0001171843-18-005853.txt : 20180808 0001171843-18-005853.hdr.sgml : 20180808 20180808114625 ACCESSION NUMBER: 0001171843-18-005853 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20180807 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180808 DATE AS OF CHANGE: 20180808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMTC CORP CENTRAL INDEX KEY: 0001108320 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 980197680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-31051 FILM NUMBER: 181000423 BUSINESS ADDRESS: STREET 1: 7050 WOODBINE AVENUE STREET 2: SUITE 300 CITY: MARKHAM STATE: A6 ZIP: L3R4G8 BUSINESS PHONE: 9054791810 MAIL ADDRESS: STREET 1: 7050 WOODBINE AVENUE STREET 2: SUITE 300 CITY: MARKHAM STATE: A6 ZIP: L3R4G8 8-K 1 f8k_080818.htm FORM 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event Reported): August 8, 2018 (August 7, 2018)  

SMTC CORPORATION
(Exact Name of Registrant as Specified in Charter)

Delaware0-3105198-0197680
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)

 

7050 Woodbine Avenue, Suite 300
Markham, Ontario, CANADA L3R 4G8
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (905) 479-1810

          Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 
 

Item 2.02. Results of Operations and Financial Condition.

On August 7, 2018, SMTC Corporation issued a press release announcing its 2018 second quarter financial results, a copy of which is attached as Exhibit 99.1 to this Current Report and incorporated herein by reference.

On August 8, 2018, SMTC Corporation held a teleconference announcing its 2018 second quarter financial results. A transcript of this teleconference is attached as Exhibit 99.2 to this Current Report and incorporated herein by reference.

The information being furnished under Item 2.02 in this Form 8-K, including the accompanying exhibits, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

Exhibit Number Description
   
99.1 Press Release of SMTC Corporation dated August 7, 2018   
99.2 Transcript of SMTC Corporation’s 2018 second quarter teleconference held August 8, 2018


SIGNATURE

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 SMTC CORPORATION
   
  
Date: August 8, 2018By: /s/ Edward Smith        
 Name: Edward Smith
 Title: President and Chief Executive Officer
  

EX-99.1 2 exh_991.htm EXHIBIT 99.1 EdgarFiling

EXHIBIT 99.1

SMTC Corporation Reports Strong Second Quarter Growth

TORONTO, Aug. 07, 2018 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider, today announced second quarter 2018 results.

Q2 Financial Highlights

  • Revenues increased 34.8% to $44.5 million, compared to $33.0 million in the second quarter of 2017
  • Gross profit was $4.3 million or 9.6% of revenue, which represents a 530-basis point increase over $1.4 million or 4.3% of revenue reported in the second quarter of 2017
  • Net loss of $(0.1) million or $(0.01) per share, which represents a $5.9 million improvement, compared to a net loss of $(6.0) million or $(0.36) per share reported in the second quarter of 2017
  • Adjusted EBITDA was $1.6 million, which represents a $5.2 million improvement compared to $(3.6) million in the second quarter of 2017

“I am pleased to report that we are exceeding our business plan. During the second quarter we added two new customers and further expanded programs with existing customers. With our focus now squarely on our growth, we continue to see strong demand and an accelerating trend in our backlog metrics with growth in our semiconductor, test/measurement and medical business lines. Our backlog and business pipeline, barring any further tightening of the supply chain by electronic component suppliers, should support year-over-year revenue growth in excess of 25 percent for the full year 2018, and increased gross profits, adjusted EBITDA, and earnings, as we indicated in our July 23, 2018 press release,” said Ed Smith, SMTC’s President and Chief Executive Officer.

“Even against a backdrop of uncertainties with global trade policy and with higher levels of demand in the industry causing supply chain challenges, we believe our robust supply-chain and operating model afford us flexibility to continue to grow our business and support our customers. Our commitment to operational excellence and serving our customers, we believe, will position us to achieve industry-leading quality and superior customer on-time delivery metrics,” Smith added.

Revenue for the second quarter was $44.5 million, up 34.8% from $33.0 million in the second quarter of 2017. Sequentially, revenue increased 19.8% from $37.1 million from the first quarter of 2018. The year-over-year increase from the second quarter of 2017 was the result of strong demand both from existing and new customers in 2018 and was well-diversified among the company’s target end-markets. The adoption of the new revenue recognition standard accounted for $1.3 million or 3.9% of the year-over-year revenue increase.

