SMTC Corporation Announces Third Quarter Results
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SMTC Corporation Announces Third Quarter Results

TORONTO, Nov. 04, 2020 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq: SMTX), a global electronics manufacturing services provider and winner of Frost & Sullivan’s 2019 Best Practices Award for Customer Value Leadership in the Electronics Manufacturing Services Industry, today announced its third quarter 2020 results.

Business Highlights

$s millions (except EPS)Q3 2020Q2 2020ChangeQ3 2019Change
Revenue$99.5$90.410.1%$88.712.3%
GAAP     
Gross Profit$11.1$10.73.9%$8.924.7%
Gross Profit Percentage11.2%11.8% 10.0% 
Net Income (Loss)$1.2$1.030.2%($5.7) 
EPS$0.04$0.030.0%($0.20) 
Non-GAAP     
Adjusted Gross Profit$12.5$11.76.8%$10.816.7%
Adjusted Gross Profit Percentage12.6%13.0% 12.1% 
Adjusted Net Income$3.8$2.457.4%$2.180.8%
Adjusted EPS$0.13$0.0856.6%$0.0871.2%
Adjusted EBITDA$7.5$6.417.5%$6.320.2%
Adjusted EBITDA Percentage7.6%7.1% 7.1% 
Net Debt$85.9$84.61.5%84.4 

Note: Adjusted Gross Profit, Adjusted Gross Profit Percentage, Adjusted Net Income, Adjusted Earnings Per Common Share (Adjusted EPS), EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, and Net Debt (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.

Management Commentary

“Our sales organization continues to gain market share and expand our sales funnel, including $46 million in new awards and bookings during the third quarter, from five new customers and one existing customer. I am pleased that we are beginning to see an acceleration of customer programs moving through the customer certification process, into new product introduction phase and entering production that will continue to ramp in 2021,” said Ed Smith, SMTC’s President and Chief Executive Officer.

Revenue by Industry Sector

Industry SectorThree months ended
Sept. 27, 2020
Three months ended
Sept. 29, 2019
Change
Dollars in millions$ % $ % $%
Industrial IoT, Power and Clean Technology37.0 37.2 36.7 41.4 0.3 0.8 
Semiconductors16.0 16.1 7.3 8.2 8.7 119.2 
Avionics, Aerospace and Defense12.0 12.1 5.2 5.9 6.8 130.8 
Medical and Safety11.3 11.4 10.5 11.8 0.8 7.6 
Retail and Payment Systems10.3 10.4 10.6 12.0 (0.3)(2.8)
Test and Measurement8.1 8.1 8.8 9.9 (0.7)(8.0)
Telecom, Networking and Communications4.8 4.8 9.6 10.8 (4.8)(50.0)
Total99.5 100.0 88.7 100.0 10.8 12.3 

“Our focus on expanding our market share in key markets that play to our strengths, such as the Industrial IoT market, the highly complex, regulated medical markets, and the defense and aerospace industry, continues to provide a stable and solid base to profitably grow our business during the ongoing COVID-19 pandemic. We also benefited from a rebound by our semiconductor customers,” noted Smith.

For the three months ended September 27, 2020, cash used by operations was $0.2 million and capital expenditures were $1.1 million. During the third quarter, the Company amended its credit facilities to provide increased covenant flexibility as it navigates through the COVID-19 pandemic.

As of September 27, 2020, subject to debt covenants, SMTC had $30.5 million available for borrowing under its asset-based lending facility and reduced its debt-to-adjusted EBITDA ratio to 2.55 (excluding leases).

“Rich Fitzgerald, SMTC’s Chief Operating Officer, has decided for personal reasons to pursue other opportunities. We want to thank Rich for his leadership and guidance over the past three-and-a-half-year tenure, during which time SMTC tripled in size with increased profitability and customer satisfaction. Rich will continue in his current role during the search for his successor which is expected to be completed by the end of the first quarter of 2021,” said Smith.

Reaffirming the Higher End of Prior Second Half 2020 Guidance and Establishing 2021 Full Year Guidance

“Based on our current demand and supply chain visibility, and assuming our facilities continue to operate at currently planned levels, we are reaffirming at the higher end of our prior guidance issued on August 5, 2020. We now expect revenue to range between $195 million and $205 million and adjusted-EBITDA to range between $14 million and $15 million for the second half of 2020,” said Smith.

“As we embark on our next-phase of growth, with our ongoing sales momentum, recent customer awards, strong bookings-backlog, and planned operating efficiencies, we currently expect revenue for 2021 to range between $430 million and $450 million and adjusted EBITDA to range between $33.0 million and $37.0 million, with revenue growth and adjusted EBITDA margins consistent with our long-term financial model targets,” added Smith.

