0001171843-19-001754.txt : 20190315 0001171843-19-001754.hdr.sgml : 20190315 20190315105315 ACCESSION NUMBER: 0001171843-19-001754 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20190314 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190315 DATE AS OF CHANGE: 20190315 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: 1230 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-31051 FILM NUMBER: 19683613 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_031519.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): March 15, 2019 (March 14, 2019)  

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 March 14, 2019, SMTC Corporation issued a press release announcing its fourth quarter and fiscal year 2018 financial results, a copy of which is attached as Exhibit 99.1 to this Current Report and incorporated herein by reference.

On March 15, 2019, SMTC Corporation held a teleconference announcing its fourth quarter and fiscal year 2018 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 March 14, 2019   
99.2 Transcript of SMTC Corporation’s fourth quarter and fiscal 2018 teleconference held March 15, 2019


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: March 15, 2019By: /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 Fourth Quarter and Fiscal Year 2018 Results

Q4 2018 revenue more than doubled vs. Q4 2017

2018 revenue increased 55% over 2017

Q4 2018 revenue increased 48% vs. Q4 2017 excluding the impact of the MC Assembly

2018 revenue increased 38% vs. 2017 excluding the impact of the MC Assembly

TORONTO, March 14, 2019 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider, today announced fourth quarter and fiscal year 2018 results.

Q4 Financial Highlights

  • Revenue increased $42.2 million, or 109.3% to $80.9 million, compared to $38.6 million in the fourth quarter of 2017, with $23.5 million attributable to the November 2018 acquisition of MC Assembly
  • On a proforma basis, assuming MC Assembly had been part of SMTC for the full three months of the quarter in 2018 and 2017, the combined revenue of both companies in in the fourth quarter of 2018 would have been $96.3 million, up 24.6% from $77.3 million in 2017
  • Gross profit was $8.3 million or 10.3% of revenue, compared to $2.9 million or 7.5% of revenue reported in the fourth quarter of 2017, representing a 280-basis point improvement in gross margin
  • Net loss of $(1.2) million or $(0.05) per share, compared to a net loss of $(0.9) million or $(0.05) per share reported in the fourth quarter of 2017
  • Adjusting for merger and acquisition expenses of $1.7 million, Adjusted Net Income was $0.5 million, or $0.02 per share compared to a net loss of $(0.9) million in the fourth quarter of 2017, an improvement of $1.4 million
  • Net Debt at the end of the quarter was $92.3 million compared to $14.7 million at the end of 2017 with the increase primarily due to $68.0 million of term debt and assumed capital leases incurred related to the acquisition of MC Assembly
  • Adjusted EBITDA was $5.3 million, which represents a $4.1 million improvement compared to $1.2 million in the fourth quarter of 2017

2018 Financial Highlights

  • Revenue increased 55.2% to $216.1 million, compared to $139.2 million in fiscal 2017, with $23.5 million attributable to the November 2018 acquisition of MC Assembly
  • On a proforma basis, assuming MC Assembly had been part of SMTC for 12 months in 2018 and 2017, the combined revenue of both companies in 2018 would have been $345.2 million, up 22.6% from $281.5 million in 2017
  • Gross profit was $21.7 million or 10.0% of revenue, representing an increase over $10.9 million or 7.8% of revenue reported in fiscal 2017
  • Net loss of $(0.4) million or $(0.02) per share, which represents a $7.4 million improvement, compared to a net loss of $(7.8) million or $(0.47) per share reported in fiscal 2017
  • Adjusting for merger and acquisition expenses of $1.7 million, Adjusted Net Income was $1.2 million, or $0.06 per share compared to a loss of $(7.8) million in 2017, an improvement of $9.1 million
  • Adjusted EBITDA was $10.2 million, which represents an $11.8 million improvement compared to $(1.5) million in fiscal 2017

