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 13, 2020 (March 12, 2020)  

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 March 12, 2020, SMTC Corporation issued a press release announcing its fourth quarter and fiscal year 2019 financial results, a copy of which is attached as Exhibit 99.1 to this Current Report and incorporated herein by reference.

On March 13, 2020, SMTC Corporation held a teleconference announcing its fourth quarter and fiscal year 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.

Item 9.01. Financial Statements and Exhibits.

Exhibit Number	Description
99.1	Press Release of SMTC Corporation dated March 12, 2020
99.2	Transcript of SMTC Corporation’s fourth quarter and fiscal 2019 teleconference held March 13, 2020

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 13, 2020	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 Fourth Quarter and Full Year 2019 Results

Strong Operation Efficiency Gains Led to Year-over-Year Growth, Expected to Continue in 2020

TORONTO, March 12, 2020 (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 fourth quarter and full year 2019 results.

2019 Business Highlights

“We made significant progress in 2019 building a stronger company that we believe positions SMTC for long-term success,” said Ed Smith, SMTC President and CEO. From a strategic perspective, highlights included

• Expanded our customer base, including new wins in several attractive, highly regulated high growth markets
• Successfully integrated MC Assembly within a year of the acquisition
• Increased our scale and improved our operational efficiencies
• Accelerated our Gross Profit (up 98% for the full year in 2019 compared to 2018), Adjusted Net Income (up 162% for the full year in 2019 compared to 2018) and EBITDA (up 133% for the full year in 2019 compared to 2018) metrics faster than our revenue growth of 73% for the full year in 2019 compared to 2018
• Completed the closure of our Chinese manufacturing operations in Dongguan
• Strengthened our balance sheet

Fourth Quarter 2019 Financial Highlights
$s in thousands				Q4 2018			Change		Q4 2018			Change
	Q4 2019			(as reported)					Pro-forma1
Revenue	$	90,244		$	80,855		11.6	%	$	98,736		(8.6	%)
Gross Profit		10,494			8,291		26.6	%		8,236		27.4	%
Gross Profit Percentage		11.6	%		10.3	%				8.3	%
Adjusted Gross Profit2		12,150			9,341		30.1	%		9,820		23.7	%
Adjusted Gross Profit Percentage2		13.5	%		11.6	%				9.9	%
Net Income (Loss)		996			(1,223	)				(4,372	)
Adjusted Net Income2		2,915			1,761		65.5	%		415		65.5	%
EBITDA2		6,693			3,401		96.8	%		3,378		98.1	%
EBITDA Percentage2		7.4	%		4.2	%				3.4	%
Adjusted EBITDA2		6,956			5,320		30.8	%		6,509		6.9	%
Adjusted EBITDA Percentage2		7.7	%		6.6	%				6.6	%
Net Debt2		82,140			92,320		(11.0	%)		nm
Full Year 2019 Financial Highlights
$s in thousands					2018					2018
		2019			(as reported)		Change		Pro-forma1			Change
Revenue	$	372,511		$	216,131		72.4	%	$	345,194		7.9	%
Gross Profit		37,021			21,661		70.9	%		28,768		28.7	%
Gross Profit Percentage		9.9	%		10.0	%				8.3	%
Adjusted Gross Profit2		44,209			22,373		97.6	%		35,752		23.7	%
Adjusted Gross Profit Percentage2		11.9	%		10.4	%				10.4	%
Net Income (Loss)		(5,995	)		(448	)				(11,044	)
Adjusted Net Income2		6,881			2,630		161.6	%		(183	)
EBITDA2		19,091			8,202		132.8	%		14,604		30.7	%
EBITDA Percentage2		5.1	%		3.8	%				4.2	%
Adjusted EBITDA2		24,779			10,215		142.6	%		18,090		37.0	%
Adjusted EBITDA Percentage2		6.7	%		4.7	%				5.2	%
Net Debt2		82,140			92,320		(11.0	%)		nm

¹Pro-forma for the fourth quarter of 2018 assumes MC Assembly Holdings, Inc. (“MC Assembly”), acquired by SMTC on November 9, 2018, had been acquired on October 1, 2018, the first day of SMTC’s fourth quarter of 2018. Pro-forma for the full year 2018 assumes MC Assembly, acquired by SMTC on November 9, 2018, had been acquired on January 1, 2018, the first day of SMTC’s first quarter of 2018.

²Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, EBITDA Percentage, Adjusted EBITDA, Adjusted EBITDA Percentage, Net Debt, Pro-forma Adjusted Gross Profit, Pro-forma Adjusted Gross Profit Percentage, Pro-forma Adjusted Net Income, Pro-forma EBITDA, Pro-forma EBITDA Percentage, Pro-forma Adjusted EBITDA and Pro-forma Adjusted EBITDA Percentage (each as defined below) are non-GAAP measures. Please refer to the section below labeled “Non-GAAP Information” and the various reconciliations to the applicable most directly comparable GAAP measures shown below in this press release^.

