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

^{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.

Investor Relations Contact
Peter Seltzberg
Managing Director
Darrow Associates, Inc.
516-419-9915
[email protected]