SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing
services provider, today announced its first quarter 2019 results.
First Quarter Financial Highlights
- Revenue was $102.6 million, up $65.5 million or 177%, compared
to $37.1 in the first quarter of 2018, and up 27% or $21.7 million
from $80.9 million in the fourth quarter of 2018. On a proforma
basis, assuming MC Assembly had been part of SMTC in the first
quarter of 2018, revenue increased 45.2% from $70.7 million in the
first quarter of 2018. Approximately $3.8 million of the revenues
reported in the first quarter of 2019 was due to the impact of the
revenue accounting standard ASC 606 compared to $1.7 million of the
revenues in the same period in the prior year.
- Gross profit was $8.6 million or 8.4% of revenues, compared to
$3.9 million or 10.4% of revenues in the first quarter of 2018, and
$8.3 million or 10.3% of revenue in the fourth quarter of 2018. The
year-over-year and quarter-over-quarter declines in the gross
margin percentage in the first quarter of 2019 were due to higher
labor expenses and $1.8 million of amortization of intangibles
relating to the acquisition of MC Assembly. Adjusted Gross
Profit was $10.5 million or 10.2% of revenues, compared to $3.5
million or 9.5% of revenue for the same period in the prior year.
- Net income was $1.2 million or $0.05 per share, compared to net
income of $0.08 million or $0.00 per share reported in the first
quarter of 2018, and a net loss of $(1.2) million or $(0.05) per
share reported in the fourth quarter of 2018. Net Income in the
first quarter of 2019 included a $3.1 million non-cash gain for a
contingent consideration which reflected a reversal of an accrual
recorded in the prior quarter for an earn-out provision associated
with the MC Assembly acquisition.
- Adjusted EBITDA was $5.5 million, increased 494% from $0.9
million reported in the first quarter of 2018, and up 2.9% from
$5.3 million reported in the fourth quarter of 2018. On a
proforma basis, assuming MC Assembly had been part of SMTC in the
first quarter of 2018, adjusted EBITDA increased 116% from $2.5
million in the first quarter of 2018.
- Net Debt at the end of the first quarter was $95.9 million,
compared to $92.3 million at the end of 2018. Effective January 1,
2019, with the adoption of the new lease standard (ASC 842 –
Leases), the Company recorded $5.4 million of operating lease
obligations as at March 31, 2019. Net Debt at the end of the first
quarter, excluding finance and operating lease obligations was $
79.4, compared to $80.8 million at the end of 2018. A higher than
anticipated level of revenue in the first quarter of 2019, together
with strong collection activities, eliminated the need for a Senior
Debt Leverage Covenant waiver that SMTC secured during the
quarter.
2019 Outlook
“With the strong start to 2019 and a growing funnel of business
opportunities from existing and new customers in key markets, we
anticipate another year of solid revenue growth. We expect to
complete the integration of MC Assembly during the second quarter
and have implemented steps to attain additional synergies which we
believe will increase production efficiencies and improve our
operating results,” said Ed Smith, SMTC’s President and Chief
Executive Officer.
“Our priorities over the next several quarters are to continue
to grow the top line, become more efficient, make progress towards
achieving our long-term the gross margin targets of 12% to 14%, and
strengthen our balance sheet through working capital improvements
and debt reduction. As I look ahead, I am excited about the
opportunities for our company to achieve best-in-class operating
and financial metrics among our EMS peers,” added Smith.
SMTC’s current expectations for 2019:
|
2019 Revenue |
2019 Adjusted EBITDA Range* |
|
|
$393 - $408 million |
$27 - $29 million |
|
*Adjusted EBITDA is calculated based on net income (loss)
adjusted to exclude stock-based compensation, interest,
restructuring charges, unrealized foreign exchange gain (loss) on
unsettled forward exchange contracts, income taxes and depreciation
of property plant and equipment and amortization of intangible
assets, merger and acquisition related expenses and gains or losses
on contingent consideration. SMTC 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 earnings
(loss) is shown below in this press release.
Financial Results Conference Call
The company will host a conference call which will start at 8:30
a.m. Eastern Time on Thursday, May 9, 2019 by accessing the
Investor Relations section of SMTC’s web site on the Investor
Relations Events Calendar page at https://ir.smtc.com/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
First 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 Events Calendar page.
