NEWS BULLETIN DDi Corp. [DDI LOGO]
1220 Simon Circle
Anaheim, CA 92806
NASDAQ: DDIC
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For Further Information:
Mikel H. Williams Sally Goff Kathleen Buczko
Chief Executive Officer Chief Financial Officer Investor/Analyst Information
714) 688-7200 (714) 688-7200 (562) 366-1552
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DDI CORP. ANNOUNCES SECOND QUARTER 2006 RESULTS
AND STRATEGIC REALIGNMENT AROUND CORE PCB OPERATIONS
SELECTED HIGHLIGHTS:
- Second quarter net sales up 15.3 percent to $52.5 million versus
year-ago quarter
- Divestiture of assembly business to focus on core printed circuit
board business
- Acquisition of Sovereign Circuits, Inc. to strengthen DDI's presence
in strategic markets and add flex and rigid-flex capabilities
ANAHEIM, CALIF., AUGUST 9, 2006 -- DDi Corp. (Nasdaq: DDIC), a leading provider
of time-critical, technologically advanced PCB engineering and manufacturing
services, today reported financial results for its second quarter ended June 30,
2006. DDi also announces the signing of agreements relating to two strategic
transactions.
On August 8, 2006, DDi signed an agreement providing for the sale of its
assembly business to Veritek Manufacturing Services LLC, for approximately $12.0
million in cash. The assembly business had unaudited net sales of $15.6 million
for the six months ended June 30, 2006 and $31.1 million for 2005, with gross
margins of 13.0 percent and 10.0 percent, respectively.
DDi has also signed a definitive merger agreement to acquire the outstanding
stock of Sovereign Circuits, Inc. for approximately $14.8 million, expected to
be paid with a combination of cash (not to exceed $5.7 million) and shares of
DDi common stock valued at $8.06 per share. Additionally, DDi will assume net
debt of no more than $3.3 million at closing. DDi's Board of Directors approved
both transactions in August 2006.
Sovereign Circuits is a printed circuit board manufacturer which focuses on the
military, aerospace and high-durability commercial markets offering rigid, flex
and rigid-flex PCB products and specialized materials technologies. Sovereign
Circuits had unaudited revenue and EBITDA of approximately $17.2 million and
$3.9 million, respectively, for the last twelve months ended June 30, 2006.
Mikel Williams, President and Chief Executive Officer of DDi Corp., stated,
"These transactions represent a significant step in strengthening our position
as a leading manufacturer of printed circuit boards. Since the beginning of last
year, we have
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DDi Corp. Second Quarter 2006 Earnings
Page 2
implemented several initiatives to enhance DDi's performance, including the
improvement of our capital structure, the elimination of our underperforming
European operations and the strengthening of our management team. We are now
acting to divest our lower-margin, non-core assembly business. With the addition
of Sovereign, we expect to extend our presence in the military, aerospace and
high-durability commercial markets - strategic markets in which we are currently
underrepresented. We believe these markets are also less vulnerable to
competition from off-shore, low-cost manufacturers. Further, acquiring Sovereign
will add flex and rigid-flex product capabilities to our product offering, which
will allow for improved market penetration by the DDi sales team. We also
believe the Sovereign acquisition should enable us to improve the loading of
customer demand across our collective facilities. DDi will move forward, as
always, with our continued emphasis on the time-sensitive, high-technology needs
of our commercial quick-turn customers."
"The addition of DDi's assembly business will provide Veritek with increased
scale in the contract manufacturing services market. We look forward to Veritek
becoming a significant customer, as we intend to continue servicing the PCB
requirements of our current assembly customers.
"We expect the effect of the combination of our higher margin PCB business with
the strength of Sovereign's operational performance to be accretive to our
stockholders," added Williams.
The sale of DDi's assembly business and the acquisition of Sovereign Circuits
are both subject to a variety of customary closing conditions, including
obtaining various third party consents, and both transactions are expected to
close in the second half of 2006.
