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): November 12, 2019 (November 11, 2019)  

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

Delaware	0-31051	98-0197680
(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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SMTX	NASDAQ Global Market

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 November 11, 2019, SMTC Corporation issued a press release announcing its third quarter 2019 financial results, a copy of which is attached as Exhibit 99.1 to this Current Report and incorporated herein by reference.

On November 11, 2019, SMTC Corporation held a teleconference announcing its third quarter 2019 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.

Exhibit Number	Description
99.1	Press Release of SMTC Corporation dated November 11, 2019
99.2	Transcript of SMTC Corporation’s third quarter 2019 results teleconference held November 11, 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: November 12, 2019	By:	/s/ Edward Smith
	Name:	Edward Smith
	Title:	President and Chief Executive Officer

EX-99.1 2 exh_991.htm PRESS RELEASE

EXHIBIT 99.1

SMTC Corporation Reports Third Quarter Results

TORONTO, Nov. 11, 2019 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX), a global electronics manufacturing services provider and winners of the Frost & Sullivan’s 2019 Best Practices Award for Customer Value Leadership in the Electronics Manufacturing Services Industry, today announced its third quarter 2019 results.

Third Quarter Financial Highlights

$s in millions	Q3 2019	Q3 2018 (as reported)	Change	Q3 2018 Proforma1	Change
Revenue	$88.7	$53.7	65.2%	$93.7	(5.4%)
Gross Profit	$8.9	$5.2	70.1%	$10.3	(13.3%)
Gross Profit Percentage	10.0%	9.8%		11.0%
Adjusted Gross Profit2	$10.8	$5.1	109.6%	$10.2	5.8%
Adjusted Gross Profit Percentage2	12.1%	9.6%		10.8%
Net Income (Loss)	($5.7)	$0.9		$1.2	nm
Adjusted Net Income2	$2.1	$0.9	139.3%	$1.2	177.3%
Adjusted EBITDA2	$6.3	$2.4	161.1%	$5.5	13.6%
Adjusted EBITDA Percentage2	7.1%	4.5%		5.9%
Net Debt	$84.4	$11.8		$3.0

^{1Proforma assumes MC Assembly Holdings, Inc. (“MC Assembly”), acquired on November 9, 2018 had been acquired by SMTC on July 1, 2018, the first day of the third quarter of 2018.}

^{2Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA and EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma EBITDA, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage (each 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.}

SMTC Corporation (“SMTC”) reported a 65.2% year-over-year increase in revenue, compared to the third quarter of 2018.  On a proforma basis, revenue declined 5.4% compared to the third quarter of 2018. Factors contributing to the year-over-year revenue decline on a proforma basis included customer inventory rebalancing as lead-times in the supply-chain shortened, customer concerns about uncertainties relating to the prolonged impact of tariffs and macro-economic conditions in certain end-markets, including the semiconductor sector which was supply constrained in 2018.

Adjusted EBITDA increased from $2.4 million to $6.3 million or by 161.1% and from $5.5 million to $6.3 million on a proforma basis or 13.6%, compared to the third quarter of 2018 as noted in the table above. The improvement in Adjusted EBITDA was due to gains from operational efficiencies and synergies achieved and increased scale from the completed integration of MC Assembly following the November 2018 acquisition.

“One year since closing on the acquisition of MC Assembly, we are pleased to report our results on a higher year-to-date revenue base that is allowing us to scale our business.  During the first nine months of 2019 we achieved an increase in our revenues to $282.3 million or 14.5% on a proforma basis and we’ve seen an even steeper improvement to our Adjusted EBITDA, which grew 54% to $17.8 million on a proforma basis,” said Ed Smith, SMTC President and CEO.  “The expansion of our customer base was led by important customer wins in the Aerospace and Defense, Industrial, Power and Clean Technology and Test and Measurement markets over the same period a year ago,” noted Smith.

“Also, as indicated in our September 19, 2019 press release, the current geo-political environment caused a number of our customers to re-source their manufacturing away from vendors who are operating in China, and as a result, we have seen a decline in demand for product built in our China site.  We have been working with our customers to transfer production out of our Dongguan, China manufacturing operations, and we are currently winding down this facility, with completion expected by the end of this year.  Revenue attributable to the Dongguan manufacturing operations accounted for 5.3% of our revenue in the first three quarters of 2019,” said Ed Smith, SMTC President and CEO.  

