SMTX
$3.38
Smtc
($.11)
(3.15%)
Earnings Details
2nd Quarter June 2020
Wednesday, August 5, 2020 4:30:00 PM
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Summary

SMTC Sees Revenue Below Estimates

Smtc (SMTX) reported 2nd Quarter June 2020 earnings of $0.08 per share on revenue of $90.4 million. The consensus estimate was a loss of $0.03 per share on revenue of $98.0 million. Revenue fell 0.6% compared to the same quarter a year ago.

The company said it expects 2020 revenue of $375.54 million to $390.54 million. The current consensus estimate is revenue of $393.08 million for the year ending December 31, 2020.

Results
Reported Earnings
$0.08
Earnings Whisper
-
Consensus Estimate
($0.03)
Reported Revenue
$90.4 Mil
Revenue Estimate
$98.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

SMTC Corporation Announces Second Quarter Results

TORONTO, Aug. 05, 2020 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider and winners of Frost & Sullivan’s 2019 Best Practices Award for Customer Value Leadership in the Electronics Manufacturing Services Industry, today announced its second quarter 2020 results.

Business Highlights

  • Second quarter 2020 revenue of $90.4 million
  • EPS was $0.03 and Adjusted EPS was $0.08
  • Net Income was $1.0 million, EBITDA was $5.8 million and Adjusted EBITDA was $6.4 million
  • Continued to gain market share with over $130 million of new orders booked during the past three quarters, including $26 million in the second quarter, from new and existing customers
  • Installed equipment shipped from SMTC’s former Chinese manufacturing facility to provide increased capacity in North America facilities
  • All facilities are open and remain in operation and in compliance with applicable COVID-19 health and safety measures
  • Subject to debt covenants, the Company had access to additional borrowing capacity of $30.9 million under SMTC’s asset-based lending credit facility with debt-to-adjusted EBITDA ratio of 2.66 (excluding leases) as of June 28, 2020
  • Amended credit facilities to provide increased covenant flexibility to respond to COVID-19 related business conditions
  • Revenue and Adjusted EBITDA for the second half of 2020 are expected to range between $190 million to $205 million and $13.7 million and $15.0 million, respectively
$s millions (except EPS)Q2 2020 Q1 2020ChangeQ2 2019Change
Revenue$90.4$95.1(5.0%)$90.9(0.6%)
GAAP     
Gross Profit$10.7$9.610.9%$9.018.8%
Gross Profit Percentage11.8%10.1% 9.9% 
Net Income (Loss)$1.0$0.823.2%($2.5)(138.7%)
EPS$0.03$0.030.0%($0.10)(130.9%)
Non-GAAP     
Adjusted Gross Profit$11.7$11.70.7%$10.88.3%
Adjusted Gross Profit Percentage13.0%12.3% 11.9% 
Adjusted Net Income$2.4$2.29.6%$1.1115.9%
Adjusted EPS$0.08$0.083.6%$0.0572.5%
Adjusted EBITDA$6.4$6.23.2%$6.15.5%
Adjusted EBITDA Percentage7.1%6.5% 6.7% 
Net Debt$84.6$83.61.2%95.9 

Note: Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, Adjusted Earnings Per Common Share (Adjusted EPS), EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, and Net Debt (each as 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.

Management Commentary

“Our sales organization continues to gain market share and expand our sales funnel. Over the last three quarters, we secured over $130 million of new orders, including $26 million in the second quarter, from new and existing customers. During the second quarter, we also launched eight new programs at our New Product Introduction facilities that will enter production in the second half of 2020,” said Ed Smith, SMTC’s President and Chief Executive Officer.

“By maintaining a strong and diverse customer base and carefully managing our expenses and business operations, we were able to generate improved bottom line results. Barring any significant new COVID-19 related impacts, we believe we are positioned for an improving financial performance in the second half of the year,” added Smith.