Revenue Growth Driven by Expansion into Attractive Markets

SMTC 2019 reported revenue of $372.5 million represented a year-over-year increase of 72.4%. On a pro-forma basis, which assumes MC Assembly had been part of SMTC for the full year in 2018, 2019 revenue increased 7.9% over 2018. Revenue growth by industry sector is noted in the table below:

Industry Sector	Fiscal Year ended		Fiscal Year ended		Change
	December 29,		December 30,
	2019		2018
	$	%	$	%	$		%
Test and Measurement	118.6	31.8	45.8	21.2	72.8		159.0
Industrial, Power and Clean Technology	77.4	20.8	28.3	13.1	49.1		173.5
Retail and Payment Systems	46.1	12.4	41.6	19.3	4.5		10.8
Medical and safety	45.5	12.2	31.4	14.5	14.1		44.9
Telecom, Networking and Communications	37.2	10.0	37.4	17.3	(0.2	)	(0.5	)
Avionics, Aerospace and Defense	24.7	6.6	5.1	2.3	19.6		384.3
Semiconductors	23.0	6.2	26.5	12.3	(3.5	)	(13.2	)
Total	372.5	100.0	216.1	100.0	156.4		72.4

Management Commentary

“In the fourth quarter we continued to expand our customer base with multi-year awards in excess of $31 million from three leading global avionics, aerospace and defense technology companies, which we announced on January 8, 2020. Thus far in the first quarter of 2020, we have added four new customers and four programs from existing customers with the potential revenue in excess of $20 million,” commented Smith.

“Our successful integration of MC Assembly resulted in the ability to increase our scale and further improve our operational efficiencies,” added Smith. “Our activities also resulted in our achieving best-in-class among our Tier III EMS peers for key performance measures, including Gross Profit Percentage, Adjusted EBITDA and Adjusted EBITDA Percentage all of which increased even faster than our revenue growth,” Smith reported.

SMTC reported a Net Loss of $6 million in 2019, compared to a Net Loss of $0.4 million in 2018. The increased loss was primarily due to restructuring charges of $8.0 million incurred in 2019 related to the closure of the China manufacturing facility and the elimination of redundancies associated with the acquisition of Mc Assembly, in addition to amortization of intangible assets of $7.2 million, partially offset by a change in fair value of contingent consideration resulting in a gain of $3.1 million. 

SMTC’s expanding sales and focus on operational efficiency enabled the company to report fourth quarter 2019 Adjusted Net Income of $2.9 million, an improvement of 65.5%, compared to the fourth quarter of 2018. 2019 Adjusted Net Income increased by 161.6% to $6.9 million. Pro-forma Adjusted Net Income was $6.9 million in 2019, an improvement compared to a Pro-forma Adjusted Net Loss of $0.2 million in 2018.

“I am also pleased to report that we have completed the closure of our Chinese manufacturing operations. Since choosing to not renew our lease in Dongguan, we have transitioned most of our customers from this China manufacturing site to our North American locations. We also remain on track to complete the move of our manufacturing equipment from Dongguan to our North American sites. Although we are exiting China from a manufacturing perspective, we are maintaining a small team in the Dongguan area to support our global engineering, supply chain, and supplier quality engineering activities as well as a procurement and logistic group in Hong Kong, China. Our team has done an excellent job of communicating our operational changes to our customers and we have seen strong customer loyalty as a result,” commented Smith.

Outlook for 2020

“While we are becoming less dependent on our presence in China from a manufacturing perspective, we are carefully monitoring the impact of COVID-19 (coronavirus) and keeping our customers abreast of our efforts to mitigate its impact on our ability to meet their production requirements. Recognizing that customer demand can change due to additional supply chain interruptions, at this time we have seen low impact on our business as a result of the coronavirus,” said Smith.

“With the integration of MC Assembly completed, we are looking forward to another year of growth in 2020. We are reaffirming the guidance we previously provided on September 19, 2019 for the full year 2020 with expected revenue ranging between $390 and $410 million,” added Smith.

“Based on the gains we made in operational efficiency, we expect Adjusted EBITDA to accelerate faster than our revenue growth. Our current outlook for 2020 is for our Adjusted EBITDA to range between $29.0 and $31.0 million, which would be an improvement of 17% to 25% compared to 2019 reported results,” added Smith.

“We also remain focused on further strengthening our balance sheet in 2020 by further reducing our debt-to-EBITDA ratio. At the time of the MC Assembly acquisition, our debt-to-EBITDA ratio stood at 4.67. Our Rights Offering and Registered Direct Offering, both completed in June 2019, and improving performance in 2019, have enabled us to reduce that ratio to 2.85, excluding leases, as of the end of 2019,” reported Smith. “Based on our current projections, we are targeting to have the debt-to-EBITDA ratio under 2.25 by the end of 2020.”