Non-GAAP information
Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Profit
percentage are non-GAAP measures. Adjusted EBITDA is computed as
net earnings (loss) from operations excluding depreciation and
amortization, restructuring charges, unrealized foreign exchange
gains/losses on unsettled forward foreign exchange contracts,
stock-based compensation, 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. 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. 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 EBITDA, Adjusted Gross Profit and Adjusted
Gross Profit percentage 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 expectations,
intentions or strategies of SMTC. 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 (EMS) industry, component shortages, and
others risks and uncertainties discussed in SMTC's most recent
filings with the SEC. 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 Corporation
SMTC Corporation was founded in 1985 and acquired MC Assembly
Holdings, Inc. in November 2018. Following the MC Assembly
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 EMS provider.
With local support and expanded manufacturing capabilities
globally, including fully integrated contract manufacturing
services with a focus on global original equipment manufacturers
(OEMs) 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 electronics
manufacturing services (EMS), SMTC provides printed circuit boards
assemblies (PCB) 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 |
|
|
|
|
(Expressed in thousands of U.S. dollars, except number of shares
and per share amounts) |
March
31, 2019 |
|
April
1, 2018 |
|
|
|
|
Revenue |
$ |
102,649 |
|
|
$ |
37,120 |
|
Cost of
sales |
|
94,025 |
|
|
|
33,270 |
|
Gross profit |
|
8,624 |
|
|
|
3,850 |
|
Selling, general and
administrative expenses |
|
6,698 |
|
|
|
3,509 |
|
Gain on Contingent
Consideration |
|
(3,050 |
) |
|
|
- |
|
Restructuring charges |
|
624 |
|
|
|
- |
|
Operating earnings |
|
4,352 |
|
|
|
341 |
|
Interest expense |
|
2,870 |
|
|
|
307 |
|
Net income before income
taxes |
|
1,482 |
|
|
|
34 |
|
Income tax expense
(recovery) |
|
|
|
Current |
|
279 |
|
|
|
110 |
|
Deferred |
|
(8 |
) |
|
|
(84 |
) |
|
|
271 |
|
|
|
26 |
|
Net
income and comprehensive income |
$ |
1,211 |
|
|
$ |
8 |
|
|
|
|
|
Basic income per share |
$ |
0.05 |
|
|
$ |
0.00 |
|
Diluted income per share |
$ |
0.05 |
|
|
$ |
0.00 |
|
|
|
|
|
Weighted average number of
shares outstanding |
|
|
|
Basic |
|
23,248,918 |
|
|
|
17,041,504 |
|
Diluted |
|
24,465,435 |
|
|
|
17,523,890 |
|
|
|
|
|
Consolidated Balance Sheets |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
(Expressed in thousands of U.S. dollars) |
March 31,2019 |
|
December 30,2018 |
Assets |
|
|
|
|
|
|
|
Current
assets: |
|
|
|
Cash |
$ |
1,596 |
|
|
$ |
1,601 |
|
Accounts receivable - net |
|
74,180 |
|
|
|
72,986 |
|
Unbilled contract assets |
|
24,208 |
|
|
|
20,405 |
|
Inventories - net |
|
48,660 |
|
|
|
53,203 |
|
Prepaid expenses and other assets |
|
6,630 |
|
|
|
5,548 |
|
Derivative assets |
|
- |
|
|
|
15 |
|
Income taxes receivable |
|
158 |
|
|
|
160 |
|
|
