,587     (9,845 )   16,582  
Accrued liabilities 1,458     1,088     (265 )   2,449  
Restructuring liability 1,879     -     2,736     -  
Net change in operating lease right of use asset and liability (51 )   -     414     -  
  2,660     (3,223 )   2,477     (5,304 )
Financing:                      
Net advances of revolving credit facility 21,092     4,725     9,820     4,515  
Repayments of long-term debt (22,000 )   (500 )   (22,625 )   (1,500 )
Principal repayments of finance lease obligations (390 )   (95 )   (1,199 )   (189 )
Advance of equipment facility -     735     -     2,629  
Proceeds from issuance of stock options 45     -     45     361  
Proceeds from issuance of common stock through rights offering       12,587     14,044     12,587  
Debt issuance and deferred financing fees (321 )   -     (371 )   (48 )
  (1,574 )   17,452     (286 )   18,355  
Investing:                      
Purchase of property, plant and equipment (1,119 )   (1,493 )   (3,191 )   (3,898 )
  (1,119 )   (1,493 )   (3,191 )   (3,898 )
Decrease in cash (33 )   12,736     (1,000 )   9,153  
Cash, beginning of period 634     1,953     1,601     5,536  
Cash, end of the period $   601     $   14,689     $   601     $   14,689  
                       


 
Supplementary Information:
Reconciliation of Adjusted EBITDA 
  Three months ended   Nine months ended
      Note 1       Note 1
  September 29,
2019
  September 30,
2018
  September 29,
2019
  September 30,
2018
                       
Net income (loss) $   (5,734 )   $   864     $   (6,991 )   $   775  
Add (deduct):                      
Depreciation of property, plant and equipment 1,649     883     4,902     2,426  
Amortization of Intangible assets 1,844     -     5,532     -  
Interest 2,679     485     8,349     1,195  
Income tax expense (recovery) (184 )   145     606     405  
                       
EBITDA $   254     $   2,377     $   12,398     $   4,801  
                       
Add (deduct):                      
Stock compensation expense 353     75     538     278  
Fair value adjustment of warrant liability (858 )   -     (919 )   -  
Restructuring charges 6,454     58     8,624     154  
Merger and acquisitions related expenses 68     -     232     -  
Fair value adjustment of contingent consideration -     -     (3,050 )   -  
Unrealized foreign exchange gain                      
on unsettled forward exchange contracts -     (108 )   -     (338 )
                       
Adjusted EBITDA $   6,271     $   2,402     $   17,823     $   4,895  
                       
Adjusted EBITDA Percentage 7.1 %   4.5 %   6.3 %   3.6 %
                       
Note 1:  Reflects historical SMTC results as filed


 
Supplementary Information: 
Reconciliation of Adjusted Gross Profit 
                       
  Three months ended     Nine months ended  
  September 29,
2019
    September 30,
2018
    September 29,
2019
    September 30,
2018
 
                       
Gross Profit $   8,906     $   5,237     $   26,527     $   13,370  
Add (deduct):                      
  Amortization of intangible assets   1,844       -     $   5,532       -  
Unrealized foreign exchange gain                       
  on unsettled forward exchange contracts   -       (108 )     -       (338 )
                       
Adjusted Gross Profit $   10,750     $   5,129     $   32,059     $   13,032  
                       
Adjusted Gross Profit Percentage 12.1 %   9.6 %   11.4 %   9.6 %
                 


Supplementary Information:
 
       
Reconciliation of Adjusted Net (Loss) Income Three months ended   Nine months ended
  September 29,
2019
  September 30,
2018
  September 29,
2019
  September 30,
2018
Net income (loss) $   (5,734 )   $   864     $   (6,991 )   $   775  
                       
add back                      
                       
Amortization of intangible assets   1,844       -       5,532       -  
Unrealized foreign exchange gain                       
on unsettled forward exchange contracts   -       (108 )     -       (338 )
Stock compensation expense    353       75       538       278  
Fair value adjustment of warrant liability   (858 )     -       (919 )     -  
Restructuring charges   6,454       58       8,624       154  
Merger and acquisitions related expenses   68       -       232       -  
Fair value adjustment of contingent consisderation   -       -       (3,050 )     -  
                       