SECOND QUARTER OPERATING RESULTS
Second quarter 2006 net sales increased 15.3 percent to $52.5 million from $45.5
million for the same period in 2005 and increased from $51.0 million in the
first quarter 2006. The year-over-year improvement is primarily due to a 17.2
percent increase in PCB net sales and a 6.8 percent increase in assembly net
sales. The sequential increase in net sales for the second quarter of 2006
compared to the first quarter of 2006 is primarily all due to the assembly
division. Year-to-date net sales for the first six months of 2006 were up 14.3
percent to $103.5 million compared to $90.5 million for the comparable prior
period.
Gross profit during the second quarter 2006 of $10.1 million, or 19.2 percent of
net sales, also increased versus $5.5 million, or 12.0 percent of net sales, in
the second quarter of last year and was sequentially down slightly from $10.3
million, or 20.2 percent of net sales, in the first quarter 2006. Adjusted gross
profit, which excludes non-cash compensation and restructuring-related inventory
impairment charges, increased to 19.4 percent of net sales in the second quarter
2006 compared to 16.3 percent for the same period in 2005. Sequentially,
adjusted gross profit in the second quarter of 2006 decreased from 20.4 percent
for the first quarter of 2006. The sequential quarterly decline in adjusted
gross profit as a percentage of sales was due to a reduction in the assembly
division's adjusted gross profit from the first quarter of 2006. The company's
core PCB adjusted gross profit increased sequentially in the second quarter to
21.6
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DDi Corp. Second Quarter 2006 Earnings
Page 3
percent from 20.7 percent in the first quarter of this year. Year-to-date
adjusted gross profit for the first six months of 2006 increased to 19.9 percent
of net sales from 16.8 percent for the same period in 2005.
Total sales and marketing expenses for the second quarter of 2006 were $4.0
million, or 7.7 percent of net sales, up from $3.8 million, or 8.4 percent of
net sales, in the second quarter of 2005, due primarily to the growth in sales
offset somewhat by a decrease in non-cash compensation. Sequentially, sales and
marketing expenses are down from $4.3 million, or 8.4 percent of net sales, for
the first quarter of 2006 primarily due to the officer's severance recorded in
the first quarter of last year. Year-to-date sales and marketing expenses as a
percentage of net sales for the first six months of 2006 increased to 8.0
percent compared to 7.6 percent for the same period in 2005 primarily due to
higher non-cash compensation and officer's severance recorded in 2006.
Total general and administrative expenses were $3.4 million, or 6.4 percent of
net sales, versus $2.8 million, or 6.1 percent of net sales, for the second
quarter of 2005 due to an increase in incentive bonus and non-cash compensation
and additional resources being focused on certain administrative and technology
activities related to corporate-wide governance and technology systems
initiatives. Sequentially, general and administrative expenses declined from
$3.9 million, or 7.6 percent of net sales, for the first quarter of 2006
primarily due to lower professional fees associated with the 2005 audit and
Sarbanes Oxley compliance in the first quarter. Year-to-date general and
administrative expenses as a percentage of net sales for the first six months of
2006 decreased to 7.0 percent compared to 7.7 percent for the same period in
2005 primarily due to fixed costs being applied to a larger sales base.
The net loss applicable to common stockholders for the second quarter of 2006
was $4.0 million, or $0.22 net loss per share, compared to $40 million, or $9.63
net loss per share, for the same period in 2005. The year-over-year decrease in
net loss applicable to common stockholders was primarily due to a goodwill
impairment of $31.1 million and restructuring charges of $4.4 million recorded
in the second quarter of 2005. The net loss applicable to common stockholders
for the second quarter of 2006 increased sequentially by $1.6 million, or $0.09
per share, from $2.3 million, or $0.13 net loss per share, in the first quarter
of 2006. The sequential increase in net loss applicable to common stockholders
was primarily due to a litigation reserve of $1.7 million recorded in the second
quarter of 2006 related to a class action lawsuit filed in 2003. Net loss
applicable to common stockholders for the first six months of 2006 decreased to
$6.3 million, or $0.34 net loss per share, from $34.2 million, or $8.46 net loss
per share, in the same period in 2005.