|
155,432 |
|
|
|
153,918 |
|
Property, plant and equipment - net |
|
27,213 |
|
|
|
28,160 |
|
Operating lease right of use assets - net |
|
4,904 |
|
|
|
- |
|
Goodwill |
|
18,165 |
|
|
|
18,165 |
|
Intangible assets - net |
|
18,091 |
|
|
|
19,935 |
|
Deferred financing costs - net |
|
634 |
|
|
|
668 |
|
Deferred income taxes - net |
|
388 |
|
|
|
380 |
|
Total
assets |
$ |
224,827 |
|
|
$ |
221,226 |
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
Revolving credit facility |
|
23,636 |
|
|
$ |
25,020 |
|
Accounts payable |
|
78,806 |
|
|
|
76,893 |
|
Accrued liabilities |
|
13,022 |
|
|
|
13,040 |
|
Warrant liability |
|
1,908 |
|
|
|
2,009 |
|
Contingent consideration |
|
- |
|
|
|
3,050 |
|
Income taxes payable |
|
39 |
|
|
|
12 |
|
Current portion of long-term debt |
|
1,368 |
|
|
|
1,368 |
|
Current portion of operating lease obligations |
|
2,070 |
|
|
|
- |
|
Current portion of finance lease obligations |
|
1,485 |
|
|
|
1,547 |
|
|
|
122,334 |
|
|
|
122,939 |
|
|
|
|
|
Long-term debt |
|
55,963 |
|
|
|
56,039 |
|
Operating lease
obligations |
|
3,338 |
|
|
|
- |
|
Finance
lease obligations |
|
9,592 |
|
|
|
9,947 |
|
Total liabilities |
|
191,227 |
|
|
|
188,925 |
|
|
|
|
|
Shareholders’
equity: |
|
|
|
Capital stock |
|
460 |
|
|
|
458 |
|
Additional paid-in capital |
|
278,734 |
|
|
|
278,648 |
|
Deficit |
|
(245,594 |
) |
|
|
(246,805 |
) |
|
|
33,600 |
|
|
|
32,301 |
|
Total
liabilities and shareholders' equity |
$ |
224,827 |
|
|
$ |
221,226 |
|
Consolidated
Statements of Cash Flows |
|
|
|
(Unaudited) |
|
|
|
|
Three months ended |
(Expressed in thousands of U.S. dollars) |
|
|
|
Cash
provided by (used in): |
March 31,2019 |
|
April 1,2018 |
Operations: |
|
|
|
Net income |
$ |
1,211 |
|
|
$ |
8 |
|
Items not involving cash: |
|
|
|
Depreciation on property, plant and equipment |
|
1,627 |
|
|
|
774 |
|
Amortization of intangible assets |
|
1,844 |
|
|
|
- |
|
Unrealized foreign exchange gain on unsettled forward |
|
|
|
exchange contracts |
|
- |
|
|
|
(319 |
) |
Deferred income taxes (recovery) |
|
(8 |
) |
|
|
(84 |
) |
Amortization of deferred financing fees |
|
271 |
|
|
|
9 |
|
Stock-based compensation |
|
88 |
|
|
|
126 |
|
Change in fair value of warrant liability |
|
(101 |
) |
|
|
- |
|
Change in fair value of contingent consideration |
|
(3,050 |
) |
|
|
- |
|
|
|
|
|
Change in non-cash operating working capital: |
|
|
|
Accounts receivable |
|
(1,194 |
) |
|
|
(1,793 |
) |
Unbilled contract assets |
|
(3,803 |
) |
|
|
(1,735 |
) |
Inventories |
|
4,543 |
|
|
|
(974 |
) |
Prepaid expense sand other assets |
|
(1,067 |
) |
|
|
(369 |
) |
Income taxes payable |
|
29 |
|
|
|
(48 |
) |
Accounts payable |
|
1,970 |
|
|
|
3,837 |
|
Accrued liabilities |
|
486 |
|
|
|
1,184 |
|
|
|
2,846 |
|
|
|
616 |
|
Financing: |
|
|
|
Repayments of revolving credit facility |
|
(1,384 |
) |
|
|
(2,149 |
) |
Repayments of long-term debt |
|
(313 |
) |
|
|
(500 |
) |
Principal repayments of finance lease obligations |
|
(417 |
) |
|
|
(44 |
) |
Debt issuance and deferred financing fees |
|
- |
|
|
|
(33 |
) |
|
|
(2,114 |
) |
|
|
(2,726 |
) |
Investing: |
|
|
|