Financial Results Conference Call

SMTC will host a conference call which will start at 8:30 a.m. Eastern Time on Friday, March 13, 2020. 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 Fourth Quarter and Full Year 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, Net Debt, Pro-forma Adjusted Gross Profit, Pro-forma Adjusted Gross Profit Percentage, Pro-forma Adjusted Net Income, Pro-forma EBITDA, Pro-forma EBITDA Percentage, Pro-forma Adjusted EBITDA and Pro-forma Adjusted EBITDA Percentage are non-GAAP measures and are referred to herein as “Non-GAAP Financial Measures.” Adjusted Gross Profit is computed as gross profit excluding amortization of intangible assets and unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts. Adjusted Gross Profit Percentage is computed as Adjusted Gross Profit divided by revenue. Adjusted Net Income is computed as net income (loss) excluding before amortization of intangible assets, unrealized foreign exchange gain on unsettled forward exchange contracts, restructuring charges, stock-based compensation, fair value adjustment of warrant liability, merger and acquisition related expenses and fair value adjustment to contingent consideration. EBITDA is defined as net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA is computed as EBITDA, as further adjusted to exclude restructuring charges, stock-based compensation, fair value adjustment of warrant liability, merger and acquisition related expenses, fair value adjustment to contingent consideration and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts. Adjusted EBITDA Percentage is computed as Adjusted EBITDA divided by revenue. Net Debt is computed as Total debt minus cash. Pro-forma Adjusted Gross Profit, Pro-forma Adjusted Gross Profit Percentage, Pro-forma Adjusted Net Income, Pro-forma EBITDA, Pro-forma EBITDA Percentage, Pro-forma Adjusted EBITDA and Pro-forma Adjusted EBITDA Percentage are computed as Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, EBITDA, EBITDA Percentage, Adjusted EBITDA and Adjusted EBITDA Percentage, in each case, after assuming that MC Assembly, acquired by SMTC on November 9, 2018, had been acquired by SMTC on October 1, 2018, the first day of SMTC’s fourth quarter of 2018, with respect to the fourth quarter of 2018, or January 1, 2018, the first day of SMTC’s first quarter of 2018, with respect to the first quarter of 2018, as applicable. 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), EBITDA Percentage to net income (loss) percentage, Net Debt to total debt, Adjusted EBITDA to net income (loss), Adjusted EBITDA Percentage to net income (loss) percentage, Pro-forma Adjusted Gross Profit to gross profit, Pro-forma Adjusted Gross Profit Percentage to gross profit percentage, Pro-forma Adjusted Net Income to net income (loss), Pro-forma EBITDA to net income (loss), Pro-forma EBITDA Percentage to net income (loss) percentage, Pro-forma Adjusted EBITDA to net income (loss) and Pro-forma Adjusted EBITDA Percentage to net income (loss) percentage are each included in the attachment. Management believes that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics SMTC uses in its financial and operational decision making. These Non-GAAP Financial Measures are also frequently used by analysts, investors and other interested parties to evaluate companies in SMTC’s industry. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and they should not be construed as an inference that SMTC’s future results will be unaffected by any items adjusted for in these Non-GAAP Financial Measures. In evaluating these non-GAAP measures, you should be aware that in the future SMTC may incur expenses that are the same as or similar to some of those adjusted in the presentation below. The Non-GAAP Financial Measures that SMTC uses are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

Forward-Looking Statements

The statements contained in this release that are not purely historical are forward-looking statements, which involve risk and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These statements may be identified by their use of forward looking terminology such as  “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other and similar words, and include, but are not limited to, statements regarding SMTC’s expected growth, revenue, Adjusted EBITDA, debt-to-EBITDA ratio, and other future financial results, SMTC’s long-term success,  the benefits of SMTC’s implementation of operational efficiencies and SMTC’s transition of manufacturing equipment from Dongguan, China to North American sites, and the anticipated effect of COVID-19 on SMTC’s operations and ability to meet customers’ production requirements.  For these statements, SMTC claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Risks and uncertainties that may cause future results to differ from forward looking statements include the 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, disruptions to the supply chain due to COVID-19 and others risks and uncertainties discussed in SMTC’s most recent filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and SMTC assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements.

About SMTC

SMTC Corporation was founded in 1985 and acquired MC Assembly Holdings, Inc. in November 2018.  SMTC has more than 50 manufacturing and assembly lines in the United States and Mexico which creates a powerful low-to-medium volume, high-mix, end-to-end global electronics manufacturing services (EMS) provider. With local support and expanded manufacturing capabilities globally, including fully integrated contract manufacturing services with a focus on global original equipment manufacturers and emerging technology companies, including those in the 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
	Three months ended						Twelve months ended
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts)	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
(unaudited)
Revenue	$	90,244		$	80,855		$	372,511		$	216,131
Cost of sales		79,750			72,564			335,490			194,470
Gross profit		10,494			8,291			37,021			21,661
Selling, general and administrative expenses		7,132			7,224			27,040			18,062
Change in fair value of contingent consideration		-			-			(3,050	)		-
Change in fair value of warrant liability		640			111			(279	)		111
Write-down of property,plant and equipment		-			-			-			-
Loss on disposal of property,plant and equipment		-			(33	)		-			(30	)
Restructuring charges		(669	)		18			7,955			172
Operating earnings		3,391			971			5,355			3,346
Interest expense		2,213			1,922			10,562			3,117
Income (loss) before income taxes		1,178			(951	)		(5,207	)		229
Income tax expense (recovery)
Current		356			156			948			752
Deferred		(174	)		116			(160	)		(75	)
		182			272			788			677
Net income (loss) and comprehensive income (loss)	$	996		$	(1,223	)	$	(5,995	)	$	(448	)
Basic income (loss) per share	$	0.04		$	(0.05	)	$	(0.23	)	$	(0.02	)
Diluted income (loss) per share	$	0.04		$	(0.05	)	$	(0.23	)	$	(0.02	)
Weighted average number of shares outstanding
Basic		28,117,372			23,105,597			25,745,499			19,176,198
Diluted		28,117,372			23,105,597			25,745,499			19,176,198

Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)	December 29, 2019			December 30, 2018
(unaudited)
Assets
Current assets:
Cash	$	1,368		$	1,601
Accounts receivable - net		69,919			72,986
Unbilled contract assets		26,271			20,405
Inventories - net		47,826			53,203
Prepaid expenses and other assets		7,044			5,548
Derivative assets		-			15
Income taxes receivable		-			160
		152,428			153,918
Property, plant and equipment - net		25,310			28,160
Operating lease right of use assets - net		3,330			-
Goodwill		18,165			18,165
Intangible assets - net		12,747			19,935
Deferred income taxes - net		540			380
Deferred financing costs - net		859			668
Total assets	$	213,379		$	221,226
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility	$	34,701		$	25,020
Accounts payable		74,126			76,893
Accrued liabilities		11,164			13,040
Warrant liability		1,730			2,009
Restructuring liability		1,597			-
Contingent consideration		-			3,050
Income taxes payable		157			12
Current portion of long-term debt		1,250			1,368
Current portion of operating lease obligations		1,128			-
Current portion of finance lease obligations		1,226			1,547
		127,079			122,939
Long-term debt		33,750			56,039
Operating lease obligations		2,615			-
Finance lease obligations		8,838			9,947
Total liabilities		172,282			188,925
Shareholders’ equity:
Capital stock		508			458
Additional paid-in capital		293,389			278,648
Deficit		(252,800	)		(246,805	)
		41,097			32,301
Total liabilities and shareholders' equity	$	213,379		$	221,226

Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)	Three months ended						Twelve months ended
Cash provided by (used in):	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Operations:
Net income (loss)	$	996		$	(1,223	)	$	(5,995	)	$	(448	)
Items not involving cash:
Depreciation on property, plant and equipment		1,646			1,365			6,548			3,791
Amortization of Intangible assets		1,656			1,065			7,188			1,065
Unrealized foreign exchange gain on unsettled forward
exchange contracts		-			(15	)		-			(353	)
Write down of property, plant and equipment		(103	)		-			158			-
Gain on disposal of property, plant and equipment		-			(33	)		-			(30	)
Deferred income taxes (recovery)		(174	)		116			(160	)		(75	)
Amortization of deferred financing fees		292			160			1,592			194
Stock-based compensation		237			129			775			407
Change in fair value of warrant liability		640			111			(279	)		111
Change in fair value of contingent consideration		-			-			(3,050	)		-
Change in non-cash operating working capital:
Accounts receivable		(8,711	)		(11,917	)		3,067			(24,030	)
Unbilled contract assets		519			(11,902	)		(5,866	)		(7,949	)
Inventories		1,709			9,066			5,377			(8,027	)
Prepaid expenses and other assets		77			119			(1,018	)		(883	)
Income taxes payable		421			(164	)		305			(179	)
Accounts payable		7,233			7,116			(2,612	)		23,698
Accrued liabilities		(1,610	)		3,602			(1,875	)		4,921
Restructuring liability		(1,139	)		(79	)		1,597			-
Net change in operating lease right of use asset and liability		(464	)		-			(50	)		-
		3,225			(2,484	)		5,702			(7,787	)
Financing:
Net advances of revolving credit facility		(139	)		8,314			9,681			12,829
Repayments of long-term debt		(625	)		(6,500	)		(23,250	)		(8,000	)
Net advances of long-term debt		-			62,000			-			62,000
Principal repayments of finance lease obligations		(366	)		(298	)		(1,565	)		(487	)
Repayment of equipment facility		-			(2,629	)		-			-
Purchase treasury stock		(75	)		-			(75	)		-
Proceeds from issuance of stock options		1			-			46			361
Proceeds from issuance of common stock through rights offering		-			-			14,044			12,587
Proceeds from discontinued operations
Debt issuance and deferred financing fees		(569	)		(3,415	)		(940	)		(3,463	)
		(1,773	)		57,472			(2,059	)		75,827
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		(685	)		(511	)		(3,876	)		(4,410	)
Proceeds from leaseholding improvement											-
Proceeds from sale of property, plant and equipment		-			35			-			35
		(685	)		(68,076	)		(3,876	)		(71,975	)
Decrease in cash		767			(13,088	)		(233	)		(3,935	)
Cash, beginning of period		601			14,689			1,601			5,536
Cash, end of the period	$	1,368		$	1,601		$	1,368		$	1,601

Supplementary Information:
Reconciliation of Adjusted Gross Profit and Adjusted Gross Profit Percentage
(unaudited)	Three months ended						Twelve months ended
	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Gross Profit	$	10,494		$	8,291		$	37,021		$	21,661
Add (deduct):
Amortization of intangible assets		1,656			1,065			7,188			1,065
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		-			(15	)		-			(353	)
Adjusted Gross Profit	$	12,150		$	9,341		$	44,209		$	22,373
Adjusted Gross Profit Percentage		13.5	%		11.6	%		11.9	%		10.4	%