Revenue by Industry Sector

Industry SectorThree months ended June 28, 2020Three months ended June 30, 2019Change
Dollars in millions$%$%$%
Industrial IoT, Power and Clean Technology38.342.436.940.61.43.8
Test and Measurement13.915.412.113.31.814.9
Medical and Safety10.211.311.212.3(1.0)(8.9)
Avionics, Aerospace and Defense9.210.24.85.34.491.7
Semiconductors7.17.95.86.41.322.4
Retail and Payment Systems6.77.412.113.3(5.4)(44.6)
Telecom, Networking and Communications5.05.58.08.8(3.0)(37.5)
Total90.4100.090.9100.0(0.5)(0.6)

“While our customer demand during the first half of the second quarter of 2020 tracked to our internal plans, we experienced some demand reductions from retail payment systems and commercial avionics programs, among others, and order rescheduling from other customers in the latter part of the quarter. We believe this resulted in part from the COVID-19 pandemic and our customers modifying their requirements in response to the shifting demand of their respective end customers. Our supply chain did an outstanding job working around the logistics issues resulting from the COVID-19 pandemic to ensure we could meet our customers’ changing requirements,” noted Smith.

“To ensure the health and safety of our employees and their families as we addressed our customers’ delivery requirements, we incurred approximately $1.2 million in COVID-19 related expenses in the second quarter. These expenses were for the retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies and costs related to facilitating social distancing,” commented Smith.

For the three months ended June 28, 2020, cash used by operations was $ 0.3 million and capital expenditures were $0.7 million. During the second quarter the Company amended its credit facilities to provide increased covenant flexibility as it navigates through the COVID-19 pandemic.

As of June 28, 2020, SMTC had $30.9 million available for borrowing under its asset-based lending facility and a debt-to-adjusted EBITDA ratio of 2.66 (excluding leases).

Subsequent to June 28, 2020, the Company implemented certain cost-cutting measures, including headcount reductions primarily at its Zacatecas, Mexico facility, a freeze on all non-essential new hiring, curtailed new programs and reduced capital expenditures.

Second Half 2020 Outlook

“Although the COVID-19 pandemic continues to present a level of uncertainty to our business, we remain encouraged by the gains we have made adding new customers and the loyalty demonstrated by our existing customer base. Based on our current demand and supply chain visibility, and assuming our facilities continue to operate at currently planned levels, we expect revenue to range between $190 million to $205 million and adjusted EBITDA to range between $13.7 million and $15.0 million for the second half of 2020,” said Smith.

Financial Results Conference Call

SMTC will host a conference call which will start at 8:30 am Eastern Time on Thursday, August 6, 2020 to discuss its second quarter financial results. 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), 1-866-605-3852 (for Canadian participants) or 1-412-317-6789 (for participants outside of the U.S. and Canada) ten minutes prior to the start of the call and requesting to join the SMTC Corporation’s Second Quarter 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, Adjusted Earnings Per Common Share (Adjusted EPS), EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, and Net Debt are non-GAAP measures and are referred to herein as “Non-GAAP Financial Measures.” Adjusted Gross Profit is computed as gross profit excluding amortization of intangible assets, unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts and COVID-19 related expenses. COVID-19 related expenses include expenses associated with the retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies and costs associated with facilitating social distancing. Adjusted Gross Profit Percentage is computed as Adjusted Gross Profit divided by revenue. Adjusted Net Income is computed as net income (loss) before amortization of intangible assets, restructuring charges (recovery), stock-based compensation, fair value adjustment of warrant liability, merger and acquisition related expenses, fair value adjustment to contingent consideration, COVID-19 related expenses and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts. Adjusted EPS is computed as Adjusted Net Income divided by Diluted Weighted Average Shares Outstanding. EBITDA is computed as net income (loss) before interest, taxes, depreciation, and amortization. Adjusted EBITDA is computed as EBITDA as further adjusted to exclude restructuring charges, stock-based compensation, fair value adjustment of warrant liability, fair value adjustment to contingent consideration, merger and acquisition related expenses, COVID-19 related expenses and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts. Adjusted EBITDA Percentage is computed as Adjusted EBITDA divided by revenue. Net Debt is computed as total debt minus cash. 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 and Net Debt to total debt are each included in this press release below. Management believes that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information to investors about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics SMTC uses in its financial and operational decision making. The Company’s management believes that adjusting for the additional temporary costs attributable to the COVID-19 pandemic allows for a better comparison of the Company’s performance to prior periods, which is consistent with the Company’s recent amendments to the financial covenants in its financing agreements. These Non-GAAP Financial Measures are used by management to manage and monitor SMTC’s performance, and also frequently used by analysts, investors and other interested parties to evaluate companies in SMTC’s industry. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and should not be construed as an inference that SMTC’s future results will be unaffected by any items adjusted for in these Non-GAAP Financial Measures. In evaluating these non-GAAP measures, you should be aware that in the future SMTC may incur expenses that are the same as or similar to some of those adjusted in the presentation below. The Non-GAAP Financial Measures that SMTC uses are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