SMTC recorded $5.5 million of charges in the third quarter related to the closure of its China manufacturing operations which includes $3.5 million of non-cash accelerated asset write-downs and $2.0 million of cash-based expenses and employee-related costs.

“Despite current challenges facing the EMS industry, we exited the third quarter in a stronger position to support our growth plans by eliminating our previously outstanding Term B debt and expanding our borrowing capacity under our amended asset-based revolving credit facilities from $45 million to $65 million, along with more favorable financial covenants with our lenders. As we look ahead, we expect another year of growth in 2020 as our funnel of new business continues to grow. With $22 million of new orders already secured, including the $15 million of awards referenced in our September 19^th press release, the integration of MC Assembly acquisition completed and our plans to implement further operational efficiencies, we are reiterating our prior 2019 and initial 2020 guidance issued on September 19^th and have the elements are now in place to make 2020 a more profitable year,” added Smith.

Financial Results Conference Call

SMTC will host a conference call which will start at 5:00 p.m. Eastern Time on Monday, November 11, 2019. 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) 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 Third Quarter 2019 Results Conference Call.

The conference call will be available for rebroadcast from the Investor Relations section of SMTC’s web site on the Investor Relations Calendar page.

Non-GAAP information

Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage are non-GAAP measures. Adjusted Gross Profit is computed as gross profit excluding unrealized gains or losses on unsettled forward foreign exchange contracts and amortization of intangible assets. Adjusted Gross Profit Percentage is computed as Adjusted Gross Profit divided by revenue. Adjusted Net Income is computed as net income (loss) excluding restructuring charges, unrealized foreign exchange gains/losses on unsettled forward foreign exchange contracts, stock-based compensation, change in fair value of warrant liability, amortization of intangible assets, merger and acquisition related expenses and change in fair value of contingent consideration. EBITDA is defined as net income (loss) before Interest, taxes, depreciation and amortization. Adjusted EBITDA is computed as net income (loss) from operations excluding depreciation and amortization, restructuring charges, unrealized foreign exchange gains/losses on unsettled forward foreign exchange contracts, stock-based compensation, change in fair value of warrant liability, interest, income tax expense and merger and acquisition related expenses and change in fair value of contingent consideration. Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage are computed as Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA and Adjusted EBITDA Percentage, in each case, after assuming that MC Assembly, acquired on November 9, 2018 had been acquired by SMTC on July 1, 2018, the first day of the third quarter of 2018. 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, Proforma Adjusted Gross Profit to gross profit, Proforma Adjusted Gross Profit Percentage to gross profit percentage, Proforma Adjusted Net Income to net income (loss), Proforma EBITDA to net income (loss), Proforma Adjusted EBITDA to net income (loss) and Proforma Adjusted EBITDA Percentage to net income (loss) percentage are each 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 and may be different from non-GAAP measures used by other companies. Because of these limitations, investors should consider Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, Proforma Adjusted Gross Profit, Proforma Adjusted Gross Profit Percentage, Proforma Adjusted Net Income, Proforma Adjusted EBITDA and Adjusted EBITDA Percentage along with other financial performance measures, including [revenue,] gross profit and net income (loss), as reflected in SMTC’s interim consolidated financial statements prepared in accordance with GAAP and included in the attachment.

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 SMTC’s expected growth and profitability, the benefits of SMTC’s implementation of operational efficiencies and SMTC’s closure of business operations in Dongguan, China.  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, integrating acquired companies, ceasing manufacturing in China, fluctuations in demand for customers' products and changes in customers' product sources, competition in the electronics manufacturing services  industry, component shortages, 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 United States, China 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 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 EMS, SMTC provides printed circuit boards assemblies 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. For further information on SMTC Corporation, please visit our website at www.smtc.com.

Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
	Three months ended						Nine months ended
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Revenue	$	88,682		$	53,677		$	282,267		$	135,276
Cost of sales	79,776			48,440			255,740			121,906
Gross profit	8,906			5,237			26,527			13,370
Selling, general and administrative expenses	6,549			3,682			19,908			10,838
Change in fair value of contingent consideration	-			-			(3,050		)	-
Change in fair value of warrant liability	(858		)	-			(919		)	-
Write-down of property,plant and equipment	-			-			-			-
Loss on disposal of property,plant and equipment	-			3			-			3
Restructuring charges	6,454			58			8,624			154
Operating earnings (loss)	(3,239		)	1,494			1,964			2,375
Interest expense	2,679			485			8,349			1,195
Income (loss) before income taxes	(5,918		)	1,009			(6,385		)	1,180
Income tax expense (recovery)
Current	(103		)	290			592			596
Deferred	(81		)	(145		)	14			(191		)
	(184		)	145			606			405
Net income (loss) and comprehensive income (loss)	$	(5,734	)	$	864		$	(6,991	)	$	775
Basic income (loss) per share	$	(0.20	)	$	0.04		$	(0.28	)	$	0.04
Diluted income (loss) per share	$	(0.20	)	$	0.04		$	(0.28	)	$	0.04
Weighted average number of shares outstanding
Basic	28,057,763			19,335,253			24,954,875			17,866,399
Diluted	28,057,763			19,986,756			24,954,875			18,517,902

Consolidated Balance Sheets
(Unaudited)
(Expressed in thousands of U.S. dollars)	September 29, 2019			December 30, 2018
Assets
Current assets:
Cash	$	601		$	1,601
Accounts receivable - net	61,208			72,986
Unbilled contract assets	26,790			20,405
Inventories - net	49,535			53,203
Prepaid expenses and other assets	6,658			5,548
Derivative assets	-			15
Income taxes receivable	358			160
	145,150			153,918
Property, plant and equipment - net	26,348			28,160
Operating lease right of use assets - net	3,887			-
Goodwill	18,165			18,165
Intangible assets - net	14,403			19,935
Deferred financing costs - net	899			668
Deferred income taxes - net	366			380
Total assets	$	209,218		$	221,226
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility	34,840			$	25,020
Accounts payable	67,082			76,893
Accrued liabilities	13,387			13,040
Warrant liability	1,090			2,009
Restructuring liability	2,736			-
Contingent consideration	-			3,050
Income taxes payable	94			12
Current portion of long-term debt	1,250			1,368
Current portion of operating lease obligations	1,483			-
Current portion of finance lease obligations	1,316			1,547
	123,278			122,939
Long-term debt	34,154			56,039
Operating lease obligations	2,818			-
Finance lease obligations	9,105			9,947
Total liabilities	169,355			188,925
Shareholders’ equity:
Capital stock	507			458
Additional paid-in capital	293,152			278,648
Deficit	(253,796		)	(246,805		)
	39,863			32,301
Total liabilities and shareholders' equity	$	209,218		$	221,226

Consolidated Statements of Cash Flows
(Unaudited)
	Three months ended						Nine months ended
(Expressed in thousands of U.S. dollars)
Cash provided by (used in):	September 29, 2019			September 30,   2018			September 29,   2019			September 30,   2018
Operations:
Net income (loss)	$	(5,734	)	$	864		$	(6,991	)	$	775
Items not involving cash:
Depreciation on property, plant and equipment	1,649			883			4,902			2,426
Amortization of acquired Intangible assets	1,844			-			5,532			-
Unrealized foreign exchange gain on unsettled forward
exchange contracts	-			(108		)	-			(338		)
Write down of property, plant and equipment	261			-			261			-
Loss on disposal of property, plant and equipment	-			3			-			3
Deferred income taxes (recovery)	(81		)	(145		)	14			(191		)
Amortization of deferred financing fees	755			13			1,300			34
Stock-based compensation	353			75			538			278
Change in fair value of warrant liability	(858		)	-			(919		)	-
Change in fair value of contingent consideration	-			-			(3,050		)	-
Change in non-cash operating working capital:
Accounts receivable	3,743			(9,081		)	11,778			(12,096		)
Unbilled contract assets	829			(1,695		)	(6,385		)	(8,183		)
Inventories	(3,386		)	(3,158		)	3,668			(6,009		)
Prepaid expenses and other assets	33			435			(1,095		)	(1,002		)
Income taxes payable	(319		)	16			(116		)	(32		)
Accounts payable	285			7,587			(9,845		)	16,582
Accrued liabilities	1,458			1,088			(265		)	2,449
Restructuring liability	1,879			-			2,736			-
Net change in operating lease right of use asset and liability	(51		)	-			414			-
	2,660			(3,223		)	2,477			(5,304		)
Financing:
Net advances of revolving credit facility	21,092			4,725			9,820			4,515
Repayments of long-term debt	(22,000		)	(500		)	(22,625		)	(1,500		)
Principal repayments of finance lease obligations	(390		)	(95		)	(1,199		)	(189		)
Advance of equipment facility	-			735			-			2,629
Proceeds from issuance of stock options	45			-			45			361
Proceeds from issuance of common stock through rights offering				12,587			14,044			12,587
Debt issuance and deferred financing fees	(321		)	-			(371		)	(48		)
	(1,574		)	17,452			(286		)	18,355
Investing:
Purchase of property, plant and equipment	(1,119		)	(1,493		)	(3,191		)	(3,898		)
	(1,119		)	(1,493		)	(3,191		)	(3,898		)
Decrease in cash	(33		)	12,736			(1,000		)	9,153
Cash, beginning of period	634			1,953			1,601			5,536
Cash, end of the period	$	601		$	14,689		$	601		$	14,689

