GlobeNewswire Inc | Nov 4, 2020 04:10PM EST

November 04, 2020

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

Business Highlights

-- Third quarter 2020 revenue of $99.5 million, up 10.1% vs. the prior quarter and 12.3% vs. the prior year -- EPS was $0.04 and Adjusted EPS was $0.13, compared to $0.03 and $0.08 in the prior quarter, respectively -- Net Income was $1.2 million, EBITDA was $5.3 million, compared to $1.0 million and $5.8 million in the prior quarter, respectively -- Adjusted Net Income was $3.8 million, Adjusted EBITDA was $7.5 million, compared to $2.4 million and $6.4 million in the prior quarter, respectively -- $46 million of awards and orders booked in the third quarter, from new and existing customers -- All facilities remain open, in operation and in compliance with applicable COVID-19 health and safety measures -- Subject to debt covenants, the Company had access to additional borrowing capacity of $30.5 million under SMTCs asset-based lending credit facility and reduced its debt-to-adjusted EBITDA ratio to 2.55 (excluding leases) as of September 27, 2020 -- With ongoing sales momentum, recent customer awards, strong bookings-backlog, and planned operating efficiencies, the Company currently expects revenue and Adjusted EBITDA for the full year 2021 are expected to range between $430 million and $450 million in revenue and adjusted EBITDA to range between $33.0 million and $37.0 million

$s millions (except EPS) Q3 2020 Q2 2020 Change Q3 2019 ChangeRevenue $99.5 $90.4 10.1 % $88.7 12.3 %GAAP Gross Profit $11.1 $10.7 3.9 % $8.9 24.7 %Gross Profit Percentage 11.2% 11.8% 10.0% Net Income (Loss) $1.2 $1.0 30.2 % ($5.7) EPS $0.04 $0.03 0.0 % ($0.20) Non-GAAP Adjusted Gross Profit $12.5 $11.7 6.8 % $10.8 16.7 %Adjusted Gross Profit Percentage 12.6% 13.0% 12.1% Adjusted Net Income $3.8 $2.4 57.4 % $2.1 80.8 %Adjusted EPS $0.13 $0.08 56.6 % $0.08 71.2 %Adjusted EBITDA $7.5 $6.4 17.5 % $6.3 20.2 %Adjusted EBITDA Percentage 7.6% 7.1% 7.1% Net Debt $85.9 $84.6 1.5 % 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, SMTCs President and Chief Executive Officer.