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 stability of customer demand, supply chain visibility, SMTC’s expected financial results in the second half of 2020, including revenue, net income (loss), adjusted EBITDA, as well as the anticipated revenue from specific new programs, SMTC’s expected investments in program management teams, production certifications and new customer-program start-up costs and COVID-19 related expenses in the second half of 2020, the anticipated impact of the COVID-19 pandemic, including SMTC’s health and safety measures at its facilities, its ability to meet customers’ production requirements, its ability to continue operations in accordance with applicable regulations, and access to additional funding under its credit facilities. For these statements, SMTC claims 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 effect of the expanded outbreak of the COVID-19 pandemic on the economy generally and on SMTC, its operations, fluctuations in demand for customers’ products and changes in customers’ product sources, disruptions to the supply chain, availability of labor resources, delivery logistics, component shortages, availability of credit or lending facilities, challenges of managing quickly expanding operations, competition in the electronics manufacturing services industry, changes in regulations and guidance from federal, state and local governments and public health officials, 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 the United States 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 Avionics, Aerospace and Defense, Industrial IoT, Power and Clean Technology, Medical and Safety, Retail and Payment Systems, Semiconductors, 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, and 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 (loss)        
(Unaudited)        
  Three months ended  Six months ended 
         
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts) June 28,
2020
 June 30,
2019
 June 28,
2020
 June 30,
2019
         
Revenue $90,406  $90,936  $185,544  $193,585 
Cost of sales  79,720   81,939   165,219   175,964 
Gross profit  10,686   8,997   20,325   17,621 
Selling, general and administrative expenses  7,107   6,560   14,326   13,359 
Gain on Contingent Consideration  -   -   -   (3,050)
Restructuring charges (recovery)  (125)  1,546   (346)  2,170 
Operating earnings  3,704   891   6,345   5,142 
Fair value loss (gain) on warrant liability  399   40   (118)  (61)
Interest expense  1,987   2,800   4,080   5,670 
Net income (loss) before income taxes  1,318   (1,949)  2,383   (467)
Income tax expense        
Current  311   416   586   695 
Deferred  52   103   67   95 
   363   519   653   790 
Net income (loss) and comprehensive income (loss) $955  $(2,468) $1,730  $(1,257)
         
Basic income (loss) per share $0.03  $(0.10) $0.06  $(0.05)
Diluted income (loss) per share $0.03  $(0.10) $0.06  $(0.05)
         
Weighted average number of shares outstanding        
Basic  28,213,729   23,557,944   28,204,514   23,403,431 
Diluted  29,493,472   23,557,944   29,484,257   23,403,431 


Consolidated Balance Sheets    
(Unaudited)    
     
(Expressed in thousands of U.S. dollars) June 28,
2020
 December 29,
2019
Assets    
     
Current assets:    
Cash $311  $1,368 
Accounts receivable - net  65,071   69,919 
Unbilled contract assets  38,647   26,271 
Inventories - net  50,125   47,826 
Prepaid expenses and other assets  6,813   7,044 
Derivative assets  459   - 
Income taxes receivable  160   - 
   161,586   152,428 
Property, plant and equipment - net  23,495   25,310 
Operating lease right of use assets - net  6,419   3,330 
Goodwill  18,165   18,165 
Intangible assets - net  10,383   12,747 
Deferred income taxes - net  473   540 
Deferred financing costs - net  749   859 
Total assets $221,270  $213,379 
     