“Our 2018 results reflect the commitment and rigorous actions we have taken in the past six quarters to relaunch the company. Our efforts have resulted in year-over-year organic growth of nearly 50% driven by exceptional customer retention, new program wins at existing customers and the addition of new customers. Our expertise in supply chain management allowed us to navigate through a tight supply environment that negatively impacted many others in our industry. As a result of our disciplined execution and exceptional growth, our margins and adjusted EBITDA are up significantly over last year as well, with our adjusted EBITDA increasing year-over-year by approximately $11.8 million,” said Ed Smith, SMTC’s President and Chief Executive Officer. “We also earned new industry accreditations at SMTC and in November we completed a transformational acquisition that provides us with a stronger combined platform, new properties and capabilities enabling us to expand within important end-markets, that will accelerate our growth trajectory. I am pleased with the combined teams' progress integrating MC Assembly and we have already realized a significant portion of the $6 million of synergies that we previously identified as opportunity,” added Smith.

Q1 Outlook

“We continue see strong demand from our customers in the first quarter of 2019 and anticipate another year-over-year of top-line growth and EBITDA improvements,” said Ed Smith, SMTC’s President and Chief Executive Officer.

SMTC’s current expectations for the first quarter of 2019:

 Q1 2019 RevenueQ1 2019 Adjusted EBITDA Range (1) 
 $96 - $100 million$5.3 - $5.8 million 
    
(1) 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.  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.


Revenue for the fourth quarter was $80.9 million, up 109.3% from $38.6 million in the fourth quarter of 2017. Sequentially, revenue increased 50.6% from $53.7 million during the third quarter of 2018. The year-over-year increase from the fourth quarter of 2017 was driven by organic growth of 48.4% percent and an additional 52 days of revenue from the acquisition of MC Assembly.  

Gross profit for the fourth quarter of 2018 was $8.3 million or 10.3% of revenue, compared with $2.9 million or 7.5% of revenue for the fourth quarter in 2017. Gross profit for the third quarter of 2018 was $5.2 million or 9.7% of revenue while adjusted gross profit was $5.1 million or 9.6% of revenue.

Adjusted EBITDA was $5.3 million in the fourth quarter of 2018, compared to $1.2 million for the fourth quarter of 2017 and $ 2.4 million in the third quarter of 2018. The increase in the fourth quarter of 2018 compared to the prior quarter was primarily due to the acquisition of MC Assembly.

Net loss was $(1.2) million for the fourth quarter of 2018, compared to a net loss of $(0.9) million in the fourth quarter of 2017. The company reported net earnings of $0.9 million for the third quarter of 2018.

Financial Results Conference Call

The company will host a conference call which will start at 8:30 a.m. Eastern Time on Friday, March 15, 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 Fourth Quarter and Fiscal Year 2018 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 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 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. 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. Adjusted Net income (Loss) is computed as net income (loss) excluding mergers and acquisitions related expenses.  A reconciliation of Adjusted Net Income (loss) it to Net Income (Loss) 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 this acquisition, SMTC has more than 50 manufacturing and assembly lines in United States, China and Mexico which creates a powerful low-to-medium volume, high-mix, end-to-end global 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 Balance Sheets   
(Unaudited)   
    
(Expressed in thousands of U.S. dollars)December 30,
2018
 December 31,
2017
Assets   
    
Current assets:   
Cash$  1,601  $  5,536 
Accounts receivable - net   72,986     29,093 
Unbilled contract assets   20,405     - 
Inventories - net   53,203     22,363 
Prepaid expenses and other assets    5,548     2,142 
Derivative assets   15     37 
Income taxes receivable   160     17 
    153,918     59,188 
Property, plant and equipment - net   28,160     10,269 
Goodwill   18,165     - 
Intangible assets   19,935     - 
Deferred financing costs - net   668     94 
Deferred income taxes - net   380     305 
 $  221,226  $  69,856 
    