Gross profit for the second quarter of 2018 was $4.3 million or 9.6% of revenue, compared with $1.4 million or 4.3% of revenue for the second quarter in 2017. Adjusted gross profit for the second quarter of 2018 was $4.4 million or 9.8% as a percentage of revenue, compared to $1.2 million or 3.4% of revenue in the second quarter of 2017. Gross profit for the first quarter of 2018 was $3.9 million or 10.4% of revenue while adjusted gross profit was $3.5 million or 9.5% of revenue.

Adjusted EBITDA was $1.6 million in the second quarter of 2018, compared to $(3.6) million for the second quarter of 2017 and $0.9 million in the first quarter of 2018. The increase in the second quarter of 2018 compared to the prior quarter was primarily due to continued gains from operational efficiencies resulting from site utilization improvements.

Net loss was $(0.1) million for the second quarter of 2018, compared to a net loss of $(6.0) million in the second quarter of 2017. The company reported net earnings of $8 thousand for the first quarter of 2018.

In light of the Company’s increasing growth, $2.7 million was utilized in cash flows from operations in the second quarter, to support working capital growth for accounts receivable and inventory to support expanding revenues.

On July 23, 2018, we issued a press release that announced the terms of $13 million Rights Offering to holders of our common stock of record at the close of business on that date. Stockholders should carefully read the Prospectus Supplement, which can be found on the SEC’s website at www.sec.gov, which contains important information, including how to exercise and pay for the rights exercised. Unless the Company extends the offering period, all rights will expire if not exercised by 4:00 PM EDT on August 22, 2018.

As we indicated in the July 23rd press release, we received commitments from Red Oak Partners LLC, and Wynnefield Funds, two of our largest stockholders, as well as with other members of the board of directors, members of the executive management team, and other outside investors who in aggregate have committed to fund up to the full $13 million, subject to prorations imposed in the Rights Offering. 

Financial Results Conference Call

The company will host a conference call at 8:30 a.m., Eastern Time, on August 8, 2018 to discuss its second quarter 2018 results and current business operations. Interested parties can listen to the company's conference call by accessing the Investor Relations’ section of SMTC’s web site on the Investor Events page or dialing 877-878-2794 and international callers should dial 615-800-6849 ten minutes prior to the scheduled start time. A rebroadcast will be available for up to one week following the teleconference by dialing 855-859-2056, Conference ID: 1178467. A replay webcast of the call will also be available from the Investor Relations’ section of SMTC’s web site on the Investor Events 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 and income tax expense. 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 earnings (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. 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, founded in 1985, is a mid-size provider of end-to-end electronics manufacturing services (EMS) including PCBA production, systems integration and comprehensive testing services, enclosure fabrication, as well as product design, sustaining engineering and supply chain management services. SMTC manufacturing facilities span a broad footprint in the United States, China and Mexico. 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 offers fully integrated contract manufacturing services with a distinctive approach to global original equipment manufacturers (OEMs) and emerging technology companies primarily within industrial, networking and computing, power and energy and medical market segments. SMTC is a public company incorporated in Delaware with its shares traded on the Nasdaq National Market System under the symbol SMTX. For further information on SMTC Corporation, please visit our website at www.smtc.com (http://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)July 1, 
2018
 April 1, 
2018
 July 2, 
2017
 July 1, 
2018
 July 2, 
2017
 
            
Revenue $  44,479  $  37,120  $  32,995  $  81,599  $  66,173  
Cost of sales    40,196     33,270     31,575     73,466     61,196  
Gross profit    4,283     3,850     1,420     8,133     4,977  
Selling, general and administrative expenses     3,647     3,509     4,110     7,156     7,872  
Impairment of property,plant and equipment    -     -     1,601     -     1,601  
Restructuring charges    96     -     1,351     96     1,351  
Operating earnings (loss)    540     341     (5,642)    881     (5,847) 
Interest expense    403     307     217     710     396  
Earnings (loss) before income taxes    137     34     (5,859)    171     (6,243) 
Income tax expense (recovery)           
Current    196     110     168     306     295  
Deferred    38     (84)    (14)    (46)    (148) 
     234     26     154     260     147  
Net earnings (loss), also being comprehensive income (loss)$  (97) $  8  $  (6,013) $  (89) $  (6,390) 
            
