SMTC Corp
Q2 2015 Earnings Call Transcript

Published: 29 Jul 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the SMTC Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today’s conference Sushil Dhiman, President and CEO. You may begin.

[Sushil Dhiman:]

Thank you, Nicole. Welcome and good morning, ladies and gentlemen. I am Sushil Dhiman, SMTC’s President and Chief Executive Officer. On this call with me today is Jim Currie, SMTC’s Interim Chief Financial Officer; and Greg Gaba, Vice President of Finance. Before we begin the call, I would like to remind everybody that the presentation includes statements about expected future events and financial results that are forward-looking in nature and subject to risks and uncertainties. The company cautions that actual performance will be affected by a number of factors, many of which are beyond the company’s control and that future events and results may vary substantially from what the company currently foresees. Discussions of the various factors that may affect future results is contained in the company’s Annual Report on Form 10-K, on Form 10-Q and subsequent reports on Form 8-K and other filings with the Securities and Exchange Commission. I am pleased with our second quarter results and the progress we are making. We delivered improved results due to our continued success in implementing our 2015 plan. As mentioned in the previous calls our business with two large customers significantly declined which now replace with revenues from new customers and volume increases from some of our existing customers. To clarify these two customers represented 43% in 2014 and they’re projected to be 13% in 2015. However, due to sales funnel and new customer wins we expect revenue to be equivalent to 2014. If these customers had remained at the same levels as in 2014 revenues would have increased by 30% in 2015. This shows you the effectiveness of our sales plan and the success of business win team. During the quarter we successfully achieved production ramps for the two new customers. New products for these customers were introduced during fourth quarter of 2014 and first quarter of 2015. They’re projected to be greater than 15% of revenue for the current year. In addition, we also won three new customers during the quarter. One of this is projected to provide $8 million in revenue over the next 12 months. Although revenue was flat year-over-year, we have continued to diversify our customer base by reducing the concentration risk of our top five customers to 52% compared to 69% in the prior year. Our new customers sales funnel is strong with improved business processes, cost competitiveness, operational efficiency, and our engineering solution offerings we are continuing to shorten the customer wins and customer on-boarding cycle time. In the second quarter, our inventory turns improved to 6.1 compared to 5.3 turns in the prior year. These improvements are as a result of several initiatives we implemented in the areas of demand management, supplier selection, supplier agreement, and utilization of lean manufacturing principles. We continue to strengthen our management team with the additions of Kishan Patel, General Manager for San Jose, California and [SL Tse], General Manager for Dongguan, China. I am pleased with organic growth and we are now beginning to focus on inorganic growth, we are starting to review and pursue several opportunity. I’ll now hand it over to Jim Currie, he will present the financial results.

[Jim Currie:]

Thanks, Sushil. Revenue for the second quarter was $57.7 million compared to $58 million of revenues recorded in the second quarter of the prior year. Our revenues increased by $9 million versus the first quarter of 2015 which represents the 19% increase quarter-over-quarter. Gross profits for the second quarter excluding unrealized foreign exchange were 8% compared to 8.6% in the prior year with the favorable impact of our cost reduction initiatives being more than offset by reduced margins from our product mix. Our goal remains to generate 10% of those profit. However, lower SG&A spending resulted in improved adjusted EBITDA of $1.8 million or 3.1% of revenues during the second quarter as compared to $1.5 million or 2.5% of revenues in the second quarter of 2014. This represents an adjusted EBITDA increase of 17% over the second quarter of the prior year. Our debt net of cash was $17.2 million at the end of the second quarter, compared to $21.2 million in the second quarter. In the quarter, we generated cash flow from operations of $0.2 million compared to a use of cash of $1.2 million in the second quarter of the prior year. As a result of improved financial performance over the trailing 12 months, we have exceeded our bank covenant fixed charge coverage ratio triggering a 0.5% reduction in net interest rates going forward on our revolving debt facility. I will hand it back to Sushil to provide some closing remarks.

[Sushil Dhiman:]

Thanks Jim. In summary, our Q2 results were encouraging. These achievements are due to the revenue growth from our current and new customers and flawless execution throughout our operations. We expect to continue to broaden our customer base and improve factory utilization. Our long-term goal remains to grow the revenues at 5% to 8% annually and deliver EBITDA of 4% to 5% range. As indicated previously our focus remains on adding new revenues from existing and winning new customers in the product markets we participate in. Our late stage customer pipeline is healthy and is expected to provide growth in 2016. Finally, I want to thank our customers for their trust in SMTC, thank our shareholders for their continued investments in our company and thank our employees across the globe for their hard work and dedication. We will now open the lines for your questions.

[Operator:]

Thank you. [Operator Instructions] I am showing no further questions at this time.

[Sushil Dhiman:]

Thank you, Nicole. Thank you all for joining the call and your continued support of SMTC. We expect our next earnings calls to be at the end of October, we are looking forward to speak to you then.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great day everyone.