Revenue by Industry Sector

Three months Three monthsIndustry Sector ended ended Change Sept. 27, 2020 Sept. 29, 2019Dollars in millions $ % $ % $ %Industrial IoT, Power and 37.0 37.2 36.7 41.4 0.3 0.8 Clean TechnologySemiconductors 16.0 16.1 7.3 8.2 8.7 119.2 Avionics, Aerospace and 12.0 12.1 5.2 5.9 6.8 130.8 DefenseMedical and Safety 11.3 11.4 10.5 11.8 0.8 7.6 Retail and Payment Systems 10.3 10.4 10.6 12.0 (0.3 ) (2.8 )Test and Measurement 8.1 8.1 8.8 9.9 (0.7 ) (8.0 )Telecom, Networking and 4.8 4.8 9.6 10.8 (4.8 ) (50.0 )CommunicationsTotal 99.5 100.0 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, SMTCs 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 SMTCs web site on the Investor Relations Calendar page at https://www.smtc.com/investors/news-events/ir-calendaror 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 SMTCs 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 Companys management believes that adjusting for the additional temporary costs attributable to the COVID-19 pandemic allows for a better comparison of the Companys performance to prior periods, which is consistent with the Companys recent amendments to the financial covenants in its financing agreements. These Non-GAAP Financial Measures are used by management to manage and monitor SMTCs performance, and also frequently used by analysts, investors and other interested parties to evaluate companies in SMTCs 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 SMTCs 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, SMTCs 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 SMTCs 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 inthousands ofU.S. dollars, September 27, September 29, September 27, September 29,except number 2020 2019 2020 2019of shares andper shareamounts) 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 6,710 6,549 21,036 19,908 administrativeexpensesGain oncontingent - - - (3,050 )considerationRestructuring 871 6,454 525 8,624 chargesOperating 3,521 (4,097 ) 9,866 1,045 earningsFair valueloss (gain) on 133 (858 ) 15 (919 )warrantliabilityInterest 1,941 2,679 6,021 8,349 expenseNet income(loss) before 1,447 (5,918 ) 3,830 (6,385 )income taxesIncome taxexpense (recovery)Current 286 (103 ) 872 592 Deferred (82 ) (81 ) (15 ) 14 204 (184 ) 857 606 Net income(loss) and $ 1,243 $ (5,734 ) $ 2,973 $ (6,991 )comprehensiveincome (loss) Basic income(loss) per $ 0.04 $ (0.20 ) $ 0.11 $ (0.28 )shareDiluted income(loss) per $ 0.04 $ (0.20 ) $ 0.10 $ (0.28 )share Weightedaverage number of sharesoutstandingBasic 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, December 29, 2020 2019Assets 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 inthousands of Three months ended Nine months endedU.S. dollars)Cash provided September September 29, September 27, September 29,by (used in): 27, 2019 2020 2019 2020Operations: Net income $ 1,243 $ (5,734 ) $ 2,973 $ (6,991 )(loss)Items not involving cash:Depreciation onproperty, plant 1,545 1,649 4,767 4,902 and equipmentAmortization ofacquired 354 1,844 2,718 5,532 intangibleassetsUnrealizedforeignexchange gainon unsettled (261 ) - (720 ) - forwardexchangecontractsDeferred income (82 ) (81 ) (15 ) 14 taxesWrite down ofproperty, plant - 261 - 261 and equipmentAmortization ofdeferred 304 755 892 1,300 financing feesStock-based 158 353 475 538 compensationChange in fairvalue of 133 (858 ) 15 (919 )warrantliabilityChange in fairvalue of - - - (3,050 )contingentconsideration Change innon-cashoperating workingcapital:Accounts (8,335 ) 3,743 (3,487 ) 11,778 receivableUnbilled (4,089 ) 829 (16,465 ) (6,385 )contract assetsInventories (1,412 ) (3,386 ) (3,711 ) 3,668 Prepaidexpensesand 249 33 480 (1,095 )other assetsIncome taxes (13 ) (319 ) (63 ) (116 )payableAccounts 7,055 285 3,678 (9,845 )payableAccrued 3,089 1,458 11,964 (265 )liabilitiesRestructuring (314 ) 1,879 (1,233 ) 2,736 liabilityNet change inoperating leaseright of use 183 (51 ) 184 414 asset andliability (193 ) 2,660 2,452 2,477 Financing: Repayments ofrevolving 413 21,092 (345 ) 9,820 credit facilityRepayments of (312 ) (22,000 ) (937 ) (22,625 )long-term debtDebt issuanceand deferred (62 ) (321 ) (137 ) (371 )financing feesPrincipalrepayments of (321 ) (390 ) (997 ) (1,199 )finance leaseobligationsProceeds fromissuance ofcommon stock - - - 14,044 rightsofferingsProceeds fromissuance of - 45 - 45 stock options (282 ) (1,574 ) (2,416 ) (286 )Investing: Purchase ofproperty, plant 333 (1,119 ) (1,235 ) (3,191 )and equipment 333 (1,119 ) (1,235 ) (3,191 )Decrease in (142 ) (33 ) (1,199 ) (1,000 )cashCash, beginning 311 634 1,368 1,601 of periodCash, end of $ 169 $ 601 $ 169 $ 601 the period

