SMTC Corporation Reports First Quarter 2019 Results

Date : 05/08/2019 @ 10:30PM
Source : GlobeNewswire Inc.
Stock : SMTC Corporation (SMTX)
Quote : 2.18  0.0 (0.00%) @ 11:59AM

SMTC Corporation Reports First Quarter 2019 Results

SMTC (NASDAQ:SMTX)
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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 Revenue2019 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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