Basic earnings (loss) per share $  (0.01) $0.00  $  (0.36) $  (0.01) $  (0.38) 
Diluted earnings (loss) per share $  (0.01) $0.00  $  (0.36) $  (0.01) $  (0.38) 
            
Weighted average number of shares outstanding           
Basic    17,222,439     17,041,504     16,807,333     17,131,971     16,734,117  
Diluted    17,222,439     17,523,890     16,807,333     17,131,971     16,734,117  
            
     

 

       
Consolidated Balance Sheets      
(Unaudited)      
       
(Expressed in thousands of U.S. dollars)  July 1, 
2018
 December 31, 
2017
 
Assets      
       
Current assets:      
Cash  $  1,953  $  5,536  
Accounts receivable - net     32,125     29,110  
Unbilled contract assets     6,808     -  
Inventories      25,214     22,363  
Prepaid expenses and other assets      3,579     2,142  
Derivative assets     -     37  
Total current assets     69,679     59,188  
Property, plant and equipment - net     11,732     10,269  
Deferred income taxes - net     351     305  
Deferred financing costs - net     121     94  
Total assets  $  81,883  $  69,856  
       
Liabilities and Shareholders' Equity      
       
Current liabilities:      
Revolving credit facility  $  11,981  $  12,191  
Accounts payable     34,047     25,028  
Accrued liabilities     6,188     4,877  
Derivative liabilities     108     375  
Income taxes payable     -     48  
Current portion of long-term debt     2,000     2,000  
Current portion of equipment facility     597     -  
Current portion of capital lease obligations     346     174  
Total current liabilities      55,267     44,693  
       
Equipment facility     1,297     -  
Long-term debt     5,000     6,000  
Capital lease obligations     450     89  
Total liabilities     62,014     50,782  
       
Shareholders’ equity:      
Capital stock     399     396  
Additional paid-in capital     265,916     265,355  
Deficit     (246,446)    (246,677) 
      19,869     19,074  
Total liabilities and shareholders' equity  $  81,883  $  69,856  
       

 

Consolidated Statements of Cash Flows           
(Unaudited)          
  Three months ended Six months ended
(Expressed in thousands of U.S. dollars)          
Cash provided by (used in): July 1,
 2018
 April 1,
 2018
 July 2,
 2017
 July 1,
 2018
 July 2,
 2017
Operations:          
Net income (loss) $  (97) $  8  $  (6,013) $  (89) $  (6,390)
Items not involving cash:          
Depreciation    769     774     971     1,543     1,950 
Unrealized foreign exchange loss (gain) on unsettled forward          
  exchange contracts    89     (319)    (284)    (230)    (1,556)
Impairment of property, plant and equipment    -     -     1,601     -     1,601 
Deferred income taxes (recovery)    38     (84)    (14)    (46)    (148)
Amortization of deferred financing fees    12     9     6     21     11 
Stock-based compensation    77     126     (7)    203     196 
Change in non-cash operating working capital:          
Accounts receivable    (1,223)    (1,793)    2,831     (3,016)    1,084 
Unbilled contract assets    (1,339)    (1,735)    -     (6,488)    - 
Inventories    (4,516)    (974)    (2,292)    (2,851)    (4,421)
Prepaid expenses and other assets    (1,068)    (369)    520     (1,437)    436 
Income taxes payable/(receivable)    -     (48)    9     (48)    (151)
Accounts payable    4,383     3,837     3,177     8,995     1,687 
Accrued liabilities    177     1,184     405     1,361     821 
     (2,698)    616     910     (2,082)    (4,880)
Financing:          
Net (repayment) advances of revolving credit facility    1,940     (2,149)    13     (209)    2,757 
Repayment of long-term debt    (500)    (500)    (500)    (1,000)    (1,000)
Principal payment of capital lease obligations    (50)    (44)    (125)    (94)    (308)
Equipment facility advance    1,894     -     -     1,894     - 
Proceeds from issuance of common stock     361     -     -     361     - 
Deferred financing costs    (15)    (33)    (51)    (48)    (51)
     3,630     (2,726)    (663)    904     1,398 
Investing:          
Purchase of property, plant and equipment    (2,301)    (104)    (403)    (2,405)    (914)
     (2,301)    (104)    (403)    (2,405)    (914)
Decrease in cash    (1,369)    (2,214)    (156)    (3,583)    (4,396)
Cash, beginning of period    3,322     5,536     4,263     5,536     8,503 
Cash, end of the period $  1,953  $  3,322  $  4,107  $  1,953  $  4,107 
           