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

Supplementary Information:Reconciliation of Adjusted Net Income and Adjusted EPS(Unaudited) Three months ended Nine months ended(Expressed in September 27, September 29, September 27, September 29,thousands of 2020 2019 2020 2019U.S. dollars)Net income $ 1,243 $ (5,734 ) $ 2,973 $ (6,991 )(loss)Add (deduct): Amortizationof intangible 354 1,844 2,718 5,532 assetsRestructuring 871 6,454 525 8,624 chargesStockcompensation 158 353 475 538 expenseFair valueadjustment of 133 (858 ) 15 (919 )warrantliabilityFair valueadjustment of - - - (3,050 )contingentconsisderationMerger andacquisitions - 68 - 232 relatedexpensesCOVID-19related 1,348 - 2,533 - expensesUnrealizedforeign exchange gainon unsettledforward (261 ) - (720 ) - exchangecontractsAdjusted Net $ 3,846 $ 2,127 $ 8,519 $ 3,966 incomeAdjusted EPS $ 0.13 $ 0.08 $ 0.29 $ 0.16 Weightedaverage number of sharesoutstandingBasic 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 September September September Septemberthousands of U.S. 27, 29, 27, 29,dollars) 2020 2019 2020 2019Net income (loss) $ 1,243 $ (5,734 ) $ 2,973 $ (6,991 )Add (deduct): Depreciation ofproperty, plant and 1,545 1,649 4,767 4,902 equipmentAmortization of 354 1,844 2,718 5,532 Intangible assetsInterest 1,941 2,679 6,021 8,349 Income tax expense 204 (184 ) 857 606 (recovery)EBITDA $ 5,287 $ 254 $ 17,336 $ 12,398 Add (deduct): Restructuring 871 6,454 525 8,624 chargesStock compensation 158 353 475 538 expenseFair valueadjustment of 133 (858 ) 15 (919 )warrant liabilityFair valueadjustment of - - - (3,050 )contingentconsiderationMerger andacquisitions - 68 - 232 related expensesCOVID-19 related 1,348 - 2,533 - expensesUnrealized foreign exchange gainon unsettledforward exchange (261 ) - (720 ) - contractsAdjusted EBITDA $ 7,536 $ 6,271 $ 20,164 $ 17,823 Adjusted EBITDA 7.6 % 7.1 % 7.1 % 6.3 %Percentage

Supplementary Information: Reconciliation of Second Half 2020 Guidance Range (Unaudited) Six Months Ended January 3, 2021(Expressed in thousands of U.S. dollars) Low HighNet Income $ 2,375 $ 3,375Add (deduct): Depreciation 3,000 3,000Amortization of Intangible assets 700 700Interest expense 3,700 3,700Income tax expense 500 500EBITDA $ 10,275 $ 11,275 Add (deduct): Restructuring charges 900 900Stock compensation expense 425 425COVID-19 related expenses 2,400 2,400Adjusted 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) Low High Net Income $ 14,300 $ 18,300Add (deduct): Depreciation 5,800 5,800Amortization of Intangible assets 1,200 1,200Interest expense 7,000 7,000Income tax expense 1,300 1,300 EBITDA $ 29,600 $ 33,600 Add (deduct): Restructuring charges Stock compensation expense 700 700COVID-19 related expenses 2,700 2,700Adjusted EBITDA $ 33,000 $ 37,000

Supplementary Information: Reconciliation of Net Debt (Unaudited) (Expressed in thousands of U.S. dollars) September 27, December 29, 2020 2019 Revolver $ 34,356 $ 34,701 Long-term debt 37,813 38,750 Discount (long-term debt) (3,112 ) (3,750 )Finance lease obligations^1 10,514 10,064 Operating lease obligations^2 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 effectiveSeptember 2020^2Operating lease obligations include $3.6 million for new lease for Fremontfacility effective July 2020

Investor Relations Contact

Peter SeltzbergManaging DirectorDarrow Associates, Inc.516-419-9915pseltzberg@darrowir.com