Adjusted net income   2,127       889       3,966       869  
                       


         
Supplementary Information:        
Reconciliation of Net Debt        
         
  September 29,
2019
September 30,
2018
         
Revolver $   34,840   16,706  
Term Debt 39,376   6,500  
Equipment Facility -   2,629  
Discount (Term Debt) (3,972 ) -  
Capital Lease (Finance) 10,421   701  
Capital Lease (Operating) 4,301   -  
  $   84,966   26,536  
Cash (601 ) (14,689 )
Net Debt $   84,365   11,847  
         


 
Supplementary Information:   
Proforma Consolidated Statements of Operations and Comprehensive Income 
(Unaudited)
             
  SMTC   MC   Proforma  
  September 30, 2018   September 30, 2018   September 30, 2018  
             
Revenue $   53,677   $   40,064   $   93,741  
Cost of sales   48,440     35,034     83,474  
Gross profit   5,237     5,030     10,267  
Selling, general and administrative expenses    3,682     2,729     6,411  
Impairment of property,plant and equipment   3     -     3  
Restructuring charges   58     (13 )   45  
             
Operating income   1,494     2,314     3,808  
Interest expense   485     1,872     2,357  
Income before income taxes   1,009     443     1,452  
Income tax expense (recovery)            
Current   290     100     390  
Deferred   (145 )   -     (145 )
    145     100     245  
Net income, and comprehensive income $   864   $   343   $   1,207  
             


 
Supplementary Information:
Reconciliation of Proforma Adjusted EBITDA 
             
  SMTC   MC   Proforma  
  September 30, 2018   September 30, 2018   September 30, 2018  
             
Net income $   864   $   343   $   1,207  
Add (deduct):            
Depreciation of property, plant and equipment 883   816   $   1,699  
Interest 485   1,872   $   2,357  
Income tax expense 145     100   $   245  
             
EBITDA $   2,377   $   3,130   $   5,507  
             
Add (deduct):            
Stock compensation expense  75     -   75  
Restructuring charges   58     (13 )   45  
Unrealized foreign exchange loss (gain)    (108 )   -     (108 )
  on unsettled forward exchange contracts            
             
Adjusted EBITDA   2,402     3,117     5,519  
             


 
Supplementary Information:   
Reconciliation of Proforma Adjusted Gross Profit  
             
  SMTC MC Proforma
  Sep 30,  2018 Sep 30,  2018 Sep 30,  2018
             
Gross Profit $   5,237   $   5,030   $   10,267  
Add (deduct):            
Unrealized foreign exchange gain             
on unsettled forward exchange contracts   (108 ) -     (108 )
Adjusted Gross Profit $   5,129   $   5,030   $   10,159  
Adjusted Gross Profit % 9.6 % 12.6 % 10.8 %
             


Supplementary Information:                
Reconciliation of Adjusted Net (Loss) Income                
  SMTC     MC     Proforma  
  Sep 30,  2018     Sep 30,  2018     Sep 30,  2018  
Net Loss $   864     $   343     $   1,207  
                 
add back                
                 
Amortization of intangible assets   -       -       -  
Unrealized foreign exchange loss (gain)    (108 )     -       (108 )
on unsettled forward exchange contracts               -  
Stock compensation expense    75       -       75  
Stock Revaluation of Warrant   -       -       -  
Restructuring charges   58       (13 )     45  
Merger and acquisitions related expenses   -       -       -  
Contingent Consideration reversal   -       -       -  
                 
Adj Net Loss   889       329       1,218  
                 


Investor Relations Contact
Peter Seltzberg
Managing Director
Darrow Associates, Inc.
516-419-9915
pseltzberg@darrowir.com