Liabilities and Shareholders' Equity   
    
Current liabilities:   
Revolving credit facility   25,020  $  12,191 
Accounts payable   76,893     25,028 
Accrued liabilities   13,040     4,877 
Warrant liability   2,009     - 
Contingent consideration   3,050     - 
Derivative liabilities   -     375 
Income taxes payable   12     48 
Current portion of long-term debt   1,368     2,000 
Current portion of capital lease obligations   1,547     174 
    122,939     44,693 
Long-term debt   56,039     6,000 
Capital lease obligations   9,947     89 
    
Shareholders’ equity:   
Capital stock   457     396 
Additional paid-in capital   278,649     265,355 
Deficit   (246,805)    (246,677)
    32,301     19,074 
 $  221,226  $  69,856 
    

 

     
Consolidated Statements of Operations and Comprehensive Income (Loss)    
(Unaudited)         
 Three months ended Twelve months ended
          
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts)December 30,
2018
 September 30,
2018
 December 31,
2017
 December 30,
2018
 December 31,
2017
          
Revenue$  80,855  $  53,677  $  38,641  $  216,131  $  139,231 
Cost of sales   72,564     48,440     35,741     194,470     128,380 
Gross profit   8,291     5,237     2,900     21,661     10,851 
Selling, general and administrative expenses    7,335     3,682     3,136     18,173     13,960 
Impairment of property,plant and equipment   -     -     -     -     1,601 
(Gain) loss on sale of property,plant and equipment   (33)    3     -     (30)    (60)
Restructuring charges   18     58     55     172     1,732 
Loss on extinguishment of debt         
Operating earnings (loss)   971     1,494     (291)    3,346     (6,382)
Interest expense   1,922     485     278     3,117     903 
Earnings (loss) before income taxes   (951)    1,009     (569)    229     (7,285)
Income tax expense (recovery)         
Current   156     290     171     752     639 
Deferred   116     (145)    164     (75)    (79)
    272     145     335     677     560 
Net income (loss), also being comprehensive income (loss)$  (1,223) $  864  $  (904) $  (448) $  (7,845)
          
Basic loss per share$  (0.05) $  0.04  $  (0.05) $  (0.02) $  (0.48)
Diluted loss per share$  (0.05) $  0.04  $  (0.05) $  (0.02) $  (0.48)
          
Weighted average number of shares outstanding         
Basic   23,105,597     19,335,253     16,860,155     19,176,198     16,504,106 
Diluted   23,105,597     19,335,253     16,860,155     19,176,198     16,504,106 
          

  

        
Consolidated Statements of Cash Flows       
(Unaudited)       
 Three months ended Twelve months ended
(Expressed in thousands of U.S. dollars)       
Cash provided by (used in):December 30,
2018
 December 31,
2017
 December 30,
2018
 December 31,
2017
Operations:       
Net loss$  (1,223) $  (904) $  (448) $  (7,845)
Items not involving cash:       
Depreciation   1,365     799     3,791     3,588 
Amortization of acquired Intangible assets   1,065     -     1,065     - 
Unrealized foreign exchange loss (gain) on unsettled forward       
  exchange contracts   (15)    520     (353)    (918)
Impairment of property, plant and equipment   -     -     -     1,601 
Loss (gain) on sale of property, plant and equipment   (33)    -     (30)    (60)
Deferred income taxes (recovery)   116     164     (75)    (79)
Amortization of deferred financing fees   160     8     194     27 
Stock-based compensation   129     159     407     432 
Stock Revaluation of Warrant   111     -     111     - 
        
