MERX Merix (MM)

Merix Corporation (NASDAQ:MERX): -- Merix will conduct a conference call and live webcast on June 29, 2005 at 2:00 p.m. PT. To access the webcast, log on to www.merix.com. An on-line replay will be available beginning 5:00 p.m. PT June 29. A phone replay will be available until midnight on July 6, 2005 by calling 719-457-0820, access code 4080579. Merix Corporation (NASDAQ:MERX) today reported final consolidated financial results for the quarter and year ended May 28, 2005. Sales for the quarter increased 15.9% to $51.6 million compared to $44.5 million for the fourth quarter of fiscal 2004. On a GAAP basis, the Company had a net loss this quarter of $1.7 million or $0.09 per share compared to a loss of $1.6 million or $0.08 per share in the same period last year. Sales for fiscal year 2005 increased approximately 19.6% to $187.0 million, compared to $156.4 million for fiscal 2004. Nearly half of the sales increase is attributable to the acquisition of Data Circuit Systems in December 2004. On a GAAP basis, the Company had a net loss of $2.6 million or $0.14 per share in fiscal 2005, compared to net income of $28 thousand or $0.00 per share in fiscal 2004. The non-GAAP loss for the fourth quarter of fiscal 2005 was $124 thousand or $0.01 per share compared to a non-GAAP loss of $757 thousand or $0.04 per share in the same period last year. The non-GAAP loss in the current quarter excludes expense related to: the amortization of identifiable intangible assets; a severance charge associated with the departure of a senior executive; and legal fees for defense of securities litigation. The non-GAAP results also exclude adjustments to the valuation allowance against deferred taxes. Management believes these exclusions are not representative of underlying trends in the Company's operating performance and that excluding them provides investors with additional information to compare the Company's results over multiple periods and to its competitors. See Related Financial Highlights in this earnings release for a reconciliation of GAAP to non-GAAP results. Gross margin increased to 12.2% in the fourth quarter of fiscal 2005 from 9.0% in the fourth quarter of fiscal 2004. Contributing to the improved gross margin in fiscal 2005 were higher margin sales resulting from a higher percentage of quick-turn business. Quick-turn business in the fourth quarter increased over the prior year quarter as a result of the acquisition of Merix San Jose (formerly called Data Circuit Systems). Partially offsetting this improvement was the impact of lower pricing in the fourth quarter compared to the prior year period. Gross margin decreased in the fourth quarter of fiscal 2005 compared to the third quarter gross margin of 14.8% due to overhead absorption expensed as a result of successful efforts to reduce inventory, a severance charge associated with the departure of a senior executive, expense for a workers' compensation retrospective plan adjustment related to prior periods, and additional depreciation expense as a result of final purchase accounting adjustments related to the acquisition of Merix San Jose. Selling, general and administrative expenses in the fourth quarters of fiscal 2005 and 2004 included $550 thousand and $450 thousand, respectively, of expense for legal fees related to defense of securities lawsuits. Cash flow from operations in fiscal 2005 was $4.8 million in the fourth quarter and $9.8 million for the full year. EBITDA in fiscal 2005 was $2.7 million in the fourth quarter and $12.4 million for the full year. Mark Hollinger, Chairman and Chief Executive Officer of Merix, commented, "Our financial results for fiscal 2005 are not acceptable and we are taking actions that will further reduce our cost structure and improve our operating efficiency. As part of our cost reduction actions, we are implementing a restructuring that will entail a reduction in headcount across our manufacturing and support