Supplementary Information:
Reconciliation of Adjusted Net Income
(unaudited)	Three months ended						Twelve months ended
	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Net income (loss)	$	996		$	(1,223	)	$	(5,995	)	$	(448	)
add back
Amortization of intangible assets		1,656			1,065			7,188			1,065
Restructuring charges		(669	)		18			7,955			172
Stock compensation expense		238			129			776			407
Fair value adjustment of warrant liability		640			111			(279	)		111
Merger and acquisitions related expenses		54			1,676			286			1,676
Fair value adjustment of contingent consisderation		-			-			(3,050	)		-
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		-			(15	)		-			(353	)
Adjusted net income	$	2,915		$	1,761		$	6,881		$	2,630

Supplementary Information:
Reconciliation of EBITDA, EBITDA Percentage, Adjusted EBITDA and Adjusted EBITDA Percentage
(unaudited)	Three months ended						Twelve months ended
	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Net income (loss)	$	996		$	(1,223	)	$	(5,995	)	$	(448	)
Add (deduct):
Interest		2,213			1,922			10,562			3,117
Taxes		182			272			788			677
Depreciation of property, plant and equipment		1,646			1,365			6,548			3,791
Amortization of Intangible assets		1,656			1,065			7,188			1,065
EBITDA	$	6,693		$	3,401		$	19,091		$	8,202
Add (deduct):
Restructuring charges		(669	)		18			7,955			172
Stock compensation expense		238			129			776			407
Fair value adjustment of warrant liability		640			111			(279	)		111
Merger and acquisitions related expenses		54			1,676			286			1,676
Fair value adjustment of contingent consideration		-			-			(3,050	)		-
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		-			(15	)		-			(353	)
Adjusted EBITDA	$	6,956		$	5,320		$	24,779		$	10,215
Adjusted EBITDA Percentage		7.7	%		6.6	%		6.7	%		4.7	%

Supplementary Information:
Reconciliation of Net Debt
(unaudited)
	December 29, 2019			December 30, 2018
Total Debt
Revolving credit facility	$	34,701		25,020
Long-term debt		38,750		62,000
Discount (long-term debt)		(3,750	)	(4,593	)
Finance lease obligations		10,064		11,494
Operating lease obligations		3,743		-
	$	83,508		93,921
Cash		(1,368	)	(1,601	)
Net Debt	$	82,140		92,320

Supplementary Information:
Pro-forma Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
	Three months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Revenue	$	57,325		$	41,411		$	98,736
Cost of sales		52,305			38,195			90,500
Gross profit		5,020			3,216			8,236
Selling, general and administrative expenses		5,879			3,990			9,869
Impairment of property,plant and equipment		-			(3	)		(3	)
Change in fair value of warrant liability		-			111			111
Restructuring charges		18			11			29
Operating earnings (loss)		(877	)		(893	)		(1,770	)
Interest expense		1,799			558			2,357
Loss before income taxes		(2,676	)		(1,451	)		(4,127	)
Income tax expense		214			31			245
Net loss, also being comprehensive loss	$	(2,890	)	$	(1,482	)	$	(4,372	)

Supplementary Information:
Pro-forma Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
	Twelve months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Revenue	$	192,601		$	152,593		$	345,194
Cost of sales		174,211			142,215			316,426
Gross profit		18,390			10,378			28,768
Selling, general and administrative expenses		16,717			11,581			28,298
Restructuring charges		172			253			425
Gain on disposal of property, plant and equipment		3			(3	)		-
Operating income (loss)		1,498			(1,453	)		45
Interest expense		2,994			7,164			10,158
Loss before income taxes		(1,496	)		(8,617	)		(10,113	)
Income tax expense					-
Current		619			312			931
Deferred		-			-			-
		619			312			931
Net income, and comprehensive income	$	(2,115	)	$	(8,929	)	$	(11,044	)

Supplementary Information:
Reconciliation of Pro-forma Adjusted Gross Profit and Pro-forma Adjusted Gross Profit Percentage
(Unaudited)
	Three months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Gross Profit	$	5,020		$	3,216		$	8,236
Add (deduct):
Amortization of intangible assets		1,065			591			1,656
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		(15	)		(57	)		(72	)
Adjusted Gross Profit	$	6,070		$	3,750		$	9,820
Adjusted Gross Profit %		10.6	%		9.1	%		9.9	%

Supplementary Information:
Reconciliation of Pro-forma Adjusted Gross Profit and Pro-forma Adjusted Gross Profit Percentage
(unaudited)
	Twelve months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Gross Profit	$	18,390		$	10,378		$	28,768
Add (deduct):
Amortization of intangible assets		1,065			6,310			7,375
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		(353	)		(38	)		(391	)
Adjusted Gross Profit	$	19,102		$	16,650		$	35,752
Adjusted Gross Profit %		9.9	%		10.9	%		10.4	%