Financial Results Conference Call

SMTC will host a conference call which will start at 8:30 am Eastern Time on Thursday, November 5, 2020 to discuss its third quarter results. 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 1-833-316-0546 (for U.S. participants), 1-866-605-3852 (for Canadian participants) or 1-412-317-5727 (for participants outside of the U.S. and Canada) ten minutes prior to the start of the call and requesting to join the SMTC Corporation Third Quarter 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, Adjusted Earnings Per Common Share (Adjusted EPS), EBITDA, Adjusted EBITDA, Adjusted EBITDA Percentage, and Net Debt 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, unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts and COVID-19 related expenses. COVID-19 related expenses include expenses associated with the retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies and costs associated with facilitating social distancing. Adjusted Gross Profit Percentage is computed as Adjusted Gross Profit divided by revenue.

Adjusted Net Income is computed as net income (loss) before amortization of intangible assets, restructuring charges (recovery), stock-based compensation, fair value adjustment of warrant liability, merger and acquisition related expenses, fair value adjustment to contingent consideration, COVID-19 related expenses and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts. Adjusted EPS is computed as Adjusted Net Income divided by Diluted Weighted Average Shares Outstanding. EBITDA is computed 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, fair value adjustment to contingent consideration, merger and acquisition related expenses, COVID-19 related expenses 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. 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 and Net Debt to total debt are each included in this press release below.

Management believes that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information to investors 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. The Company’s management believes that adjusting for the additional temporary costs attributable to the COVID-19 pandemic allows for a better comparison of the Company’s performance to prior periods, which is consistent with the Company’s recent amendments to the financial covenants in its financing agreements. These Non-GAAP Financial Measures are used by management to manage and monitor SMTC’s performance, and 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 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 stability of customer demand, supply chain visibility, SMTC’s expected financial results for the second half of 2020 and full year in 2021, including revenue, net income, Adjusted EBITDA, as well as the anticipated revenue from specific new programs, the expectation of continuing acceleration of customer programs moving through the customer certification process, into new product introduction phase and entering production that will continue to ramp in 2021, its ability to meet customers’ production requirements, its ability to continue operations in accordance with applicable regulations, and access to additional funding under its credit facilities. 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 effect of the expanded outbreak of the COVID-19 pandemic on the economy generally and on SMTC, its operations, fluctuations in demand for customers’ products and changes in customers’ product sources, disruptions to the supply chain, availability of labor resources, delivery logistics, component shortages, availability of credit or lending facilities, challenges of managing quickly expanding operations, competition in the electronics manufacturing services industry, changes in regulations and guidance from federal, state and local governments and public health officials, 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 Avionics, Aerospace and Defense, Industrial IoT, Power and Clean Technology, Medical and Safety, Retail and Payment Systems, Semiconductors, Telecom, Networking and Communications, and Test and Measurement industries. As a mid-size provider of end-to-end EMS, SMTC provides printed circuit board assembly production, systems integration and comprehensive testing services, enclosure fabrication, as well as product design, and 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 (Loss)  
(Unaudited)       
 Three months ended Nine months ended
(Expressed in thousands of U.S. dollars, except number of shares and per share amounts)September 27,
2020
 September 29,
2019
 September 27,
2020
 September 29,
2019
        
Revenue$99,547  $88,682  $285,091  $282,267 
Cost of sales 88,445   79,776   253,664   255,740 
Gross profit 11,102   8,906   31,427   26,527 
Selling, general and administrative expenses 6,710   6,549   21,036   19,908 
Gain on contingent consideration -   -   -   (3,050)
Restructuring charges 871   6,454   525   8,624 
Operating earnings 3,521   (4,097)  9,866   1,045 
Fair value loss (gain) on warrant liability 133   (858)  15   (919)
Interest expense 1,941   2,679   6,021   8,349 
Net income (loss) before income taxes 1,447   (5,918)  3,830   (6,385)
Income tax expense (recovery)       
Current 286   (103)  872   592 
Deferred (82)  (81)  (15)  14 
  204   (184)  857   606 
Net income (loss) and comprehensive income (loss)$1,243  $(5,734) $2,973  $(6,991)
        
Basic income (loss) per share$0.04  $(0.20) $0.11  $(0.28)
Diluted income (loss) per share$0.04  $(0.20) $0.10  $(0.28)
        
Weighted average number of shares outstanding       
Basic 28,214,800   28,057,763   28,207,943   24,954,875 
Diluted 29,636,319   28,057,763   29,629,462   24,954,875 



Consolidated Balance Sheets   
(Unaudited)   
    
(Expressed in thousands of U.S. dollars)September 27,
2020
 December 29,
2019
Assets   
    