    

 

Supplementary Information:          
           
Reconciliation of Adjusted EBITDA           
           
  Three months ended Six months ended
  July 1, 
2018
 April 1, 
2018
 July 2, 
2017
 July 1, 
2018
 July 2, 
2017
           
Net earnings (loss) $  (97)  8  $  (6,013) $  (89) $  (6,390)
Add (deduct):          
Depreciation    769     774     971     1,543     1,950 
Interest    403     307     217     710     396 
Income tax expense    234     26     154     260     147 
EBITDA $  1,309  $  1,115  $  (4,671) $  2,424  $  (3,897)
Stock compensation expense (reversal)  77     126     (7)    203     196 
Restructuring charges    96     -     1,351     96     1,351 
Unrealized foreign exchange loss (gain)           
  on unsettled forward exchange contracts  89     (319)    (284)    (230)    (1,556)
Adjusted EBITDA $  1,571  $  922  $  (3,611) $  2,493  $  (3,906)
           

 

Supplementary Information:           
            
Reconciliation of Adjusted Gross Profit           
            
  Three months ended Six months ended 
  July 1, 
2018
 April 1, 
2018
 July 2, 
2017
 July 1, 
2018
 July 2, 
2017
 
            
Gross Profit $  4,283  $3,850  $  1,420  $  8,133  $  4,977  
Add (deduct):           
Unrealized foreign exchange loss (gain)            
  on unsettled forward exchange contracts    89     (319)    (284)    (230)    (1,556) 
Adjusted Gross Profit    4,372     3,531     1,136     7,903     3,421  
Adjusted Gross Profit %  9.8%  9.5%  3.4%  9.7%  5.2% 
            


Investor Relations Information

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

EX-99.2 3 exh_992.htm EXHIBIT 99.2 EdgarFiling

EXHIBIT 99.2

 

Note: Readers should refer to the audio replays, when available, on our website (www.smtc.com) for clarification and accuracy.

 

 

 

Second Quarter 2018

Conference Call Prepared Remarks

 

 

Operator

 

Good day, ladies and gentlemen, and welcome to the SMTC Second Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference call will be recorded.

 

I would now like to introduce your host for today's conference, Mr. Blair McInnis, Vice President of Finance. You may begin.

 

Blair McInnis

 

Thank you. Before we begin the call, I'd like to remind everybody that the presentation will include statements about expected future events and financial results that are forward-looking in nature and subject to risks and uncertainties. The company cautions that actual performance will be affected by a number of factors, many of which are beyond the company's control, and that future events and results may vary substantially from what the company currently foresees. Discussion of the various factors that may affect future results is contained in the company's annual report on Form 10-K, on form 10-Q, and subsequent reports on Form 8-K and other filings with the Securities and Exchange Commission. All forward-looking statements are made as of the date of this call. And except as required by law, we do not intend to update this information. This conference call will also be available for audio replay in the Investor Relations section of SMTC's website at www.smtc.com.

 

1 | Page 

 

I will now pass the call over to Eddie Smith, the company's President and Chief Executive Officer.

 

Edward J. Smith

 

Thank you, Blair. Welcome, and good morning. Ladies and gentlemen, I'm Eddie Smith, SMTC's President and Chief Executive Officer. One this call with me today is Steve Waszak SMTC's CFO; and Richard Fitzgerald, our COO.

 

I am pleased to report that we are exceeding our business plan and our focus is now on accelerating our growth. After the close of the market yesterday, we reported results for our second quarter of 2018, at the high end of our preannouncement on July 23rd. We finished the quarter with $44.5 million in revenue, up 34.8% from comparable quarter last year and 19.8% from the prior quarter. Adjusted gross margin improved from 9.5% to 9.8%, while adjusted EBITDA was $1.6 million which is $5.2 million higher compared to the second quarter of 2017.