Supplementary Information:
Reconciliation of Adjusted EBITDA
	Three months ended						Nine months ended
				Note 1						Note 1
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net income (loss)	$	(5,734	)	$	864		$	(6,991	)	$	775
Add (deduct):
Depreciation of property, plant and equipment	1,649			883			4,902			2,426
Amortization of Intangible assets	1,844			-			5,532			-
Interest	2,679			485			8,349			1,195
Income tax expense (recovery)	(184		)	145			606			405
EBITDA	$	254		$	2,377		$	12,398		$	4,801
Add (deduct):
Stock compensation expense	353			75			538			278
Fair value adjustment of warrant liability	(858		)	-			(919		)	-
Restructuring charges	6,454			58			8,624			154
Merger and acquisitions related expenses	68			-			232			-
Fair value adjustment of contingent consideration	-			-			(3,050		)	-
Unrealized foreign exchange gain
on unsettled forward exchange contracts	-			(108		)	-			(338		)
Adjusted EBITDA	$	6,271		$	2,402		$	17,823		$	4,895
Adjusted EBITDA Percentage	7.1		%	4.5		%	6.3		%	3.6		%
Note 1:  Reflects historical SMTC results as filed

Supplementary Information:
Reconciliation of Adjusted Gross Profit
	Three months ended						Nine months ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Gross Profit	$	8,906		$	5,237		$	26,527		$	13,370
Add (deduct):
Amortization of intangible assets	1,844			-			$	5,532		-
Unrealized foreign exchange gain
on unsettled forward exchange contracts	-			(108		)	-			(338		)
Adjusted Gross Profit	$	10,750		$	5,129		$	32,059		$	13,032
Adjusted Gross Profit Percentage	12.1		%	9.6		%	11.4		%	9.6		%

Supplementary Information:
Reconciliation of Adjusted Net (Loss) Income	Three months ended						Nine months ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net income (loss)	$	(5,734	)	$	864		$	(6,991	)	$	775
add back
Amortization of intangible assets	1,844			-			5,532			-
Unrealized foreign exchange gain
on unsettled forward exchange contracts	-			(108		)	-			(338		)
Stock compensation expense	353			75			538			278
Fair value adjustment of warrant liability	(858		)	-			(919		)	-
Restructuring charges	6,454			58			8,624			154
Merger and acquisitions related expenses	68			-			232			-
Fair value adjustment of contingent consisderation	-			-			(3,050		)	-
Adjusted net income	2,127			889			3,966			869

Supplementary Information:
Reconciliation of Net Debt
	September 29, 2019			September 30, 2018
Revolver	$	34,840		16,706
Term Debt	39,376			6,500
Equipment Facility	-			2,629
Discount (Term Debt)	(3,972		)	-
Capital Lease (Finance)	10,421			701
Capital Lease (Operating)	4,301			-
	$	84,966		26,536
Cash	(601		)	(14,689	)
Net Debt	$	84,365		11,847

Supplementary Information:
Proforma Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
	SMTC			MC			Proforma
	September 30, 2018			September 30, 2018			September 30, 2018
Revenue	$	53,677		$	40,064		$	93,741
Cost of sales	48,440			35,034			83,474
Gross profit	5,237			5,030			10,267
Selling, general and administrative expenses	3,682			2,729			6,411
Impairment of property,plant and equipment	3			-			3
Restructuring charges	58			(13		)	45
Operating income	1,494			2,314			3,808
Interest expense	485			1,872			2,357
Income before income taxes	1,009			443			1,452
Income tax expense (recovery)
Current	290			100			390
Deferred	(145		)	-			(145		)
	145			100			245
Net income, and comprehensive income	$	864		$	343		$	1,207