Current assets:   
Cash$169  $1,368 
Accounts receivable - net 73,406   69,919 
Unbilled contract assets 42,736   26,271 
Inventories - net 51,537   47,826 
Prepaid expenses and other assets 6,564   7,044 
Derivative assets 720   - 
Income taxes receivable 160   - 
  175,292   152,428 
Property, plant and equipment - net 23,397   25,310 
Operating lease right of use assets - net 5,897   3,330 
Goodwill 18,165   18,165 
Intangible assets - net 10,029   12,747 
Deferred income taxes - net 555   540 
Deferred financing costs - net 742   859 
Total assets$234,077  $213,379 
    
Liabilities and Shareholders’ Equity   
    
Current liabilities:   
Revolving credit facility 34,356   34,701 
Accounts payable 77,979   74,126 
Accrued liabilities 23,125   11,164 
Warrant liability 1,745   1,730 
Restructuring liability 364   1,597 
Income taxes payable 254   157 
Current portion of long-term debt 2,188   1,250 
Current portion of operating lease obligations 1,452   1,128 
Current portion of finance lease obligations 1,818   1,226 
  143,281   127,079 
    
Long-term debt 32,513   33,750 
Operating lease obligations 5,042   2,615 
Finance lease obligations 8,696   8,838 
Total liabilities 189,532   172,282 
Shareholders’ equity:   
Capital stock 508   508 
Additional paid-in capital 293,864   293,389 
Deficit (249,827)  (252,800)
  44,545   41,097 
Total liabilities and shareholders’ equity$234,077  $213,379 



Consolidated Statements of Cash Flows       
(Unaudited)       
    
(Expressed in thousands of U.S. dollars)Three months ended Nine months ended
Cash provided by (used in):September 27,
2020
 September 29,
2019
 September 27,
2020
 September 29,
2019
Operations:       
Net income (loss)$1,243  $(5,734) $2,973  $(6,991)
Items not involving cash:       
Depreciation on property, plant and equipment 1,545   1,649   4,767   4,902 
Amortization of acquired intangible assets 354   1,844   2,718   5,532 
Unrealized foreign exchange gain on unsettled forward exchange contracts (261)  -   (720)  - 
Deferred income taxes (82)  (81)  (15)  14 
Write down of property, plant and equipment -   261   -   261 
Amortization of deferred financing fees 304   755   892   1,300 
Stock-based compensation 158   353   475   538 
Change in fair value of warrant liability 133   (858)  15   (919)
Change in fair value of contingent consideration -   -   -   (3,050)
        
Change in non-cash operating working capital:       
Accounts receivable (8,335)  3,743   (3,487)  11,778 
Unbilled contract assets (4,089)  829   (16,465)  (6,385)
Inventories (1,412)  (3,386)  (3,711)  3,668 
Prepaid expensesand other assets 249   33   480   (1,095)
Income taxes payable (13)  (319)  (63)  (116)
Accounts payable 7,055   285   3,678   (9,845)
Accrued liabilities 3,089   1,458   11,964   (265)
Restructuring liability (314)  1,879   (1,233)  2,736 
Net change in operating lease right of use asset and liability 183   (51)  184   414 
  (193)  2,660   2,452   2,477 
Financing:       
Repayments of revolving credit facility 413   21,092   (345)  9,820 
Repayments of long-term debt (312)  (22,000)  (937)  (22,625)
Debt issuance and deferred financing fees (62)  (321)  (137)  (371)
Principal repayments of finance lease obligations (321)  (390)  (997)  (1,199)
Proceeds from issuance of common stock rights offerings -   -   -   14,044 
Proceeds from issuance of stock options -   45   -   45 
  (282)  (1,574)  (2,416)  (286)
Investing:       
Purchase of property, plant and equipment 333   (1,119)  (1,235)  (3,191)
  333   (1,119)  (1,235)  (3,191)
Decrease in cash (142)  (33)  (1,199)  (1,000)
Cash, beginning of period 311   634   1,368   1,601 
Cash, end of the period$169  $601  $169  $601 



Supplementary Information:       
Reconciliation of Adjusted Gross Profit and Adjusted Gross Profit Percentage  
(Unaudited)       
 Three months ended Nine months ended
(Expressed in thousands of U.S. dollars)September 27,
2020
 September 29,
2019
 September 27,
2020
 September 29,
2019
        
Gross Profit$11,102  $8,906  $31,427  $26,527 
Add (deduct):       
Amortization of intangible assets 354   1,844   2,718   5,532 
Unrealized foreign exchange gain       
on unsettled forward exchange contracts (261)  -   (720)  - 
COVID-19 related expenses 1,348   -   2,533   - 
Adjusted Gross Profit$12,543  $10,750  $35,958  $32,059 
Adjusted Gross Profit Percentage 12.6%  12.1%  12.6%  11.4%