Supplementary Information:
Reconciliation of Pro-forma Adjusted Net Income
(Unaudited)
	Three months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Net Loss	$	(2,890	)	$	(1,482	)	$	(4,372	)
Add (deduct):
Amortization of intangible assets		1,065			591			1,656
Restructuring charges		18			11			29
Stock compensation expense		129			-			129
Fair value adjustment of warrant liability		111			-			111
Merger and acquisitions related expenses		1,676			-			1,676
Fair value adjustment of contingent consideration					1,258			1,258
Unrealized foreign exchange gains or losses		(15	)		(57	)		(72	)
Adjusted Net Income	$	94		$	321		$	415

Supplementary Information:
Reconciliation of Pro-forma Adjusted Net Income
(unaudited)
	Twelve months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Net Loss	$	(2,115	)	$	(8,929	)	$	(11,044	)
add back
Amortization of intangible assets		1,065			6,310			7,375
Restructuring charges		172			253			425
Stock compensation expense		407			-			407
Fair value adjustment of warrant liability		111			-			111
Merger and acquisitions related expenses		1,676			-			1,676
Management fees and other professional services		-			1,258			1,258
Unrealized foreign exchange gains or losses		(353	)		(38	)		(391	)
on unsettled forward exchange contracts
Adjusted Net Income (Loss)	$	963		$	(1,146	)	$	(183	)

Supplementary Information:
Reconciliation of Pro-forma EBITDA and Pro-forma Adjusted EBITDA Percentage
(Unaudited)
	Three months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Net income	$	(2,890	)	$	(1,482	)	$	(4,372	)
Add (deduct):
Interest		1,799			1,712			3,511
Taxes		214			100			314
Depreciation of property, plant and equipment		879			1,390			2,269
Amortization of Intangible		1,065			591			1,656
EBITDA	$	1,067		$	2,311		$	3,378
Add (deduct):
Restructuring charges		18			11			29
Stock compensation expense		129			-			129
Fair value adjustment of warrant liability		111			-			111
Merger and acquisitions related expenses		1,676			-			1,676
Fair value adjustment of contingent consideration		-			1,258			1,258
Unrealized foreign exchange gains or losses		(15	)		(57	)		(72	)
on unsettled forward exchange contracts
Adjusted EBITDA	$	2,986		$	3,523		$	6,509
Adjusted EBITDA %		5.2	%		8.5	%		6.6	%

Supplementary Information:
Reconciliation of Proforma EBITDA and Adjusted EBITDA Percentage
(unaudited)
	Twelve months ended
	SMTC			MC Assembly			Proforma
	December 30, 2018			December 30, 2018			December 30, 2018
Net income	$	(2,115	)	$	(8,929	)	$	(11,044	)
Add (deduct):
Interest		2,994			7,164			10,158
Taxes		619			312			931
Depreciation of property, plant and equipment		3,305			3,879			7,184
Amortization of intanible assets		1,065			6,310			7,375
EBITDA	$	5,868		$	8,736		$	14,604
Add (deduct):
Restructuring charges		172			253			425
Stock compensation expense		407			-			407
Fair value adjustment of warrant liability		111			-			111
Merger and acquisitions related expenses		1,676			-			1,676
Fair value adjustment of contingent consideration		-			1,258			1,258
Unrealized foreign exchange gains or losses
on unsettled forward exchange contracts		(353	)		(38	)		(391	)
Adjusted EBITDA	$	7,881		$	10,209		$	18,090
Adjusted EBITDA %		4.1	%		6.7	%		5.2	%

Supplementary Information:
Reconciliation of Fiscal 2020 Guidance
(unaudited)
	FY 2020
Net income	$	9,000
Add:
Depreciation		7,350
Amortization of Intangible assets		3,050
Interest		8,600
Income tax expense		1,500
EBITDA	$	29,500
Add:
Stock compensation expense		500
Adjusted EBITDA	$	30,000

Investor Relations Contact

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

EX-99.1

EdgarFiling

EX-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 Full Year 2019

Conference Call Prepared Remarks

Operator

Good morning, ladies and gentlemen, and welcome to the SMTC Fourth Quarter and Full Year 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, 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.

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 morning. 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.

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I am pleased to report that we made significant progress in 2019 building a stronger company that positions SMTC for long-term success. We expanded our customer base, including new business in several attractive, highly regulated high-growth markets. Through a number of initiatives, we improved our operational efficiencies to achieve best-of-breed margins that our industry can support. We successfully integrated MC Assembly within a year of the acquisition. We have completed closing down our Chinese manufacturing operations in Dongguan. And we strengthened our balance sheet, with numerous steps taken to reduce indebtedness and improve our terms.

Strong execution by the team resulted in an increase in our revenues increased to $373 million for the year, which was up 72% over reported 2018 revenues, and also up 8% on a pro-forma basis which assumes MC Assembly had been part of SMTC for all of 2018. Our successful integration of MC Assembly resulted in higher economies of scale which can be seen at the bottom line, as the increases in our Adjusted Net Income and EBITDA metrics outpaced our revenue growth.

Our revenue growth combined with focus on operational efficiency resulted in a best-in-class fourth quarter Adjusted EBITDA of 7.7%, of revenues, and our full year Adjusted Net income increased by 162% to $6.9 million.

I will now turn the call over to Steve who will review the fourth quarter and full year numbers in more details and provide our 2020 guidance. After Steve’s review and comments, I will come back and share some further thoughts about the state of the business, our markets, and our opportunities, before we open the call to questions.