Supplementary Information:
Reconciliation of Proforma Adjusted EBITDA
	SMTC			MC			Proforma
	September 30, 2018			September 30, 2018			September 30, 2018
Net income	$	864		$	343		$	1,207
Add (deduct):
Depreciation of property, plant and equipment	883			816			$	1,699
Interest	485			1,872			$	2,357
Income tax expense	145			100			$	245
EBITDA	$	2,377		$	3,130		$	5,507
Add (deduct):
Stock compensation expense	75			-			75
Restructuring charges	58			(13		)	45
Unrealized foreign exchange loss (gain)	(108		)	-			(108		)
on unsettled forward exchange contracts
Adjusted EBITDA	2,402			3,117			5,519

Supplementary Information:
Reconciliation of Proforma Adjusted Gross Profit
	SMTC			MC			Proforma
	Sep 30,  2018			Sep 30,  2018			Sep 30,  2018
Gross Profit	$	5,237		$	5,030		$	10,267
Add (deduct):
Unrealized foreign exchange gain
on unsettled forward exchange contracts	(108		)	-			(108		)
Adjusted Gross Profit	$	5,129		$	5,030		$	10,159
Adjusted Gross Profit %	9.6		%	12.6		%	10.8		%

Supplementary Information:
Reconciliation of Adjusted Net (Loss) Income
	SMTC			MC			Proforma
	Sep 30,  2018			Sep 30,  2018			Sep 30,  2018
Net Loss	$	864		$	343		$	1,207
add back
Amortization of intangible assets	-			-			-
Unrealized foreign exchange loss (gain)	(108		)	-			(108		)
on unsettled forward exchange contracts							-
Stock compensation expense	75			-			75
Stock Revaluation of Warrant	-			-			-
Restructuring charges	58			(13		)	45
Merger and acquisitions related expenses	-			-			-
Contingent Consideration reversal	-			-			-
Adj Net Loss	889			329			1,218

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

EX-99.1

EdgarFiling

EX-99.2

EXHIBIT 99.2

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

Third Quarter 2019

Conference Call Prepared Remarks

Operator

Good afternoon, ladies and gentlemen, and welcome to the SMTC Third Quarter 2019 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, 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.

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Information about investor conferences later this quarter in which SMTC will be participating is posted on the Investor Calendar on our website. We will be participating tomorrow in the Craig Hallum’s Alpha Select in New York. And on November 20^th, we will be attending the 2019 Southwest IDEAS Investor Conference in Dallas.

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

Eddie Smith

Thank you, Blair. Welcome, and good afternoon ladies and gentlemen, I'm Eddie Smith, SMTC's President and Chief Executive Officer. On this call with me today is Rich Fitzgerald, our Chief Operating Officer; and Steve Waszak, SMTC's Chief Financial Officer.

It was one year ago on November 9^th that we closed on the transformational acquisition of MC Assembly. Over the past year the team has successfully completed our integration, expanded SMTC’s capabilities to new end-markets, implemented a number of efficiency initiatives, increased our customer base, and importantly gained important scale in an industry where scale matters. We also successfully navigated through some challenging macro-economic challenges facing the EMS industry. As a result, during the first nine months of 2019 our revenues increased to $282.3 million, up 14.5% over the nine months in 2018 on a pro-forma basis which assumes MC Assembly had been part of SMTC in 2018. Even more impressive was our improvement to our Adjusted EBITDA, which grew 53.9% to $17.8 million over the first three quarters of 2019 when compared to the first three quarters of 2018 on a pro-forma basis.

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I will now turn the call over to Steve who will review the third quarter numbers and provide our full year 2019 and initial 2020 guidance. After Steve’s review and comments, I will come back and share some further thoughts before we open the call to questions.

Steven M. Waszak

Thank you, Eddie. Good afternoon , everyone, and thank you to those who have been in service to our country.

As we did on last quarter’s conference call, I will be referencing numbers for 2019, which includes combined SMTC and MC Assembly results; 2018 year-over-year which include “as previously reported GAAP” numbers by SMTC which as a reminder include MC Assembly from acquisition date of November 9^th and, finally, when you hear “pro-forma” this will include SMTC and MC Assembly assuming MC was part of SMTC in the entire third quarter of 2018.