 

The past year has been important for us as the team here has clearly made significant progress in achieving a higher level of operational and financial performance from the top to bottom line. In addition to announcing terms of our Rights Offering in a press release two weeks ago, we provided financial guidance for the remaining quarters of 2018. While we do not intend to provide forward guidance on an ongoing basis, we wanted to ensure that Stockholders considering participating in the Rights Offering had that information. Steve will provide the specifics of that guidance later in the call but let me just say we believe we have sufficient visibility and confidence in our ability to achieve that guidance with our current plant capacity.

 

During the second quarter we added two new customers and further expanded programs with existing customers. We continue to see strong demand from both existing and new customers with growth in our semiconductor, test/measurement and medical business lines. Our backlog barring any further tightening of the supply chain by electronic component suppliers should support revenue growth in excess of 25 percent for the full year in 2018 over 2017, and positive year-over-year trends for our adjust gross margins and EBITDA metrics.

 

2 | Page 

 

We remain intensely focused on crisp execution of our business plan with detailed attention to operational excellence, industry-leading quality metrics and superior customer on-time delivery. Our Fremont and China sites earned a profit for the first time in seven quarters collectively. Both sites have won new clients, while improving our efficiencies. Our Chihuahua Mexico site continues to be a showcase, especially in light to the 301 tariff concerns which we are carefully monitoring, and the leveling of the playing field against China specifically, with labor rates continuing to increase in China rapidly.  

 

Our supply chain and operations teams are continuing to drive further improvements to meet our customers' commitments despite reports of industry challenges resulting from increasing demands for certain components, including MLCCs or multi-layer ceramic capacitors. We now support the needs of 17 customers using some version of a kan-ban, which is a highly-efficient, lean, just-in-time manufacturing program. 

 

While we are pleased with our progress to-date, we have much more to do to capitalize on the opportunities I see for SMTC. To achieve our vision, we're continuing to seek additional programs at our existing customers as well as continuing to secure new customers. And we are on track to achieve our AS9100 accreditation in our Fremont, CA facility this quarter which will provide an opportunity for us to expand into the Avionics, Aerospace, and Defense markets.  

 

We will also explore M&A opportunities that provide synergistic benefits and/or high-value end markets to accelerate our growth and enhance shareholder value.

 

I'll now hand the call over to Steve to review the financial details, and then come back with some additional comments. Welcome, Steve

 

 

 

 

3 | Page 

 

Steve Waszak

 

Thank you, Eddie, and good morning, everyone. Thank you for joining us this morning. The revenue for the second quarter was $44.5 million compared to $33.0 million for the same quarter in 2017. $1.3 million of this revenue reported in the second quarter of 2018 was due to the impact of a new revenue accounting recognition standard, ASC 606. The remainder of our 35% same quarter year-over-year growth in revenue was a result of increased orders from existing and new customers added over the last three quarters. With our expanding revenues, the company has three 10% customers, accounting for 34.8% of total revenues We saw year-over-year increases to customers in industrial, power, energy, electronic payment processing and medical industry sectors. Revenues from customers in the networking and communications sectors saw slight declines over the same period a year ago.

 

Gross profit for the second quarter was $4.3 million or 9.6% of revenue compared to $1.4 million or 4.3% of revenues in the same quarter in 2017. That said, adjusted gross profit in the second quarter, which excludes the impact of unrealized foreign exchange gains or losses, was $4.4 million or 9.8% as a percentage of revenues compared to $1.1million or 3.4% the same quarter in 2017.

 

Operating expenses, which is comprised of selling, administrative and general costs, were $3.6 million in the second quarter of 2018, $463 thousand or 11.3% lower than the $4.1 million were recorded in the same quarter of 2017.

 

Further, the company reported a net loss was $97,000 for the second quarter compared to a net loss of $6 million in the same period a year ago. Adjusted EBITDA was positive $1.6 million in the second quarter of 2018 compared to a negative $3.6 million in the same quarter a year ago. This increase in the second quarter compared to the same period in the prior year was due to improvements in adjusted gross profit from higher revenue, improved margins and cost-reduction efforts. In addition, the second quarter of 2017 included certain impairment and increased bad debt and excess inventory provisions not incurred during the same period in 2018.