Steve.

Steven M. Waszak

Thank you, Eddie. Good morning everyone and thank you for taking time to join us this week.

First, let me clarify some terminology I will be using to discuss our financial results. 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 2018 and, finally, when you hear “pro-forma” this will include SMTC and MC Assembly assuming MC was part of SMTC in the entire year of 2018.

We will finally, also be referencing certain non-GAAP numbers, including Adjusted gross margin, Adjusted Net Income and Adjusted EBITDA. Please refer to the press release we issued yesterday for reconciliations between GAAP and adjusted results as well as any pro-forma numbers we reference on today’s call. With that let me proceed to the numbers.

Our revenue in the fourth quarter 2019 was $90.2 million, up 11.6%, compared to $80.9 million as previously reported in the fourth quarter of 2018. On a pro-forma basis, assuming MC Assembly had been part of SMTC for the entire fourth quarter of 2018, revenue decreased 8.6% in Q4 2019 compared to the fourth quarter of 2018. During the fourth quarter of 2019, we had one 10%-plus customer.

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For the full year, Revenue was $372.5 million, which as Eddie said represented a year-over-year an increase of 72.4%. On a pro-forma basis Revenue increased 8% over 2018.

Included in our earnings press release is a table that breaks down our sales by industry sector. This table shows that our Revenue growth in 2019 was driven by sales to our Test and Measurement customers which were up 159%, or $72.8 million from $45.8 million a year ago, followed by revenue growth in our Industrial, Power and Clean Technology business which increased by 174% or $49.1 million from $28.3 million in 2018, lastly our Avionics, Aerospace and Defense business revenue increased by 384% or $19.6 million from $5.1 million, and then lastly our Medical revenue increased by 44.9% or $14.1 from $31.4 million in 2018.

Our GAAP Gross Profit for the fourth quarter of 2019 was $10.5 million or 11.6% of revenue, up from $8.3 million or 10.3% of revenue in Q4 2018. Our Q4 2019 Adjusted Gross Profit was $12.2 million or 13.5% of revenue excludes non-cash $1.7 million of amortization of intangibles recorded in connection with our acquisition of MC Assembly. In comparison, Q4 2018 Adjusted Gross Profit was $9.3 million or 11.6% of revenue. The year-over-year increase in Gross Profit was primarily due to improved efficiencies and product mix.

For the full year, our GAAP Gross Profit was $37.0 million or 9.9% or revenue, compared to $21.7 million or 10.0% in 2018. Our 2019 Adjusted Gross Profit was $44.2 million or 11.9% of revenue, up from $22.4 million or 10.4% of revenues in 2018. On a pro-forma basis in 2018, our Gross Profit was $28.8 million or 8.3% of revenue and our pro-forma Adjusted Gross Profit was $35.8 million and 10.4% of revenue.

Selling, General and Administrative expenses for fourth quarter of 2019 was $7.1 million, down from $7.2 million reported in the fourth quarter a year ago. As a percent of revenue, SG&A expenses decreased to 7.9% in Q4 2019, from 8.9% in the fourth quarter a year ago. SG&A on a pro-forma basis in Q4 2018 was $9.9 million or 10.0% of revenue.

SG&A was $27.0 million or 7.3% of revenue for the full year in 2019. In comparison, SG&A in 2018 was $18.1 million or 8.4% of revenue and, on a pro-forma basis, SG&A was $28.3 million or 8.2% of revenue for 2018.

We reported a GAAP Net Income of $1.0 million in the fourth quarter of 2019 and an Adjusted Net Income of $2.9 million. In comparison, the company reported Net Loss of $1.2 million in the same period a year ago.

For the full year, we reported a GAAP Net Loss of $6.0 million, or ($0.23) per share, which included restructuring charges of $8.0 million, primarily relating to the closure of Chinese manufacturing operations, and $7.2 million related to amortization of intangibles related to our acquisition of MC Assembly. In comparison, we reported a GAAP Net loss of a half million dollars a year ago.

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Our Adjusted Net Income in 2019 was $6.9 million, or $0.25 per share, which was a significant improvement compared to $2.6 million in 2018 and a pro-forma Adjusted Net Loss of $183 thousand.

Adjusted EBITDA in Q4 2019 increased to $7.0 million or 7.7% of revenue from $5.3 million or 6.6% of revenue and $6.5 million or 6.6% of revenue on a pro-forma basis, compared to the fourth quarter a year ago. For the full year, Adjusted EBITDA improved to $24.8 million or 6.7% of revenue from $10.2 million or 4.7% of revenue. On a pro-forma basis, Adjusted EBITDA increased from $18.1 million or 5.2% of revenue in 2018. The improvements in Adjusted EBITDA was due to gains from operational efficiencies and synergies we achieved from the integration of MC Assembly.

Now I'd like to comment on the balance sheet and other key financial metrics that we reported for the fourth quarter. Our cash-to-cash cycle over the quarter averaged -80 days, with DSO at 63 days and DPO at 74 days. Inventory turns were 4.0 turns for the fourth quarter of 2019.