Change in non-cash operating working capital:       
Accounts receivable   (11,917)    (5,928)    (24,030)    (6,469)
Unbilled contract assets   (11,902)    -     (7,949)    - 
Inventories   9,066     (1,146)    (8,027)    (1,689)
Prepaid expensesand other assets   119     (453)    (883)    311 
Income taxes payable   (164)    2     (179)    (142)
Accounts payable   7,116     4,740     23,698     2,159 
Accrued liabilities   3,523     (942)    4,921     237 
    (2,484)    (2,981)    (7,787)    (8,847)
Financing:       
Net (repayment) advances of revolving credit facility   8,314     6,282     12,829     9,460 
(Repayment) advances of long-term debt   (6,500)    (500)    (8,000)    (2,000)
Net advances of long-term debt   62,000     -     62,000     - 
Principal payment of capital lease obligations   (298)    (43)    (487)    (395)
Repayment of equipment facility   (2,629)    -     -     - 
Proceeds from issuance of common stock (Rights offer)   -     -     12,587     - 
Debt issuance cost   (2,831)    -     (2,831)    - 
Proceeds from issuance of Stock options   -     -     361     - 
Deferred financing costs   (584)    -     (632)    (51)
    57,472     5,739     75,827     7,014 
Investing:       
Acquisition of MC Assembly - net of cash acquired   (67,600)    -     (67,600)    - 
Acquisition of business, net of cash acquired   -     -     -     - 
Purchase of property, plant and equipment   (511)    (157)    (4,410)    (1,471)
Proceeds from leaseholding improvement     -     -     56 
Proceeds from sale of property, plant and equipment   35     -     35     281 
    (68,076)    (157)    (71,975)    (1,134)
Increase (decrease)  in cash   (13,088)    2,601     (3,935)    (2,967)
Cash, beginning of period   14,689     2,935     5,536     8,503 
Cash, end of the period$  1,601  $  5,536  $  1,601  $  5,536 
        

 

Supplementary Information:         
          
Reconciliation of Adjusted EBITDA          
 

Three months ended Twelve months ended
 December 30,
2018
 September 30,
2018
 December 31,
2017
 December 30,
2018
 December 31,
2017
          
Net income (loss)$  (1,223) $  864  $  (904) $  (448) $  (7,845)
Add (deduct):         
Depreciation of property, plant and equipment   1,365   883   799     3,791     3,588 
Amortization of Intangible assets   1,065     -      -      1,065     - 
Interest   1,922   485   278     3,117     903 
Income tax expense   272   145   335     677     560 
EBITDA$  3,401  $  2,377  $  508  $  8,202  $  (2,794)
          
Add (deduct):         
Stock compensation expense  129   75   159   407     432 
Stock compensation expense - warrant revaluation 111     -      -    111     - 
Restructuring charges   18   58   55     172     1,732 
Merger and acquisitions related expenses   1,676     -      -      1,676     - 
Unrealized foreign exchange loss (gain)  (15)  (108)  520   (353)    (918)
  on unsettled forward exchange contracts         
Adjusted EBITDA   5,320     2,402     1,242     10,215     (1,548)
          
          

 

Supplementary Information:         
          
Reconciliation of Adjusted Gross Profit         
 

Three months ended Twelve months ended
 December 30,
2018
 September 30,
2018
 December 31,
2017
 December 30,
2018
 December 31,
2017
          
Gross Profit$  8,291  $  5,237  $  2,900  $  21,661  $  10,851 
Add (deduct):         
Unrealized foreign exchange loss (gain)          
  on unsettled forward exchange contracts   (15)    (108)    520     (353)    (918)
          
Adjusted Gross Profit   8,276     5,129     3,420     21,308     9,933 
          
Adjusted Gross Profit Percentage 10.2%  9.6%  8.9%  9.9%  7.1%
    

 

          
Supplementary Information:         
          
Reconciliation of Adjusted Net Income (Loss)        
 

Three months ended Twelve months ended
 December 30,
2018
 September 30,
2018
 December 31,
2017
 December 30,
2018
 December 31,
2017
          
Net income (loss)$(1,223) $864 $(904) $(448) $(7,845)
Add (deduct):         
Merger and acquisitions related expenses 1,676   -  -   1,676   - 
          
Adjusted Net income (loss) 453   864  (904)  1,228   (7,845)
          

  

  
Supplementary Information: 
  
Reconciliation of Adjusted EBITDA  
 

SMTC
 Forecasted
Q1,
2019
  
Net loss$  (2,361)
Add (deduct): 
Depreciation   1,746 
Amortization of Intangible   1,844 
Interest   2,648 
Income tax expense   312 
EBITDA$  4,189 
  
Add (deduct): 
Stock compensation expense    150 
Restructuring charges   1,131 
Adjusted EBITDA   5,470 
  


Investor Relations Contact

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.

