SMTC Reports Second Quarter Results



    20% Sequential Revenue Growth and Operational Restructuring

    TORONTO, Aug. 12 /CNW/ - SMTC Corporation (Nasdaq:   SMTX, TSE: SMX), a
global electronics manufacturing services provider, today reported 2008 second
quarter revenue of $66.3 million and net loss of $6.3 million, or $0.43 per
share after a $5.7 million restructuring charge. This compares with revenue of
$66.1 million and net income of $0.1 million, or $0.01 per share, for the 2007
second quarter. In the first quarter of 2008, the Company reported revenue of
$55.1 million and net income of $0.4 million, or $0.03 per share.
    Gross profit for the second quarter of 2008 was $4.5 million, or 6.8% of
revenue, compared with $4.4 million, or 8.0% of revenue, for the previous
quarter and $5.8 million, or 8.8% of revenue, for the second quarter of 2007.
    Subsequent to quarter end SMTC and its lenders signed amendments to the
loan agreements which will have the effect of lowering the effective interest
rate on overall indebtedness and favorably revising covenants and other terms.
    "Second quarter results reflect 20% sequential growth as seven of our ten
largest customers increased order levels over the previous quarter and two
newer customers began to ramp production levels", stated John Caldwell,
President and Chief Executive officer. "Gross margins were adversely affected
by sales mix, higher labor and overhead costs in part arising from our two new
facilities ramping production. We undertook several planned cost reduction
initiatives in the quarter to rebalance manpower levels and we addressed an
asset valuation issue. We lowered staffing levels at our Chihuahua, Mexico
site as planned production shifted to our new China facility. The China site
became fully operational in the second quarter. We also adjusted manpower
levels at our Boston facility and selectively at other locations. These
actions resulted in an $800,000 restructuring charge related to severance. In
addition, we incurred a $4.9 million charge to write down leasehold
improvements at the Boston site. These restructuring initiatives will have the
effect of lowering costs in future quarters."
    "Cash usage from operations in the second quarter of $4.6 million
primarily arose from delayed payments from certain customers at quarter end.
These payments were received early in the third quarter", stated Jane Todd,
Senior Vice President Finance and Chief Financial Officer. "Despite
challenging credit markets, we continue to improve our financing arrangements
and lower interest expense in large part due to our track record of positive
cash flow and earnings."
    "Customer order levels continue to be solid despite concerns about
weakening of the North American economy. For the second half of the year, we
forecast revenue and earnings above first half levels and we expect to
generate positive cash flow", stated John Caldwell, President and Chief
Executive Officer.

    -------------------------------------------------------------------------
    Expressed in U.S. dollars
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    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 facilities span a broad footprint in the
United States, Canada, Mexico, and China, with more than 1000 full time
employees. 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, computing and communication market segments.
    SMTC is a public company incorporated in Delaware with its shares traded
on the Nasdaq National Market System under the symbol SMTX and on the Toronto
Stock Exchange under the symbol SMX. For further information on SMTC
Corporation, please visit our website at www.smtc.com (http://www.smtc.com/)

    Note for Investors: 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 "believes",
"expect", "may", "should", "would", "will", "intends", "plans", "estimates",
"anticipates" and similar words, and include, but are not limited to,
statements regarding the expectations, intentions or strategies of SMTC
Corporation. For these statements, we claim the protection of the safe harbor
for forward-looking statements provisions 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 and integrating acquired companies,
fluctuations in demand for customers' products and changes in customers'
product sources, competition in the EMS industry, component shortages, and
others discussed in the Company's most recent filings with securities
regulators in the United States and Canada. The forward-looking statements
contained in this release are made as of the date hereof and the Company
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.

    
    Consolidated Statements of Operations and Comprehensive Income
    (Unaudited)

                              Three months ended         Six months ended
    -------------------------------------------------------------------------
    (Expressed in thousands
     of U.S. dollars,
     except number of
     shares and per share     June 29,      July 1,     June 29,      July 1,
     amounts)                    2008         2007         2008         2007
    -------------------------------------------------------------------------

    Revenue               $    66,286  $    66,110  $   121,426  $   135,587
    Cost of sales              61,832       60,265      112,571      123,265
    -------------------------------------------------------------------------
    Gross profit                4,454        5,845        8,855       12,322
    Selling, general and
     administrative
     expenses                   4,238        4,118        7,427        7,690
    Restructuring charges       5,748            -        5,523            -
    -------------------------------------------------------------------------
    Operating earnings         (5,532)       1,727       (4,095)       4,632
    Interest expense              765        1,582        1,678        3,264
    -------------------------------------------------------------------------
    (Loss) earnings before
     income taxes              (6,297)         145       (5,773)       1,368
    Income tax expense
     (recovery)
    Current                        45           35          157       (1,430)
    Deferred                      (20)           -          (29)        (113)
    -------------------------------------------------------------------------
                                   25           35          128       (1,543)
    -------------------------------------------------------------------------
    Net (loss) earnings,
     also being
     comprehensive
     income               $    (6,322) $       110  $    (5,901) $     2,911
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic (loss) earnings
     per share            $     (0.43) $      0.01  $     (0.40) $      0.20
    Diluted (loss) earnings
     per share            $     (0.43) $      0.01  $     (0.40) $      0.20
    Weighted average number
     of shares outstanding
    Basic                  14,646,333   14,646,333   14,646,333   14,646,333
    Diluted                14,646,333   14,994,949   14,646,333   14,923,935