organizations, predominantly in Oregon, of between 110 and 160 positions. The total charge related to the reduction in headcount and other cost reduction actions is estimated at between $1.9 and $2.5 million. The restructuring is expected to be completed by the end of our second quarter ending November 26, 2005. Approximately $1.2 to $1.4 million of the charge is expected to be included in first quarter results and the balance in the second quarter. Quarterly cost savings from these actions are estimated at between $2.0 and $2.2 million, beginning in the second quarter of fiscal 2006, and increasing to total quarterly savings of approximately $3.0 million in the third quarter." "As we look at the first quarter of fiscal 2006, we have seen an increase in order activity; however, the pricing environment remains challenging. We currently expect sales in the first quarter, excluding Eastern Pacific Circuits, to be between $51.0 and $52.0 million with a non-GAAP loss of between $0.05 and $0.06 per share. The non-GAAP loss excludes initial integration costs of approximately $380 thousand related to the pending acquisition of Eastern Pacific Circuits. With Merix San Jose successfully integrated and the pending acquisition of Eastern Pacific Circuits, we look forward to the benefits that velocity, technology, and lower cost Asian operations can provide for our customers and for our goal of sustainable profitable operations," concluded Hollinger. Merix is a leading manufacturer of technologically advanced, multilayer, rigid printed circuit boards for use in sophisticated electronic equipment. Merix provides high-performance materials, quick-turn prototype, pre-production and volume board production to its customers. Principal markets served by Merix include data communications and wireless telecommunications, high-end computing, and test and measurement end markets in the electronics industry. Additional corporate information is available on the internet at www.merix.com. Forward-looking statements in this release relating to the Company's prospects, including statements related to estimates of financial results for the first quarter of fiscal 2006 and estimates of expense and savings related to the restructuring, are made pursuant to the safe harbor provisions of the federal securities laws. Information contained in forward-looking statements is based on current expectations and is subject to change, and actual results may differ materially from the forward-looking statements. Many factors, including the following, could cause actual results to differ materially from the forward-looking statements: our ability to successfully finance, close and integrate the Eastern Pacific Circuits acquisition; our ability to successfully implement our cost reduction actions; fluctuations in the demand for our products and services, including quick-turn and premium services; our ability to achieve and maintain operational improvements; our ability to achieve expected operating and financial results; changes in customer order levels, product mix and inventory build-up; lower than expected or delayed sales; pricing and other competitive pressures in the industry from domestic and global competitors; our ability to fully utilize our assets and control costs; our ability to control or pass through increases in the cost of raw materials and supplies; our ability to retain or attract employees with sufficient know-how to conduct our manufacturing processes and maintain or increase our production output and quality; and other risks listed from time to time in the Company's filings with the Securities and Exchange Commission or otherwise disclosed by the Company, including those set forth in the Company's Annual Report on Form 10-K for the year ended May 29, 2004. Merix Corporation does not undertake to update any such factors or to publicly announce developments or events relating to the matters described herein. -0- *T MERIX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share