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SMTC Corporation Reports Third Quarter Results

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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