 

 

 

Fourth Quarter and Fiscal Year 2018

Conference Call Prepared Remarks

 

 

Operator

 

Good day, ladies and gentlemen, and welcome to the SMTC Fourth Quarter and Fiscal Year 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 

 

SMTC will be participating at the 31st Annual ROTH Conference next week, March 18th- 19th , in Dana Point, California. Information about this event has been posted on the Investor Relations section of our website.

 

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. On this call with me today is Richard Fitzgerald, our Chief Operating Officer and Steve Waszak SMTC's Chief Financial Officer.

 

I am pleased to report that we continued to execute throughout 2018 and we closed the year, as SMTC stand-alone, with robust increases in sales, margins, and cash flow, exceeding the targets indicated by our business plan and our guidance provided during 2H 2018. Perhaps as important, was the transformative acquisition of MC Assembly during the 4th quarter of 2018. It’s hard to believe that was just about 120 days ago, and I am pleased to report the integration of MC Assembly is proceeding well and has put us on a path to enhanced growth within important end-markets.

 

Let me quickly review results we announced after the close of the market yesterday:

 

·For the fourth quarter, including MC’s operations for the 52 days following the closing the acquisition, we reported $80.9 million in revenue, up 109.3% from the comparable quarter last year and 50.6% from the prior quarter. For SMTC stand-alone, without the contribution from MC Assembly, revenue in Q4 2018 was $57.3 million compared to $38.6 million in Q4 2017, an increase of 48.4 % over the prior year and 6.7% over the prior quarter.

 

·Our Q4 stand-alone revenue exceeded the high end of our prior guidance issued back on July 23rd and the midpoint of the guidance range for Q4 of $49.5 million by 16%.

 

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·Now, going back, to including MC’s operations in 2018 following the closed of the acquisition announced on November 9th:

 

·Our Q4 gross margin was 10.3% compared to 7.5% in the same quarter a year ago.

 

·Our fourth quarter Adjusted EBITDA was $5.3 million, which represents a $4.1 million improvement compared to $1.2 million in the fourth quarter of 2017.

 

·We reported a net loss of $(1.2) million or $(0.05) per share, compared to a net loss of $(0.9) million or $(0.05) per share reported in the fourth quarter of 2017. Adjusting for merger and acquisition costs of $1.7 million, Adjusted Net Income was $0.5 million, or $0.02 per share compared to a loss of $(0.9) million in the fourth quarter of 2017, an improvement of $1.4 million.

 

For the full year:

 

·Our revenue increased 55.2% to $216.1 million, compared to $139.2 million in fiscal 2017, with $23.5 million attributable to the November 2018 acquisition of MC Assembly. Excluding the revenue contribution from MC Assembly, our SMTC stand-alone revenue grew by 38.4% for the full year.

 

On a proforma basis, assuming MC Assembly had been part of SMTC for 12 months in 2018 and 2017, the combined revenue of both SMTC and MC in 2018 would have been $342.8 million, up 18.8% from $288.5 million in 2017. We have added a proforma P&L for what a combined company would have looked like on today’s conference call webcast page on our IR website as supplemental information to better understand our business. The same P&L also appears on our updated IR slide deck which has been posted on our website.

 

·Our gross margin for 2018 was 10.0%, an increase from the 7.8% of revenue reported in 2017.

 

·We reported net loss of $(0.4) million or $(0.02) per share, which represents a $7.4 million improvement, compared to a net loss of $(7.8) million or $(0.48) per share reported in fiscal 2017. Adjusting for merger and acquisition costs of $1.7 million, Adjusted Net Income was $1.3 million, or $0.07 per share for 2018 compared to a loss of $(7.8) million in 2017, an improvement of $9.1 million

 

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·Adjusted EBITDA was $10.2 million for 2018, which represents a $11.7 million improvement compared to a negative $1.5 million in fiscal 2017.