    Consolidated Balance Sheets as of
    (Unaudited)

    -------------------------------------------------------------------------
                                                        June 29, December 31,
    (Expressed in thousands of U.S. dollars)               2008         2007
    -------------------------------------------------------------------------
    Assets

    Current assets:
    Cash                                            $         -  $       182
    Accounts receivable - net                            39,803       38,658
    Inventories                                          38,019       30,879
    Prepaid expenses                                      1,403          940
    -------------------------------------------------------------------------
                                                         79,225       70,659
    Property, plant and equipment                        17,047       22,295
    Deferred financing fees                               1,206        1,410
    Deferred income taxes                                   512          483
    -------------------------------------------------------------------------
                                                    $    97,990  $    94,847
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Shareholders' Equity

    Current liabilities:
    Accounts payable                                $    40,826  $    37,172
    Accrued liabilities                                   8,395        7,272
    Income taxes payable                                    582          604
    Current portion of long-term debt                     2,600        3,071
    Current portion of capital lease obligations            975          736
    -------------------------------------------------------------------------
                                                         53,378       48,855

    Long-term debt                                       21,893       17,913
    Capital lease obligations                             1,573        1,244

    Shareholders' equity:
    Capital stock                                         7,587        7,854
    Warrants                                             10,372       10,372
    Loans receivable                                         (5)          (5)
    Additional paid-in capital                          249,367      248,888
    Deficit                                            (246,175)    (240,274)
    -------------------------------------------------------------------------
                                                         21,146       26,835
    -------------------------------------------------------------------------
                                                    $    97,990  $    94,847
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows
    (Unaudited)

                              Three months ended        Six months ended
    -------------------------------------------------------------------------
    (Expressed in thousands
     of U.S. dollars)
    -------------------------------------------------------------------------
    Cash provided by          June 29,      July 1,     June 29,      July 1,
     (used in):                  2008         2007         2008         2007
    -------------------------------------------------------------------------
    Operations:
    Net (loss) earnings   $    (6,322) $       110  $    (5,901) $     2,911
    Items not involving cash:
    Depreciation                  740        1,222        1,864        2,531
    Impairment of property,
     plant and equipment        4,921            -        4,921            -
    Deferred income taxes         (20)         (15)         (29)        (103)
    Non-cash interest             100          812          204        1,096
    Stock-based compensation      288        1,001          496        1,067
    -------------------------------------------------------------------------
                                 (293)       3,130        1,555        7,502
    Change in non-cash
     operating working
     capital:
      Accounts receivable      (5,601)       5,393       (1,145)       5,637
      Inventories                 876        8,251       (7,140)       6,309
      Prepaid expenses           (288)        (326)        (463)        (313)
      Income taxes payable         (8)          32          (22)      (1,625)
      Accounts payable            456       (5,097)       3,654       (2,312)
      Accrued liabilities         293       (2,726)         726       (2,572)
    -------------------------------------------------------------------------
                               (4,565)       8,657       (2,835)      12,626
    Financing:
    Borrowings (repayment) of
     long-term debt - net       4,529       (6,103)       3,509       (9,633)
    Principal payment of
     capital lease
     obligations                 (233)        (192)        (409)        (322)
    -------------------------------------------------------------------------
                                4,296       (6,295)       3,100       (9,955)
    Investing:
    Purchase of property,
     plant and equipment         (472)      (1,162)        (715)      (1,471)
    Proceeds from sale of
     property, plant and
     equipment                    268            -          268            -
    -------------------------------------------------------------------------
                                 (204)      (1,162)        (447)      (1,471)
    -------------------------------------------------------------------------
    Increase in cash and
     cash equivalents            (473)       1,200         (182)       1,200
    Cash and cash
     equivalents, beginning
     of period                    473            -          182            -
    -------------------------------------------------------------------------
    Cash, end of the
     period               $         -  $     1,200  $         -  $     1,200
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Supplementary Information:

    Reconciliation of EBITDA
    -------------------------------------------------------------------------

                             Three months ended         Six months ended
                          ------------------------- -------------------------

                              June 29,      July 1,     June 29,      July 1,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Operating (loss)
     earnings             $    (5,532) $     1,727  $    (4,095) $     4,632
    Add:
      Depreciation                740        1,222        1,864        2,531
      Restructuring charges     5,748            -        5,523            -
    -------------------------------------------------------------------------
    EBITDA                        956        2,949        3,292        7,163
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Jane Todd, Senior Vice President, Finance and
Chief Financial Officer, (905) 413-1300, Email: jane.todd@smtc.com

Organization Profile

SMTC CORPORATION

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