Moving onto our results. Our revenue in the third quarter was $88.7 million, up 65.2%, compared to $53.7 million as previously reported in the third quarter of 2018. On a pro-forma basis, assuming MC Assembly had been part of SMTC in the third quarter of 2018, revenue decreased 5.4% in Q3 2019 compared to the third quarter of 2018.

Our GAAP gross profit for the third quarter of 2019 was $8.9 million or 10.0% of revenues, compared to $5.2 million or 9.8% of revenues as previously reported in the third quarter a year ago.

Our Q3 2019 adjusted gross profit was $10.8 million or 12.1% of revenue and excludes non-cash $1.8 million of amortization of intangibles recorded in connection with our acquisition of MC Assembly last year. In comparison, Q3 2018 adjusted gross profit was $5.1 million or 9.6% of revenue. The year-over-year increase in the gross margin and adjusted gross margin percentages was primarily due to synergies implemented and efficiencies gained with acquisition of MC Assembly and the $35 million increase in revenue. During the third quarter of 2019, we had one 10%-plus customer.

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Selling, General and Administrative expenses for third quarter of 2019 was $6.5 million, up from $3.7 million in the quarter a year ago. As a percent of revenues, SG&A expenses were 7.4% in Q3 2019, compared to 6.9% in the third quarter a year ago.

We reported a $5.7 million net loss in the third quarter of 2019. That said, it included $6.5 million of restructuring charges with $5.5 million of those charges related to our closure of the Dongguan China manufacturing operations. The charges associated with this closure included $3.5 million of non-cash accelerated asset write-downs and $2.0 million of cash-based expenses and other exit costs that resulted in an adjusted net income in Q3 was a positive $2.1 million, which excludes amortization of intangible assets associated with the MC Assembly acquisition, Restructuring charges, stock-based compensation and the fair value of adjustment of warrant liability. In comparison, the company reported net income of $864 thousand in the same period a year ago.

Adjusted EBITDA increased to $6.3 million or 7.1% of Revenues in Q3 2019 from $5.5 million or 5.9% of Revenues on a pro-forma basis for the third quarter a year ago. The improvement in Adjusted EBITDA was due to gains from operational efficiencies and synergies achieved and increased scale from the completed integration of MC Assembly following the November 2018 acquisition.

Now I'd like to comment on the balance sheet and couple of other key financial metrics that we reported for the third quarter. At the end of the Q3 2019, our cash-to-cash cycle was at --78 days, with DSO improving to approximately 60 days and DPO steady at 69 days. Inventory turns were 4.2 turns for the third quarter of 2019.

In Q3, we amended our asset-based revolver facility and credit agreements to reduce the Term A outstanding balance to approximately $40 million from $50 million, expanded our borrowing capacity from $45 million to $65 million under the ABL and with improved covenants that better supports our future growth plans. We also used $12 million of the $14.6 million in gross proceeds generated from the Rights Offering, which we successfully closed in the final week of the second quarter of 2019, to accelerate the pay down of our Term B debt.

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Net Debt at the end of the third quarter was $84.4 million, and included debt incurred in November 2018 associated with financing of the MC Assembly acquisition of approximately $45 million and $14.7 million of finance and operating lease obligations, of which $4.3 million included in the $14.7 million represents operating lease right-to-use liabilities associated with the adoption on January 1^ST of the new lease accounting standard (ASC 842 – Leases). In comparison, net debt at the end of 2018 was $92.3 million. Accordingly, net debt, excluding our finance and operating lease obligations, was $69.7 million as of September 30, 2019, as compared to $80.8 million at the end of 2018.

Before turning the call back to Eddie, let me quickly add some additional comments on our previously announced decision to close our Chinese manufacturing operations. A finally I want to reiterate our full year 2019 and initial 2020 guidance which we provided back on September 19^th.

Revenues attributable to production from our manufacturing operations in China accounted for 5.3% of our revenue in the first nine months of 2019. Given that a number of customers had indicated their desire to move their production out of China, if we did not close our China manufacturing operations our forecasts indicated we would experience further revenue contraction than we have seen thus far and would have resulted in negative operating margins from the Dongguan, China operations in 2020.