 

Now before I return the call back to Eddie, I'll comment on a few balance sheet items and provide guidance for the third quarter including opportunities and comment on the rights offering.

 

4 | Page 

 

At the end of the second quarter, we had

 

·$2.0 million in cash;

 

·$19.7 million net debt with $10.5 of funds available to borrow under our revolving credit line with PNC;

 

·$2.7 million was utilized in cash flows from operations in the quarter, primarily to support working capital growth for accounts receivable and inventory for support expanding revenues in the current quarter and future quarters;

 

·Our cash-to-cash cycle was 61 days as compared with 63 days in prior quarter, with DSO of 61 days and DPO of 74 days;

 

·And Inventory turnover on annualized basis was 5.0 times for the second quarter 2018.

 

On July 23 we issued a press release that announced the terms of $13 million Rights Offering to holders of our common stock of record at the close of business on that date. Stockholders should carefully read the Prospectus Supplement, which can be found on our and the SEC’s website at www.sec.gov, because it contains important information, including timing on how to exercise and pay for the rights exercised. Unless the Company extends the offering period, all rights will expire if not exercised by 4:00 PM on August 22, 2018.

 

As we indicated in the July 23rd press release, we received commitments from Red Oak Partners LLC, and Wynnefield Funds, two of our largest stockholders, as well as with other members of the board of directors, members of the executive management team, and other outside investors who in aggregate have committed to fund more than $13 million, subject to prorations imposed in the Rights Offering. 

 

5 | Page 

 

As Eddie mentioned earlier while we do not intend to provide forward guidance on an ongoing basis, we did provide guidance in the July 23rd press release to ensure that Stockholders considering participating in the Rights Offering had that information needed to make the decision. For those who did not see that press release, let me quickly summarize the Q3 and Q4 guidance we provided:

 

·Q3 2018 revenue will range between $48 to $51 million, up from $34.4 million in the same quarter a year ago with adjusted EBITDA projected to range between $1.9 to $2.2 million, up from $1.1 million in Q3 2017.

 

·Q4 2018 revenue ranging between $48 to $51 million, up from $38.6 million in the same quarter a year ago with adjusted EBITDA projected to range between $2.0 to $2.5 million, up from $1.2 million in Q4 2017.

 

For the full year 2018, we expect to see revenue ranging between $178 to $184 million, up 28% to 32% over 2017 levels, we could currently have capacity to support customer demand in excess of $200 million a year.

 

Let me wrap up my comments by reiterating Eddie’s comments that we are driving your company to achieve operational excellence in all phases, including our financial metrics. As such, we remain focused on making additional working capital management improvements to accelerate efforts to strengthen our balance sheet as we remain focused on improving both the top and bottom lines.

 

Now I'd like to hand the call back to Eddie to provide some additional comments before we open for questions.

 

Edward J. Smith

 

Thanks, Steve. Let me conclude by saying the global demand trends remain strong and, we believe, we are taking market share at existing customers and are poised to win over new customers. Our focus on operational excellence is paying off and is allowing us to mitigate the impacts thus far from component shortages that others may have reported.

 

In short, we remain on track with our strategic goals, and are, in fact, exceeding our annual business plan. We had a strong Q2, with year-over-year growth in revenue, adjusted gross margin and adjust EBITDA. The outlook for the balance of the year looks strong and we expect to achieve revenue growth in excess of 25 percent for the full year in 2018 over 2017, barring any unforeseen disruptions in the supply chain or impacts from tariff impositions. 

 

6 | Page 

 

I look forward to reporting on future earnings call our continued progress towards making SMTC a stronger company that delights its customers with superior service and rewards its stockholders with enhanced shareholder value.

 

With that, let's take questions from those on the call today.

 

Q&A

 

Eddie Smith

 

Thank you, operator.

 

I would like to remind you that we will be participating at the Canaccord Genuity 38th Annual Growth Conference in Boston tomorrow. Information about this event is posted on the Investor Relations section of our website.

 

In closing, I want to thank our employees, leadership team, business partners, distributors and our investors for their support and look forward to reporting our progress over the next several quarters. Thank you.

 

Operator

 

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

 

 

 

7 | Page


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