Our Balance Sheet: De-leveraging strategy is progressing on track, net Debt at the end of the fourth quarter was $82.1 million, down $10.2 million from the fourth quarter a year ago and down $2.3 million from the prior quarter. Net debt, excluding our finance and operating lease obligations, was $68.3 million as of the end of the year, as compared to $80.8 million at the end of 2018.

We remain focused on reducing our debt-to-EBITDA ratio. Since the MC Assembly acquisition, we have reduced our debt-to-EBITDA ratio, excluding leases, to 2.82 from 4.67 with proceeds from our Rights and Registered Direct Offering, both completed in June 2019, as well as from our improved performance in 2019. Based on our current projections, we are targeting to achieve a debt-to-EBITDA ratio less than 2.25, excluding leases, by the end of 2020.

Now since our market capitalization exceeded $75 million at June 30, 2019, we were now required to initiate compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002 and have our external auditor opine on our internal control over financial reporting as of December 29, 2019. Management is required to certify that we have designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Form 10-K for external purposes in accordance with generally accepted accounting principles in the United States of America. 

Included in our 2019 Annual Report on Form 10-K, to be filed today, we will report a material weakness in internal control related to information technology general controls in the areas of user access and program change-management over the systems that support the Company’s financial reporting processes. There have been no misstatements identified in the financial statements as a result of these deficiencies.  PricewaterhouseCoopers LLP, our independent registered public accounting firm, is responsible for auditing the Company’s financial statements and auditing our internal control over financial reporting.  PricewaterhouseCoopers LLP did not identify any material misstatements in its audit of the Company’s 2019 financial statements and has issued an unqualified opinion on the financial statements, and an adverse opinion on our internal controls over financial reporting due to the aforementioned material weakness in their auditor’s report. 

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Remediation efforts have begun; the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company expects that the remediation of this material weakness will be completed prior to the end of fiscal year 2020.

Finally, recognizing that customer demand can change due to additional supply chain interruptions, at this time, we have seen low impact on our business as a result of the coronavirus. Based on our current forecast, we are reaffirming the guidance we previously provided on September 19, 2019 for the full year 2020 and projecting revenue in range between $390 to $410 million.

As was the case 2019, we expect our Adjusted EBITDA to accelerate faster than our revenue growth. Our current outlook for 2020 is for our Adjusted EBITDA to range between $29.0 and $31.0 million, an improvement of 17% to 25% compared to 2019.

With that said, here’s Eddie for some additional comments on our business. Thank you.

Eddie Smith

Thank you, Steve.

While 2019 presented a number of macro-economic challenges, our Supply-chain team anticipated and proactively addressed a number of issues, including component shortages and uncertainties about tariffs during first-half of year and with component lead-times collapsing and inventory balancing across the supply-chain during second-half of year. We believe inventory reductions programs by our customers to balance against decreased component lead-times are coming to an end.

As we enter 2020, let me quickly report that we are carefully monitoring the impact COVID-19 or coronavirus. Just as did last year, we remain committed on supporting our customers and keeping them abreast of the evolving conditions. Through proactive and creative solutions, including in some cases setting up alternative sources to our China supply chain, our global supply chain team led by Phil Wehrli, our Senior VP of Supply Chain, has thus far mitigated, as Steve’s comments indicate, the impact from the coronavirus. As we look further ahead, we are working closely with our suppliers to ensure continuity of components, including multi-layer ceramic capacitor or MLCC, where lead times may increase in the second half of 2020 due to raw material challenges.

Now let me share with you some comments on the progress we made last year and articulate the reasons for enthusiasm behind our expectations for another year of growth and improving performance in 2020 as we remain focused on achieving leadership positions in our each of our key metrics, those being revenues, gross margin, EBITDA margin, and net margin percentage.

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First, we believe, we are continuing to gain market share and expect to grow faster than the overall EMS market. In the fourth quarter we continued to expand our customer base with multi-year awards totaling in excess of $31 million from three leading global avionics, aerospace and defense technology companies which we announced on January 8. Thus far in the first quarter of 2020, we have added another four new customers and four programs from existing customers with the potential revenue in excess of $20 million.

Second, during the fourth quarter we successfully completed 32 new product introductions and prototypes at our NPI and Manufacturing Design Center of Excellence in Billerica, Massachusetts which opened in the third quarter in 2019. This capability, and a similar one we are expanding in Fremont California, provides SMTC with a differentiator and offers our customers with a world-class “Quick-turn” manufacturing capability that can accelerate the launch of their products and the flexibility to scale production from our other low-cost sites.

Third, in order to develop even stronger relationships and capture a larger portion of our customers’ business we are currently expanding class 1000 clean room wire bonding capability at our Fremont facility.

Fourth, as I mentioned at the start of the call, we have completed the closure of our Chinese manufacturing operations in Dongguan. The transfer of manufacturing equipment from China to Florida, Fremont and Mexico is proceeding. While we are winding down the manufacturing function, we are maintaining a small team in China to support our global engineering, supply chain, and supplier quality engineering activities.

And finally, to further reduce costs and improve production efficiencies we have several ongoing global initiatives involving Lean Sigma programs.

Let me conclude by re-iterating what I reported last quarter, 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 I will take questions from those on the call today.

Q&A

Eddie Smith

Thank you, operator.

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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