Supplementary Information:       
Reconciliation of Adjusted Net Income and Adjusted EPS    
(Unaudited)       
 Three months ended Nine months ended
(Expressed in thousands of U.S. dollars)September 27,
2020
 September 29,
2019
 September 27,
2020
 September 29,
2019
Net income (loss)$1,243  $(5,734) $2,973  $(6,991)
Add (deduct):       
Amortization of intangible assets 354   1,844   2,718   5,532 
Restructuring charges 871   6,454   525   8,624 
Stock compensation expense 158   353   475   538 
Fair value adjustment of warrant liability 133   (858)  15   (919)
Fair value adjustment of contingent consisderation -   -   -   (3,050)
Merger and acquisitions related expenses -   68   -   232 
COVID-19 related expenses 1,348   -   2,533   - 
Unrealized foreign exchange gain       
on unsettled forward exchange contracts (261)  -   (720)  - 
Adjusted Net income$3,846  $2,127  $8,519  $3,966 
Adjusted EPS$0.13  $0.08  $0.29  $0.16 
Weighted average number of shares outstanding       
Basic 28,214,800   28,057,763   28,207,943   24,954,875 
Diluted 29,636,319   28,057,763   29,629,462   24,954,875 



Supplementary Information:       
Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA Percentage    
(Unaudited)       
 Three months ended Nine months ended
(Expressed in thousands of U.S. dollars)September 27,
2020
 September 29,
2019
 September 27,
2020
 September 29,
2019
Net income (loss)$1,243  $(5,734) $2,973  $(6,991)
Add (deduct):       
Depreciation of property, plant and equipment 1,545   1,649   4,767   4,902 
Amortization of Intangible assets 354   1,844   2,718   5,532 
Interest 1,941   2,679   6,021   8,349 
Income tax expense (recovery) 204   (184)  857   606 
EBITDA$5,287  $254  $17,336  $12,398 
        
Add (deduct):       
Restructuring charges 871   6,454   525   8,624 
Stock compensation expense 158   353   475   538 
Fair value adjustment of warrant liability 133   (858)  15   (919)
Fair value adjustment of contingent consideration -   -   -   (3,050)
Merger and acquisitions related expenses -   68   -   232 
COVID-19 related expenses 1,348   -   2,533   - 
Unrealized foreign exchange gain       
on unsettled forward exchange contracts (261)  -   (720)  - 
Adjusted EBITDA$7,536  $6,271  $20,164  $17,823 
Adjusted EBITDA Percentage 7.6%  7.1%  7.1%  6.3%



Supplementary Information:  
Reconciliation of Second Half 2020 Guidance Range 
(Unaudited)  
 Six Months Ended January 3, 2021
(Expressed in thousands of U.S. dollars)LowHigh
Net Income$2,375 $3,375
Add (deduct):  
Depreciation 3,000  3,000
Amortization of Intangible assets 700  700
Interest expense 3,700  3,700
Income tax expense 500  500
EBITDA$10,275 $11,275
   
Add (deduct):  
Restructuring charges 900  900
Stock compensation expense 425  425
COVID-19 related expenses 2,400  2,400
Adjusted EBITDA$14,000 $15,000


Supplementary Information:  
Reconciliation of Full Year 2021 Guidance Range
(Unaudited)  
 Twelve Months Ended January 2, 2022
(Expressed in thousands of U.S. dollars)LowHigh
   
Net Income$14,300 $18,300
Add (deduct):  
Depreciation 5,800  5,800
Amortization of Intangible assets 1,200  1,200
Interest expense 7,000  7,000
Income tax expense 1,300  1,300
   
EBITDA$29,600 $33,600
   
Add (deduct):  
Restructuring charges  
Stock compensation expense 700  700
COVID-19 related expenses 2,700  2,700
Adjusted EBITDA$33,000 $37,000



Supplementary Information:   
Reconciliation of Net Debt   
(Unaudited)   
    
(Expressed in thousands of U.S. dollars)September 27,
2020
 December 29,
2019
    
Revolver$34,356  $34,701 
Long-term debt 37,813   38,750 
Discount (long-term debt) (3,112)  (3,750)
Finance lease obligations1 10,514   10,064 
Operating lease obligations2 6,494   3,743 
 $86,065  $83,508 
Cash$(169) $(1,368)
Net Debt$85,896  $82,140 
    
1Capital lease obligations include $1.4 million for new lease effective September 2020
2Operating lease obligations include $3.6 million for new lease for Fremont facility effective July 2020


Investor Relations Contact

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

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