Our planned closure of our Chinese manufacturing operations remains on track. We expect to transfer a selection of production equipment in the Chinese facility to our other North American plants, such that the Company’s manufacturing capacity should not be impacted in 2020 once the transfer of the equipment is completed.

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With that said, let me return this back to here’s Eddie for some additional comments on our business.

Eddie Smith

Thank you, Steve.

As I mentioned at the outset of today’s call, we have taken steps to improve our financial and operational performance as we have navigated through the changing 2019 macro environment. We remain focused on achieving leadership positions in our each of our key metrics.

I’ll now add some color on the progress made in the third quarter and articulate the reasons for enthusiasm behind our expectations as we continue to transform SMTC into an even stronger company.

First, we continue, we believe, to gain market share during the current EMS market slowdown. In Q3 we won new business with three new customers and added two new programs with existing customers. None of these new wins resulted in Q3 revenue; one of these awards is expected to begin in Q4 with the remainder expected to begin in 2020. In Q4 we already have had half a dozen additional programs awarded to us as well as increases in existing programs that will, together with our wins in Q3, generate revenues in excess of $22 million, and have a positive impact our 2020 business.

During the third quarter we saw a 20% quarter-over-quarter revenue growth in our Telecom, Networking and Communications sector led by customers with demand in their products associated with 5G implementations. We also experienced a 10% sequential revenue growth with our Industrial, Power and Clean Technology customers and an 8% increase from our Aerospace and Defense customers.

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Looking at our business on a year-over-year basis, our Test and Measurement revenue was up $17.0 million or 162%, followed by revenue growth in our Industrial, Power and Clean Technology business which increased by $13.2 million or 186%, our Aerospace and Defense business revenue at $5.2 million vs. zero revenue a year ago, and we saw an increase of $3.0 or 40% from our Medical customers. Our Semiconductor business is beginning to stabilize, and we expect to resume growth during 2020. We have posted a slide deck on our Investor Relations website with a more comprehensive breakdown of our revenues by customer sectors.

Second, to better serve our customers, we opened our New Product Introduction (NPI) and Manufacturing Design (DFx) Center of Excellence in Billerica, Massachusetts in Q3 on schedule. I am pleased to report that we have already had over 30 new product introductions run through this process. This new capability provides customers with world-class “Quick-turn” manufacturing that can accelerate the launch of products with the flexibility to scale into a low-cost geography that is available from our other sites.

Third, to reduce costs and improve production efficiencies we eliminated the weekend shift this quarter at our Fresnillo factory in Zacatecas, Mexico. We were able to do this because in Q2 we upgraded our Fresnillo facility by adding a “copy exact” full SMT standalone automated line designed for high-volume, low-mix enterprise customer needs and other equipment that increases our capacity by approximately 25%. To meet future output capacity at our North American sites, we are also proceeding on schedule to transfer the production lines from the Dongguan facility to our plants in Fresnillo and Fremont, California, thus reducing the Cap-Ex we would have otherwise incurred to increase capacity at those sites. In fact, we are already in the process of moving $7 million of anticipated customer sales for 2020 to our Mexican sites from Dongguan facility in China.

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Fourth, our team continues to earn important new certifications. At our plant in Chihuahua, Mexico, which recently celebrated its 20^th anniversary with dignitaries including the Mexican state’s Governor and the city’s Mayor in attendance, achieved ISO13485 status, while our Fremont plant was recertified with its AS9100 Rev D, and our Billerica, Massachusetts earned its 13485 certification.

As we look ahead, we expect another year of growth in 2020 as our funnel of new business continues to grow. With new orders already secured, the integration of MC Assembly acquisition completed and our plans to implement further operational efficiencies, the elements are now in place to make 2020 a more profitable year.

Let me conclude by re-iterating what I reported last quarter, that is, that we remain committed to further deleveraging our balance sheet, achieving industry-leading performance metrics, growing our business to become the premier Tier 3 EMS market segment leader, making our company an even stronger company that delights our customers with superior service, taking care of our employees, and rewarding our stockholders with enhanced shareholder value.

With that, Steve, Rich Fitzgerald and myself will take questions from those on the call today.

Q&A

Eddie Smith

Thank you, operator. First of all, I'd like to wish all the veterans -- to thank them for their service and to everybody else, Happy Veterans Day.

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

Operator

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

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