Purchase of property, plant and equipment |
|
(737 |
) |
|
|
(104 |
) |
|
|
(737 |
) |
|
|
(104 |
) |
Decrease in cash |
|
(5 |
) |
|
|
(2,214 |
) |
Cash, beginning of period |
|
1,601 |
|
|
|
5,536 |
|
Cash,
end of the period |
$ |
1,596 |
|
|
$ |
3,322 |
|
|
|
|
|
|
Supplementary
Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
Note 1 |
|
|
|
Note 2 |
|
|
|
|
|
|
|
|
|
Proforma |
|
|
|
March 31,
2019 |
|
April 1, 2018 |
|
December 30, 2018 |
|
April 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,211 |
|
|
$ |
8 |
|
|
$ |
(1,223 |
) |
|
$ |
(1,055 |
) |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
|
|
1,627 |
|
|
|
774 |
|
|
|
1,365 |
|
|
|
1,620 |
|
|
Amortization of Intangible assets |
|
|
1,844 |
|
|
|
- |
|
|
|
1,065 |
|
|
|
- |
|
|
Interest |
|
|
2,870 |
|
|
|
307 |
|
|
|
1,922 |
|
|
|
2,052 |
|
|
Income tax expense |
|
|
271 |
|
|
|
26 |
|
|
|
272 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
7,823 |
|
|
$ |
1,115 |
|
|
$ |
3,401 |
|
|
$ |
2,643 |
|
|
|
|
|
|
|
|
|
|
|
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
88 |
|
|
|
126 |
|
|
|
129 |
|
|
|
126 |
|
|
Stock compensation expense - warrant revaluation |
|
(101 |
) |
|
|
- |
|
|
|
111 |
|
|
|
- |
|
|
Restructuring charges |
|
|
624 |
|
|
|
- |
|
|
|
18 |
|
|
|
102 |
|
|
Merger and acquisitions related expenses |
|
|
91 |
|
|
|
- |
|
|
|
1,676 |
|
|
|
- |
|
|
Contingent Consideration reversal |
|
|
(3,050 |
) |
|
|
- |
|
|
|
(15 |
) |
|
|
- |
|
|
Unrealized foreign exchange loss (gain) |
|
|
- |
|
|
|
(319) |
|
|
|
- |
|
|
|
(338 |
) |
|
on unsettled forward exchange contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
5,475 |
|
|
$ |
922 |
|
|
$ |
5,320 |
|
|
$ |
2,533 |
|
|
|
|
|
|
|
|
|
|
|
|
Note 1: Reflects
historical SMTC results as filed |
|
|
|
|
|
|
|
|
|
Note 2:
Reflects proforma SMTC and MC as if combined as at April 1,
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
Information: |
|
|
|
|
|
|
|
Reconciliation of
Adjusted Gross Profit |
|
|
|
|
|
|
|
|
Three months ended |
|
March
31, 2019 |
|
April
1, 2018 |
|
|
|
|
Gross Profit |
$ |
8,624 |
|
|
$ |
3,850 |
|
Add (deduct): |
|
|
|
Amortization of intangible assets |
|
1,844 |
|
|
|
- |
|
Unrealized foreign exchange loss (gain) |
|
|
|
on unsettled forward exchange contracts |
|
- |
|
|
|
(319 |
) |
|
|
|
|
Adjusted Gross Profit |
$ |
10,468 |
|
|
$ |
3,531 |
|
|
|
|
|
Adjusted Gross Profit Percentage |
|
10.2 |
% |
|
|
9.5 |
% |
|
Supplementary
Information: |
|
|
|
|
|
Reconciliation of
Adjusted EBITDA |
|
|
|
|
|
|
ForecastedTwelve monthsended |
|
|
December 29,2019 |
|
|
|
|
Net Income |
$ |
317 |
|
Add (deduct): |
|
|
Depreciation |
|
7,344 |
|
Amortization of Intangible |
|
7,376 |
|
Interest |
|
10,597 |
|
Income tax expense |
|
1,179 |
|
EBITDA |
$ |
26,813 |
|
|
|
|
Add (deduct): |
|
|
Stock compensation expense |
|
500 |
|
Restructuring charges |
|
624 |
|
Merger and acquisitions related expenses |
|
91 |
|
|
|
|
Adjusted EBITDA |
$ |
28,028 |
|
|
|
|
Investor Relations Contact
Peter SeltzbergManaging DirectorDarrow Associates,
Inc.516-419-9915pseltzberg@darrowir.com
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