data, unaudited) Three Months Ended Twelve Months Ended ------------------- ------------------- May 28, May 29, May 28, May 29, 2005 2004 2005 2004 -------- -------- -------- -------- Net sales $ 51,612 $ 44,520 $186,994 $156,400 Cost of sales 45,320 40,521 163,205 136,425 -------- -------- -------- -------- Gross profit 6,292 3,999 23,789 19,975 Engineering 1,781 1,684 6,774 6,047 Selling, general and administrative 5,537 3,789 18,278 12,773 Amortization of identifiable intangibles 739 - 1,374 - -------- -------- -------- -------- Total operating expense 8,057 5,473 26,426 18,820 Operating income (loss) (1,765) (1,474) (2,637) 1,155 Interest and other income (expense), net 62 (141) 35 (1,127) -------- -------- -------- -------- Income (loss) before taxes (1,703) (1,615) (2,602) 28 Income tax expense 7 - 8 - -------- -------- -------- -------- Net income (loss) $ (1,710) $ (1,615) $ (2,610) $ 28 ======== ======== ======== ======== Net income (loss) per diluted share $ (0.09) $ (0.08) $ (0.14) $ 0.00 ======== ======== ======== ======== Shares used in per share calculations 19,318 19,010 19,224 16,830 ======== ======== ======== ======== MERIX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) May 28, May 29, 2005 2004 (unaudited) ----------- ------------ Assets Cash and short-term investments $ 77,685 $ 124,530 Accounts receivable, net 37,338 30,051 Inventories 11,227 9,622 Other current assets 2,451 1,312 ---------- ----------- Total current assets 128,701 165,515 Property, plant and equipment, net 88,132 84,021 Goodwill 25,551 - Identifiable intangibles, net 9,754 - Other assets 1,803 645 ---------- ----------- Total assets $ 253,941 $ 250,181 ========== =========== Liabilities and Shareholders' Equity Accounts payable $ 16,957 $ 19,255 Other accrued liabilities 4,767 3,997 Accrued compensation 4,721 1,061 Accrued warranty 1,519 2,085 Income taxes payable 6 - Current portion of long-term debt 1,000 - ---------- ----------- Total current liabilities 28,970 26,398 Long-term debt 26,000 25,000 Other long-term liability 960 368 ---------- ----------- Total liabilities 55,930 51,766 Shareholders' equity 198,011 198,415 ---------- ----------- Total liabilities and shareholders' equity $ 253,941 $ 250,181 ========== =========== MERIX CORPORATION RELATED FINANCIAL HIGHLIGHTS (dollars and shares in thousands, except EPS) ---------------------- ------ ------- ------ -------- ------ ------- Q4 04 Q3 05 Q4 05 ---------------------- --------------- --------------- ------------- SUMMARY OPERATING RESULTS ---------------------- ------ ------- ------ -------- ------ ------- Net Sales 100.0% $44,520 100.0% $50,008 100.0% $51,612 Cost of Sales 91.0% 40,521 85.2% 42,589 87.8% 45,320 Gross Margin 9.0% 3,999 14.8% 7,419 12.2% 6,292 Engineering Expense 3.8% 1,684 3.3% 1,656 3.5% 1,781 Selling, General & Administrative Expense 8.5% 3,789 9.4% 4,714 10.7% 5,537 Amortization of Identifiable Intangibles 0.0% - 1.3% 635 1.4% 739 Total Operating Expense 12.3% 5,473 14.0% 7,005 15.6% 8,057 Operating Income (loss) -3.3% (1,474) 0.8% 414 -3.4% (1,765) Interest and Other Income (Expense), net -0.3% (141) 0.0% (21) 0.1% 62 Pretax Income (loss) -3.6% (1,615) 0.8% 393 -3.3% (1,703) Net Income (loss) -3.6% (1,615) 0.8% 393 -3.3% (1,710) Effective Tax Rate 0.0% 0.0% 0.0% Shares for Diluted EPS 19,010 19,476 19,318 Diluted Income Per Share $ (0.08) $ 0.02 $ (0.09) ---------------------- ------ ------- ------ -------- ------ ------- SALES BY END MARKETS (% of Sales) ---------------------- ------ ------- ------ -------- ------ ------- Communications 82% $36,326 77% $38,321 72% $36,874 High-End Computing & Storage 5% 2,530 9% 4,257 9% 4,503 Test & Measurement 6% 2,613 3% 1,730 4% 2,280 Other 7% 3,051 11% 5,700 15% 7,955 ---------------------- ------ ------- ------ -------- ------ ------- OTHER FINANCIAL DATA ---------------------- ------ ------- ------ -------- ------ ------- Cash provided by Operations $ 73 $ 1,186 $ 4,755 Debt to Total Capital 