SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing
services provider and winner of the Frost & Sullivan’s 2019
Best Practices Award for Customer Value Leadership in the
Electronics Manufacturing Services Industry, today announced it
plans to wind-down its Chinese manufacturing operations when its
current Dongguan, China facility lease expires in December 2019.
“Customer concerns about uncertainties relating to the prolonged
impact of tariffs and macro-economic factors have caused a number
of our customers to begin to re-evaluate demand for some of their
products and reconsider where they outsource their manufacturing.
Revenues attributable to production from SMTC’s manufacturing
operations in China, which accounted for 5.3% of SMTC’s revenue in
the first half of 2019, are projected to decline more than 30% for
full year 2019 as compared to full year 2018, with continued
contraction in 2020 which would result in negative operating
margins from our China site. As a result, after more than a decade
in the Chinese market, we will use the end of our lease term later
this year as an opportunity to exit manufacturing in China as we
continue to augment our strong North American manufacturing
footprint,” said SMTC Corporation President and CEO Ed Smith.
“Across our sites in North America, we are addressing our
customers’ needs for a faster time-to-market for new product
introductions by adding new capabilities and certifications in our
Billerica, Massachusetts location this quarter that provides our
customers 'Quick-turn' manufacturing. This expansion follows our
investment last quarter when we upgraded and expanded our capacity
at our Fresnillo facility in Zacatecas, Mexico enabling a 25%
increase in capacity, contributing to continued efficiency and
profitability gains. We believe our expanding North American
operations provide a strong foundation for continued growth,”
commented Smith.
Outlook
SMTC expects to record, related to the closure of its China
manufacturing operations, restructuring and other charges of $5.4
million to $5.8 million which includes up to $3.3 million of
non-cash accelerated asset write-downs, and other cash-based
expenses, including employee-related costs. The majority of these
charges are expected to be incurred in the remainder of the third
and fourth quarter of 2019 and the net cash required to wind down
the Chinese manufacturing operation is not expected to exceed $1.5
million.
“In addition to the China closure, we are seeing softness in
certain end-markets across semiconductor and data center
expansions. Accordingly, we are updating full year 2019 revenue to
range between $354 and $362 million, which excludes $16 million of
revenues in 2019 attributable to SMTC’s operations in China, and
Adjusted EBITDA to $25.0 and $26.0 million,” said Smith.
“With our integration of MC Assembly and bank refinancing
completed last quarter, our collective focus is on growing our
funnel of business, including recent awards of $15 million of new
business and new programs during the current quarter which we
anticipate will begin shipping Q1 of next year. We expect our 2020
revenue and Adjusted EBITDA, which will exclude any operations in
China, to range between $390 and $410 million and $29.0 to $31.0
million, respectively. Finally, we expect to generate up to $14
million of cash flow from operating activities for the full year of
2020 which we anticipate will result in a debt-leverage ratio of
2.5, using outstanding revolving credit facility, term loans
outstanding and financial capital lease obligations compared
against adjusted EBITDA on a trailing twelve months basis, exiting
2020,” added Smith.
SMTC’s current expectations for 2019 and
2020: |
|
|
|
|
|
Fiscal Period |
Revenue* |
Adjusted EBITDA Range** |
|
2019 |
$354 - $362 million |
$25.0 - $26.0 million |
|
2020 |
$390 - $410 million |
$29.0 - $31.0 million |
|
|
|
|
*Excludes $16 million of 2019 Revenues attributable to SMTC's
operations in China.
**Adjusted EBITDA is calculated based on net income (loss)
adjusted to exclude stock-based compensation and warrant
revaluation charges, 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 expense, gains or losses on contingent
consideration and write down charges. 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.
All monetary references herein are in U.S. Dollars
Conference Call
SMTC will host a conference call to discuss today’s press
release. Interested parties can listen to the company's conference
call which will commence at 8:30 a.m. Eastern Time on Friday,
September 20, 2019 by accessing 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 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.
Supplementary Information: |
|
|
|
Reconciliation of Adjusted EBITDA |
|
|
|
|
|
2019 |
2020 |
|
|
ForecastedTwelve months ended |
ForecastedTwelve months ended |
|
|
December 29, 2019 |
January 3, 2021 |
|
|
|
|
Net income (loss) |
|
$ |
(6,000 |
) |
$ |
9,000 |
Add
(deduct): |
|
|
|
Depreciation |
|
|
6,700 |
|
|
7,350 |
Amortization of Intangible assets |
|
|
7,200 |
|
|
3,050 |
Interest |
|
|
10,100 |
|
|
8,600 |
Income tax expense |
|
|
1,200 |
|
|
1,500 |
|
|
|
|
EBITDA |
|
$ |
19,200 |
|
$ |
29,500 |
|
|
|
|
Add
(deduct): |
|
|
|
Stock compensation expense |
|
|
700 |
|
|
500 |
Stock compensation expense - warrant revaluation |
|
|
(50 |
) |
|
- |
Contingent consideration reversal |
|
|
(3,050 |
) |
|
- |
Restructuring charges |
|
|
5,200 |
|
|
- |
Write down charges |
|
|
3,300 |
|
|
- |
Merger and acquisitions related expenses |
|
|
200 |
|
|
- |
|
|
|
|
Adjusted EBITDA |
|
$ |
25,500 |
|
$ |
30,000 |
|
|
|
|
Note: The above forecasted results for twelve months ended December
29, 2019 includes revenues of $16 million from the Dongguan China
manufacturing operations in addition to estimated restructuring
charges of $2.3 million and write down charges of up to $3.3
million. |
|
|
|
|
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 closure
of our Chinese manufacturing operations, including the timing and
extent of associated charges, our continued efficiency,
profitability gains and expected growth from expanding North
American operations, the timing of shipments for recent new
business and revenue and Adjusted EBITDA outlook for the full year
2019 and 2020 anticipated revenue impact of our expected China
operations closure, and expected operating cash flow from operating
activities and debt-leverage ratio for 2020. 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.
Investor Relations Contact
Peter Seltzberg Managing Director Darrow Associates, Inc.
516-419-9915 pseltzberg@darrowir.com
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