 

While the numbers indicate a significant improvement over the prior year, they do not fully tell the story of the profound changes that have taken place at SMTC over the past year.

 

Let me mention just a few of those changes:

 

·First, we strengthened the team. Key to any successful company is having a proven management team that is capable, experienced, with the right industry relationships, and can work well together in calm waters and with success when presented with challenges. During the past year, I have assembled a leadership team at SMTC with whom I worked in the past at Avnet and elsewhere where we built a multibillion company and/or at SMTEK where we significantly increased the enterprise value before selling the company, to now include a new COO, CFO, global supply chain leader and head of marketing and sales.

 

·Second, we stabilized and then expanded business with existing customers and won business with 12 new SMTC customers, while MC Assembly added another 10 new customers they secured in 2018, by instilling a customer-driven culture, taking the time to understand our customers businesses and needs and then working to deliver on what we promised……..admittedly a work-in-progress!

 

·Third, we made pursuit of operational excellence in every aspect of our business our mantra. Included in our investor slide presentation is a series of graphs that indicate our performance relative to our peers for revenue, gross profit, net income, and Adjusted EBITDA. Our performance over the past year shows improvement on each metric, as we continue to strive to be the market-segment leader in each category. I have often said that we want to be the best at SMTC, and we manage with this in mind every day.

 

 

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With that said, I'll now hand the call over to Steve to review SMTC’s Q4 financial details, and then come back with some additional comments. Steve……

 

Steve Waszak

 

Thank you, Eddie, and good morning, everyone. I want to thank our long-time shareholders for your continued support and confidence and welcome all of those shareholders who are new to SMTC Corporation. Thank you for joining us this morning.

 

As you may have seen, the company will our Form 10-K for 2018 and Proxy within the next 24 hours. Our Annual Shareholder meeting has been set at May 9, 2019, with a Record date set at March 27, 2019, to be held at our facility in Melbourne Florida.

 

Eddie has commented this morning on our Q4 and full year 2018 results, both when including MC’s operations since closing the acquisition in November 2018, with SMTC as a stand-alone entity.

 

My comments will primarily address results including MC’s operations for the period following the acquisition in November.

 

Revenue for the fourth quarter was $80.9 million compared to $38.6 million for the same quarter in 2017. ($0.2) million of the revenue reported in Q4 2018 was due to the impact of a new revenue accounting recognition standard, ASC 606. The remainder of our 109.3% same quarter year-over-year growth in revenue was the fueled by organic growth at SMTC plus $23.5 million coming from MC Assembly customers during the 52 days we owned MC Assembly. In Q4 2018 No customers represented 10% of total revenue.

 

For the full year, total revenue increased by $76.9 million or 55.2% in 2018, to $216.1 million, compared to $139.2 million in 2017, with MC Assembly contributing 30.5% of our year over year increase. The impact of the adoption of ASC 606 accounted for 2% of the year-over-year increase. We saw growth in all the industry sectors we targeted, with the biggest dollar gains coming from customers in the test and measurement, industry, power and technology, medical and telecom, networking and communication sectors.

 

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Gross profit for the fourth quarter was $8.3 million or 10.3% of revenue compared to $2.9 million or 7.5% of revenues in the same quarter in 2017. Adjusted gross profit in the fourth quarter, which excludes the impact of unrealized foreign exchange gains or losses, was $8.3 million or 10.2% as a percentage of revenues compared to $3.4 million or 8.9% the same quarter in 2017.

 

For the full year, gross profit increased to $21.9 million in 2018 from $10.8 million in 2017. Gross margin percentage increased to 10.1% in 2018 compared to 7.8% in the prior year. When excluding the impact of the unrealized foreign exchange gains on unsettled forward contracts, the adjusted gross margin percentage increased to 10.0% in 2018 up from 7.1% in the prior year. This increase in gross profit was primarily the result of increased revenues, impacting the Company’s ability to cover variable and fixed overhead costs in addition to improved product mix resulting in increased margins.