Second quarter 2006 adjusted EBITDA was $5.5 million, an increase of $1.9
million from $3.6 million in the second quarter of 2005, and a sequential
increase of $0.2 million from $5.3 million in the first quarter of 2006. The
year-over-year and sequential increases were due to improved operating
performance of the core PCB business, offset by reductions in the assembly
division's performance. Year-to-date adjusted EBITDA for the first six months of
2006 increased to $10.9 million over the $6.3 million in the first six months of
2005.
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DDi Corp. Second Quarter 2006 Earnings
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As of June 30, 2006, DDi had total cash and cash equivalents of $21.5 million,
which included $2.4 million in restricted cash reserved for the funding of
future dividends and/or principal redemptions of the remaining Series B
Preferred Stock. As of June 30, 2006, the company had $10.0 million drawn under
its revolving credit facility, which was repaid paid in full in July 2006.
On July 31, 2006, DDi issued 2,302,001 shares of common stock in connection with
the exercise of outstanding warrants resulting in cash proceeds to the company
of $12.1 million. The warrants were originally issued by the company to the
standby purchasers of the company's 2005 rights offering and had an exercise
price equal to the rights offering subscription price of $5.25 per share.
CONFERENCE CALL AND WEBCAST
A conference call with simultaneous webcast to discuss second quarter 2006
financial results will be held today at 5:00 p.m. Eastern / 2:00 p.m. Pacific.
The call is being webcast and can be accessed at the Company's web site:
www.ddiglobal.com/investor. Participants should access the website at
least 15 minutes early to register and download any necessary audio software. A
telephone replay of the conference call will be available through August 23,
2006 by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and
entering the conference ID 69427055. An online replay of the webcast will be
available for 12 months at www.ddiglobal.com/investor relations under
""Financial Calendar." For more information, visit the www.ddiglobal.com.
ABOUT DDI
DDI is a leading provider of time-critical, technologically advanced,
electronics manufacturing services. Headquartered in Anaheim, California, DDI
and its subsidiaries offer PCB engineering, fabrication and manufacturing
services to leading electronics OEM's and contract manufacturers worldwide from
its facilities across North America and with manufacturing partners in Asia.
###
This press release does not constitute an offer to sell or the solicitation of
an offer to buy any DDi securities nor shall there be any sale of any DDi
securities in any state or jurisdiction in which such offer, solicitation or
sale would be unlawful prior to their registration or qualification under the
securities laws of any such state or jurisdiction. The offering of the DDi
securities to the shareholders of Sovereign Circuits, Inc. will be made only by
means of a definitive written information statement when such information
statement is available and distributed to such shareholders.
NON-GAAP FINANCIAL MEASURES
This release includes 'adjusted EBITDA' and other non-GAAP financial measures as
defined in Regulation G of the Securities Exchange Act of 1934. Management
believes that the disclosure of non-GAAP financial measures, when presented in
conjunction with the corresponding GAAP measure, provides useful information to
the Company, investors and other users of the financial statements and other
financial information in identifying and understanding operating performance for
a given level of net sales and business trends. Management believes that
adjusted EBITDA is an important factor of the Company's business because it
reflects financial performance that is unencumbered by debt service and other
non-recurring or unusual items. This financial measure is commonly used in the
Company's industry. It is also used by the Company's lenders to determine
components of covenant compliance. However, adjusted EBITDA should not be
considered as an alternative to cash flow from operating activities, as a
measure of liquidity or as alternatives to net income as a measure of operating
results in accordance with generally accepted accounting principles. The
Company's definition of adjusted EBITDA may differ from definitions of such
financial
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DDi Corp. Second Quarter 2006 Earnings
Page 5
measure used by other companies. The Company has provided a reconciliation of
adjusted EBITDA and other non-GAAP measures to GAAP financial information in the
attached Schedule of Non-GAAP reconciliations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Except for historical information contained in this release, statements in
