SMTC Posts Q2 FY2017 Revenue of $33M

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EMS firm SMTC Corporation has announced its unaudited results for the second quarter of fiscal year 2017. Revenue was $33 million compared to $43.6 million in the same quarter in the prior year and essentially flat compared to $33.2 million in the first quarter of fiscal 2017. The reduction from the prior year is primarily the result of volume reductions from one customer, however, quarter-over-quarter revenue has stabilized.

Gross profit for the second quarter of 2017 decreased by $1.7 million to $1.4 million or 4.3% of revenue compared with $3.1 million or 7.1% of revenue for the same period in 2016. Adjusted gross profit as a percentage of revenue in the second quarter of 2017 was 3.4% compared to 7.2% in the same period of the prior year. Gross profit for the second quarter decreased by $2.1 million compared with $3.6 million or 10.7% of revenue in the prior quarter. Adjusted gross profit as a percentage of revenue in the second quarter of 2017 was 3.4% compared to 6.9% in the prior quarter. The reduction in gross margin in the second quarter of 2016 is due to additional inventory provisions for excess and obsolete materials of $0.5 million and customer accommodations of $0.7 million recorded in the quarter. In addition, further reduction in gross margin from the prior year quarter is due to reduced revenue to cover fixed costs and product mix.

Net loss was $6 million for the second quarter of 2017 compared to a net loss of $0.6 million for the second quarter in prior year and a net loss of $0.3 million in the first quarter. Adjusted EBITDA reduced to $3.6 million in the second quarter of 2017 from $0.9 million for the same period in the prior year and $0.3 million in the first quarter of 2017. The reduction in the second quarter of 2017 is partially due to the aforementioned additional charges in the second quarter of 2017 and lower revenue compared to the same quarter in the prior year.

Included in selling, general and administrative expenses for the quarter ended July 2, 2017 was an additional provision for bad debt expense of $0.8 million related to one customer that management does not believe is collectible. This increase in selling, general and administrative expenses was partially offset by reductions in labor as a result of the previously announced Restructuring Plan.

In addition, there were non-cash charges incurred in the quarter ended July 2, 2017 for impairment of property, plant and equipment predominantly related to the U.S. and China segments of $1.6 million. With the onboarding of the company's new chief operating officer, each facility's capabilities and capital requirements was assessed. As part of this assessment, it was determined that $0.6 million in assets specifically identified as having no future use were impaired. The remaining impairment charges of $1.0 million related to the U.S segment asset group, specifically due to continued site operating losses.

Restructuring charges of $1.4 million were recorded during the second quarter of 2017 as a result of the Restructuring Plan communicated on May 15, 2017. The closure of the Suzhou facility is underway, with final production and transfer of customers completed at the end of July 2017.  The closure is substantially complete with minor wind down activities remaining.

Chief Financial Officer Roger Dunfield stated, "Although we had a challenging quarter, we executed in accordance with our Restructuring Plan and incurred some significant charges for impairment and other provisions. These charges impacted our net loss and Adjusted EBITDA for the quarter by $5.0 million and $3.6 million, respectively. I am encouraged that we had a debt net of cash of $10.7 million which was down from the first quarter of 2017. We remained in compliance with bank covenants for the quarter and would like to thank PNC for the continued support during this transition period."

Chief Executive Officer Edward Smith stated, "We have executed on our plan to right size the company to the level of business we currently operate at today. We believe sales have leveled and we are building a robust pipeline for future revenue expansion. In addition if you add back the impairment charges and additional provisions for bad debt, inventory and customer accommodations, Adjusted EBITDA would be slightly positive. Furthermore, if we had experienced a full quarter of savings related to the restructuring plan, pro-forma Adjusted EBITDA would have been positive. I am optimistic about the future and I would like to thank our employees for all that they do. I would like to also thank our customers for continuing to choose us as their manufacturing partner and our suppliers for the continued support."

About SMTC Corporation

SMTC Corporation, founded in 1985, is a mid-size provider of end-to-end electronics manufacturing services (EMS) including PCBA production, systems integration and comprehensive testing services, enclosure fabrication, as well as product design, sustaining engineering and supply chain management services. SMTC manufacturing facilities span a broad footprint in the United States, China and Mexico. 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. SMTC offers fully integrated contract manufacturing services with a distinctive approach to global original equipment manufacturers (OEMs) and emerging technology companies primarily within industrial, networking and computing, power and energy and medical market segments. SMTC is a public company incorporated in Delaware with its shares traded on the Nasdaq National Market System under the symbol SMTX. For further information on SMTC Corporation, please visit our website.