Liabilities and Shareholders' Equity    
     
Current liabilities:    
Revolving credit facility  33,943   34,701 
Accounts payable  70,591   74,126 
Accrued liabilities  20,039   11,164 
Warrant liability  1,612   1,730 
Restructuring liability  675   1,597 
Income taxes payable  267   157 
Current portion of long-term debt  1,875   1,250 
Current portion of operating lease obligations  1,494   1,128 
Current portion of finance lease obligations  1,110   1,226 
   131,606   127,079 
     
Long-term debt  32,903   33,750 
Operating lease obligations  5,339   2,615 
Finance lease obligations  8,278   8,838 
Total liabilities  178,126   172,282 
     
Shareholders’ equity:    
Capital stock  508   508 
Additional paid-in capital  293,706   293,389 
Deficit  (251,070)  (252,800)
   43,144   41,097 
Total liabilities and shareholders' equity $221,270  $213,379 


Consolidated Statements of Cash Flows       
(Unaudited)       
 Three months ended  Six months ended 
(Expressed in thousands of U.S. dollars)       
Cash provided by (used in):June 28,
2020
 June 30,
2019
 June 28,
2020
 June 30,
2019
Operations:       
Net income (loss)$955  $(2,468) $1,730  $(1,257)
Items not involving cash:       
Depreciation on property, plant and equipment 1,619   1,626   3,222   3,253 
Amortization of acquired Intangible assets 846   1,844   2,364   3,688 
Unrealized foreign exchange gain on unsettled forward       
    exchange contracts (971)  -   (459)  - 
Deferred income taxes 52   103   67   95 
Amortization of deferred financing fees 294   274   588   545 
Stock-based compensation 155   97   317   185 
Change in fair value of warrant liability 399   40   (118)  (61)
Change in fair value of contingent consideration   -   -   (3,050)
Change in non-cash operating working capital:       
Accounts receivable 5,542   9,229   4,848   8,035 
Unbilled contract assets (9,868)  (3,411)  (12,376)  (7,214)
Inventories (6,804)  2,511   (2,299)  7,054 
Prepaid expensesand other assets (420)  (61)  231   (1,128)
Income taxes payable (9)  174   (50)  203 
Accounts payable 2,819   (12,100)  (3,377)  (10,130)
Accrued liabilities 5,337   (698)  8,875   (9)
Restructuring liability (212)  (254)  (919)  (857)
Net change in operating lease right of use asset and liability (10   65   1   465 
  (276)  (3,029)  2,645   (183)
Financing:       
Repayments of revolving credit facility 603   (9,888)  (758)  (11,272)
Repayments of long-term debt (313)  (312)  (625)  (625)
Debt issuance and deferred financing fees (75)  (50)  (75)  (50)
Principal repayments of finance lease obligations (314)  (392)  (676)  (809)
Proceeds from issuance of common stock (Rights offer) -   14,044   -   14,044 
  (99)  3,402   (2,134)  1,288 
Investing:       
Purchase of property, plant and equipment (668)  (1,335)  (1,568)  (2,072)
  (668)  (1,335)  (1,568)  (2,072)
Decrease in cash (1,043)  (962)  (1,057)  (967)
Cash, beginning of period 1,354   1,596   1,368   1,601 
Cash, end of the period$311  $634  $311  $634 

 

Supplementary Information:        
Reconciliation of Adjusted Gross Profit and Adjusted Gross Profit Percentage  
(Unaudited)        
(Expressed in thousands of U.S. dollars) Three months ended Six months ended
  June 28,
2020
 June 30,
2019
 June 28,
2020
 June 30,
2019
         
Gross Profit $10,686  $8,997  $20,325  $17,621 
Add (deduct):        
Amortization of intangible assets  846   1,844   2,364   3,688 
Unrealized foreign exchange gain        
on unsettled forward exchange contracts  (971)  -   (459)  - 
COVID-19 related expenses  1,185   -   1,185   - 
Adjusted Gross Profit $11,746  $10,841  $23,415  $21,309 
Adjusted Gross Profit Percentage  13.0%  11.9%  12.6%  11.0%