this release may constitute forward-looking statements regarding the Company's
assumptions, projections, expectations, targets, intentions or beliefs about
future events. Words or phrases such as "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "projects," "targets," "will likely
result," "will continue," "may," "could" or similar expressions identify
forward-looking statements. Forward-looking statements include, but are not
limited to, statements above that the proposed transactions will be accretive to
stockholders, DDi's ability to extend its presence in other markets which it
believes are less vulnerable to other manufacturers, and the anticipated
benefits of the proposed transaction with Sovereign Circuits. Forward-looking
statements involve risks and uncertainties, which could cause actual results or
outcomes to differ materially from those expressed. We caution that while we
make such statements in good faith and we believe such statements are based on
reasonable assumptions, including without limitation, management's examination
of historical operating trends, data contained in records, and other data
available from third parties, we cannot assure you that the Company's
projections will be achieved. In addition to other factors and matters discussed
from time to time in the Company's filings with the U.S. Securities and Exchange
Commission, or the SEC, some important factors that could cause actual results
or outcomes for DDi or its subsidiaries to differ materially from those
discussed in forward-looking statements include: that the proposed divestiture
of the assembly business and the proposed acquisition of Sovereign Circuits may
not close on a timely basis or at all, including due to the failure to satisfy
closing conditions or otherwise; the anticipated benefits to the Company of the
sale of the assembly business and the acquisition of Sovereign Circuits may not
be realized; the final purchase prices received as a result of the sale of the
assembly business and the price paid for Sovereign Circuits may be different
than anticipated due to post-closing adjustments; changes in general economic
conditions in the markets in which we may compete and fluctuations in demand in
the electronics industry; the Company's ability to sustain historical margins;
increased competition; increased costs; loss or retirement of key members of
management; increases in the Company's cost of borrowings or unavailability of
additional debt or equity capital on terms considered reasonable by management;
and adverse state, federal or foreign legislation or regulation or adverse
determinations by regulators. Any forward-looking statement speaks only as of
the date on which such statement is made, and, except as required by law, we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for management to predict all such factors.
[Financial Tables follow]
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DDi Corp. Second Quarter 2006 Earnings
Page 6
DDI CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2006 2005
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ASSETS
Current assets:
Cash and cash equivalents $ 19,107 $ 25,985
Cash and cash equivalents, restricted 2,401 2,972
Accounts receivable, net 31,266 29,710
Inventories 19,745 16,117
Prepaid expenses and other 1,427 1,506
--------- ---------
Total current assets 73,946 76,290
Property, plant and equipment, net 28,143 31,063
Goodwill and intangibles, net 51,956 55,256
Other assets 1,333 1,719
--------- ---------
Total Assets $ 155,378 $ 164,328
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facilities $ 10,000 $ 19,929
Accounts payable 18,433 15,443
Accrued expenses and other 15,423 14,709
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Total current liabilities 43,856 50,081
Other long-term liabilities 4,626 4,745
--------- ---------
Total liabilities 48,482 54,826
--------- ---------
Series B mandatorily redeemable preferred stock 4,255 1,513
Stockholders' equity:
Common stock and additional paid-in-capital 228,931 231,839
Deferred compensation -- (349)
Accumulated other comprehensive income 210 346
Accumulated deficit (126,500) (123,847)
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Total stockholders' equity 102,641 107,989
--------- ---------
Total Liabilities, Mandatorily Redeemable Preferred
Stock and Stockholders' Equity $ 155,378 $ 164,328
========= =========
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DDi Corp. Second Quarter 2006 Earnings
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DDI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
QTR. ENDED QTR. ENDED QTR. ENDED
JUNE 30, 2006 JUNE 30, 2005 MARCH 31, 2006
------------- ------------- --------------
Net sales $ 52,511 $ 45,538 $ 50,953
Cost of goods sold:
Cost of goods sold 42,320 38,105 40,542