0.11 0.12 0.12 EBITDA $ 1,575 $ 4,540 $ 2,666 Capital Expenditures $ 6,300 $ 1,511 $ 1,793 Depreciation and Amortization (% of sales) 7.0% $ 3,123 8.4% $ 4,191 8.7% $ 4,505 NON-GAAP EARNINGS RECONCILIATIONS ---------------------------------------------------------------------- Q4 04 Q3 05 Q4 05 ---------------- --------------- ---------------- Net Net EPS Net Loss EPS Income EPS Income ------- -------- ------- ------- ------- -------- GAAP Net Income $(0.08) $(1,615) $ 0.02 $ 393 $(0.09) $(1,710) Adjustments: -Amortization of identifiable intangibles - - 0.03 635 0.04 739 -Legal fees 0.02 450 - - 0.03 550 -Executive severance - - - - 0.01 230 -EPC integration costs - - - - - - -Inventory purchase accounting adjustment - - 0.02 320 - - -Restructuring - - - - - - -Adjustment to valuation allowance on deferred tax asset 0.02 408 (0.02) (472) 0.00 67 ------ ------- ------ ------ ------ ------- Non-GAAP Net Income $(0.04) $ (757) $ 0.04 $ 876 $(0.01) $ (124) Q404 non-GAAP modified to include Legal fees for presentation consistent with the current period ------- -------- ------ ------- ------- -------- GAAP Net Income $(1,615) $ 393 $(1,710) Add back items: Interest Expense 407 428 431 Interest Income (340) (472) (567) Income Taxes - - 7 Amortization 78 725 841 Depreciation 3,045 3,466 3,664 ------- ------- ------ ------ ------- ------- EBITDA $ 1,575 $4,540 $ 2,666 Q1 06 ---------------- EPS Guidance ---------------- GAAP Net Income $(0.19) - (0.22) Adjustments: -Amortization of identifiable intangibles 0.04 -Legal fees -Executive severance -EPC integration costs 0.02 -Inventory purchase accounting adjustment -Restructuring 0.06 - 0.07 -Adjustment to valuation allowance on deferred tax asset 0.02 - 0.03 ---------------- Non-GAAP Net Income $(0.05) - (0.06) Q404 non-GAAP modified to include Legal fees for presentation consistent with the current period MERIX CORPORATION RELATED FINANCIAL HIGHLIGHTS (dollars and shares in thousands, except EPS) ------------------------------------ ------ --------- ------ --------- FY2004 FY2005 ------------------------------------ ---------------- ---------------- SUMMARY OPERATING RESULTS ------------------------------------ ------ --------- ------ --------- Net Sales 100.0% $156,400 100.0% $186,994 Cost of Sales 87.2% 136,425 87.3% 163,205 Gross Margin 12.8% 19,975 12.7% 23,789 Engineering Expense 3.9% 6,047 3.6% 6,774 Selling, General & Administrative Expense 8.2% 12,773 9.8% 18,278 Amortization of Identifiable Intangibles 0.0% - 0.7% 1,374 Total Operating Expense 12.0% 18,820 14.1% 26,426 Operating Income (Expense) 0.7% 1,155 -1.4% (2,637) Interest and Other Expense, net -0.7% (1,127) 0.0% 35 Pretax Income (Loss) 0.0% 28 -1.4% (2,602) Net Income (Loss) 0.0% 28 -1.4% (2,610) Effective Tax Rate 0.0% 0.0% Shares for EPS 16,830 19,224 Income (Loss) Per Share $ 0.00 $ (0.14) ------------------------------------ ------ --------- ------ --------- SALES BY END MARKETS (% of Sales) ------------------------------------ ------ --------- ------ --------- Communications 82% $128,492 78% $145,053 High-end Computing 7% 11,314 8% 14,803 Test & Measurement 6% 8,721 4% 8,302 Other 5% 7,873 10% 18,836 ------------------------------------ ------ --------- ------ --------- OTHER FINANCIAL DATA ------------------------------------ ------ --------- ------ --------- Cash provided by Operations $ 1,925 $ 9,781 EBITDA $ 11,534 $ 12,372 Capital Expenditures $ 13,684 $ 15,813 Depreciation and Amortization (% of sales) 6.8% $ 10,598 8.2% $ 15,306 ------------------------------------ ------ -------- ------ -------- NON-GAAP EARNINGS RECONCILIATION ------------------------------------ ------ --------- ------ --------- GAAP Net Income (Loss) $ 28 $ (2,610) Add back items: Interest Expense 1,636 1,681 Interest Income (728) (2,013) Income Taxes - 8 Depreciation & Amortization Expense 10,598 15,306 ------ -------- ------ -------- EBITDA $ 11,534 $ 12,372 ------------------------------------ ------ -------- ------ -------- *T