 

Operating expenses, which is comprised of selling, administrative and general costs, were $7.3 million in Q4 2018, $4.2 million higher than the $3.1 million recorded in the same quarter of 2017 of which $1.7 million were acquisitions and merger expenses.

 

For the full year, operating expenses increased to $18.2 million in 2018 from $14.0 million in 2017. However, these expenses decreased to 8.4% of revenue in 2018 down from 10.0% of revenue in 2017. The year-over-year dollar increase was related increased primarily to the acquisition of MC Assembly.

 

The company reported a net loss of $(1.2) million in the fourth quarter. In comparison, the company reported a net loss of $(904) thousand in the same period a year ago. As Eddie mention, excluding the fourth quarter merger and acquisition expenses associated with MC Assembly transaction, adjusted net income was $0.5 million, or $0.02 per share compared to a loss of $(0.9) million in the fourth quarter of 2017, an improvement of $1.4 million.

 

Adjusted EBITDA was $5.3 million in the fourth quarter of 2018 compared to a $2.4 million in the same quarter a year ago. This increase in the fourth quarter Adjusted EBITDA compared to the same period in the prior year was due to higher gross margins and on higher revenue. For the full year, Adjusted EBITDA at $10.3 million, represented an improvement of $11.8 million, primarily driven by the increased revenue, ability to cover our fixed costs and the additional incremental provisions and impairment charges incurred in the prior year.

 

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

 

At the end of the fourth quarter, we had

 

·$1.6 million in cash;

 

·Net Debt at the end of the year was $92.3 million compared to $14.7 million at the end of 2017 with the increase primarily due to $68.0 million of term debt and assumed capital leases incurred related to the acquisition of MC Assembly. At the end of the year we had $14.0 of funds available to borrow under our revolving credit line with PNC;

 

·$2.5 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 67 days as compared with 64 days at December 31, 2017, with DSO of 65 days and DPO of 79days;

 

·And Inventory turnover on annualized basis was 4.4 times for the fourth quarter 2018.

 

With strong cash flows and improving our cash-to-cash cycle with working-capital efficiencies, particularly as integration synergies are realized through the year, we are committed to deleveraging our balance sheet which is a priority for us. A key in balancing my focus is to align financial capacity for the continued growth as Eddie mentions from combining MC with SMTC.

 

As Eddie mentioned, we continue see strong demand from our customers in the first quarter of 2019. We currently expect revenue for the first quarter to range between $96 million to $100 million and we expect Adjusted EBITDA to range between $5.3 million and $5.8 million, continuing our expansion of EBITDA to approximately 5.5% as % of revenues.

 

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For the full year 2019, we expect now to see accelerating revenues (over 2018 levels).

 

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.

 

To summarize, we remain on track with our business plans. Our integration of MC Assembly is proceeding well, and we believe, has significantly enhanced our capabilities and is enabling SMTC to even better serve our growing base of customers while positioning SMTC for an even faster and more profitable growth trajectory. As I look ahead, we are committed to deleveraging our balance sheet, achieving industry leading performance metrics and growing our business to become the Tier III EMS market-segment leader.

 

I look forward to updating you on our progress on future earnings call as we make SMTC an even stronger company that delights its customers with superior service and rewards its stockholders with enhanced shareholder value and takes care of its employees.

 

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

 

Q&A

 

Eddie Smith

 

Thank you, operator.

 

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In closing, I want to thank our employees that have had a challenging year with growth of 40-50%. I want to thank the employees that have joined SMTC from MC, leadership team, business partners, distributors and our investors for their support and look forward to reporting our progress to our various stakeholders over the next several quarters. Thank you all for joining our conference call.

 

Operator

 

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

 

 

 

 

 

 

 

 

 

 

 

 

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