Supplementary Information:        
Reconciliation of Adjusted Net Income and Adjusted EPS    
(Unaudited)        
(Expressed in thousands of U.S. dollars) Three months ended Six months ended
  June 28,
2020
 June 30,
2019
 June 28,
2020
 June 30,
2019
         
Net income (loss) $955  $(2,468) $1,730  $(1,257)
Add (deduct):        
Amortization of intangible assets  846   1,844   2,364   3,688 
Restructuring charges (recovery)  (125)  1,546  $-   2,170 
Stock compensation expense  155   97   317   185 
Fair value adjustment of warrant liability  399   40   (118)  (61)
Fair value adjustment of contingent consisderation -   -   -   (3,050)
Merger and acquisitions related expenses  -   73   -   164 
COVID-19 related expenses  1,185   -   1,185   - 
Unrealized foreign exchangegain        
on unsettled forward exchange contracts  (971)  -   (459)  - 
         
         
Adjusted Net income $2,444  $1,132  $5,019  $1,839 
Adjusted EPS $0.08  $0.05  $0.17  $0.08 
Weighted average number of shares outstanding        
Basic  28,213,729   23,557,944   28,204,514   23,403,431 
Diluted  29,493,472   23,557,944   29,484,257   23,403,431 


Supplementary Information:        
Reconciliation of EBITDA, Adjusted ABITDA and Adjusted ABITDA Percentage    
(Unaudited)        
(Expressed in thousands of U.S. dollars) Three months ended Six months ended
         
  June 28,
2020
 June 30,
2019
 June 28,
2020
 June 30,
2019
         
Net income (loss) $955  $(2,468) $1,730  $(1,257)
Add (deduct):        
Depreciation of property, plant and equipment  1,619   1,626   3,222   3,253 
Amortization of Intangible assets  846   1,844   2,364   3,688 
Interest  1,987   2,800   4,080   5,670 
Income tax expense  363   519   653   790 
         
EBITDA $5,770  $4,321  $12,049  $12,144 
         
Add (deduct):        
Restructuring charges  (125)  1,546   (346)  2,170 
Stock compensation expense  155   97   317   185 
Fair value adjustment of warrant liability  399   40   (118)  (61)
Fair value adjustment of contingent consideration  -   -   -   (3,050)
Merger and acquisitions related expenses  -   73   -   164 
COVID-19 related expenses  1,185   -   1,185   - 
Unrealized foreign exchange gain        
on unsettled forward exchange contracts  (971)  -   (459)  - 
         
Adjusted EBITDA $6,413  $6,077  $12,628  $11,552 
Adjusted EBITDA Percentage  7.1%  6.7%  6.8%  6.0%


Supplementary Information:     
Reconciliation of Second Half Fiscal 2020 Guidance Range 
(Unaudited; Expressed in thousands of U.S. dollars)      
  Six months ended  
  3-Jan-21 
  Low High 
      
Net Income $4,000 $5,300 
Add (deduct):     
Depreciation  3,000  3,000 
Amortization of Intangible  700  700 
Interest  3,600  3,600 
Income tax expense  300  300 
      
EBITDA $11,600 $12,900 
      
Add (deduct):     
Restructuring charges  1,000  1,000 
Stock compensation expense  400  400 
COVID-19 related expenses  700  700 
      
      
Adjusted EBITDA $13,700 $15,000 

 


 

Supplementary Information:    
Reconciliation of Net Debt    
(Unaudited)    
(Expressed in thousands of U.S. dollars)    
     
  June 28,
2020
 December 29,
2019
     
Revolver $33,943  $34,701 
Long-term debt  38,125   38,750 
Discount (long-term debt)  (3,347)  (3,750)
Finance lease obligations  9,388   10,064 
Operating lease obligations1  6,833   3,743 
  $84,942  $83,508 
Cash $(311) $(1,368)
Net Debt $84,631  $82,140 
     
1Operating lease obligations which includes $3.6 million for extension of the Company’s Fremont, CA facility lease.

 

Relations Contact

Peter Seltzberg
Managing Director
Darrow Associates, Inc.
516-419-9915
pseltzberg@darrowir.com


smtc logo.jpg

Source: SMTC Corporation