Restructuring-related inventory impairment -- 1,253 --
Non-cash compensation 130 700 121
-------- -------- --------
Total cost of goods sold 42,450 40,058 40,663
Gross profit 10,061 5,480 10,290
Operating expenses:
Sales and marketing:
Sales and marketing expenses 4,003 3,718 4,003
Non-cash compensation 30 105 13
Officer's severance -- -- 240
-------- -------- --------
Total sales and marketing 4,033 3,823 4,256
General and administration:
General and administration expenses 3,099 2,625 3,784
Non-cash compensation 264 156 109
-------- -------- --------
Total general and administration 3,363 2,781 3,893
Amortization of intangibles 1,149 1,149 1,150
Restructuring and other related charges 475 4,390 397
Litigation reserve 1,727 -- --
Goodwill impairment -- 31,129 --
-------- -------- --------
Operating income (loss) (686) (37,792) 594
Interest and other expense, net 255 1,299 549
-------- -------- --------
Income (loss) from continuing operations before income taxes (941) (39,091) 45
Income tax expense 1,209 (403) 548
-------- -------- --------
Loss from continuing operations (2,150) (38,688) (503)
Net income from discontinued operations -- -- --
-------- -------- --------
Net loss (2,150) (38,688) (503)
Less: Series B preferred stock dividends and accretion (1,800) (1,341) (1,800)
-------- -------- --------
Net loss available to common stockholders $ (3,950) $(40,029) $ (2,303)
======== ======== ========
Loss per common share from continuing operations - Basic and diluted $ (0.22) $ (9.63) $ (0.13)
Net loss per share applicable to common stockholders - Basic and diluted $ (0.22) $ (9.63) $ (0.13)
Weighted-average basic and diluted shares outstanding 18,308 4,158 18,277
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DDi Corp. Second Quarter 2006 Earnings
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DDI CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2005
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Net sales $ 103,464 $ 90,487
Cost of goods sold:
Cost of goods sold 82,862 75,322
Restructuring-related inventory impairment -- 1,253
Non-cash compensation 251 421
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Total cost of goods sold 83,113 76,996
Gross profit 20,351 13,491
Operating expenses:
Sales and marketing:
Sales and marketing expenses 8,006 7,204
Non-cash compensation 43 (349)
Officer's severance 240 --
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Total sales and marketing 8,289 6,855
General and administration:
General and administration expenses 6,883 6,576
Non-cash compensation 373 405
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Total general and administration 7,256 6,981
Amortization of intangibles 2,299 2,299
Restructuring and other related charges 872 4,390
Litigation reserve 1,727 --
Goodwill impairment -- 31,129
--------- ---------
Operating loss (92) (38,163)
Interest and other expense, net 804 2,490
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Loss from continuing operations before income taxes (896) (40,653)
Income tax expense 1,757 648
--------- ---------
Loss from continuing operations (2,653) (41,301)
Net income from discontinued operations -- 9,740
--------- ---------
Net loss (2,653) (31,561)
Less: Series B preferred stock dividends and accretion (3,600) (2,683)
--------- ---------
Net loss available to common stockholders $ (6,253) $ (34,244)
========= =========
Loss per common share from continuing operations - Basic and diluted $ (0.34) $ (10.87)
Net loss per share applicable to common stockholders - Basic and diluted $ (0.34) $ (8.46)
Weighted-average basic and diluted shares outstanding 18,293 4,048
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DDi Corp. Second Quarter 2006 Earnings
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DDI CORP.
SCHEDULE OF NON-GAAP RECONCILIATIONS
(IN THOUSANDS)
(UNAUDITED)
QTR. ENDED QTR. ENDED QTR. ENDED
JUNE 30, 2006 JUNE 30, 2005 MARCH 31, 2006
------------- ------------- --------------
GAAP net loss available to common stockholders $ (3,950) $(40,029) $ (2,303)
Add back:
Interest expense, net 415 1,227 447
Foreign currency exchange and other (gains) losses (160) 72 102
Income tax expense 1,209 (403) 548
Depreciation 2,454 2,472 2,687
Amortization of intangibles 1,149 1,149 1,150
Goodwill impairment -- 31,129 --
Non-cash compensation 424 961 243
Officer's severance -- -- 240
Restructuring and other related charges 475 5,643 397
Litigation reserve 1,727 -- --
Series B preferred stock dividends and accretion 1,800 1,341 1,800
-------- -------- --------
Adjusted EBITDA ** $ 5,543 $ 3,562 $ 5,311
======== ======== ========
** Earnings before income taxes, depreciation,
amortization, net interest expense, foreign currency
and other gains/losses, non-cash compensation,
restructuring and other related charges and net income
from discontinued operations
GROSS PROFIT AS A PERCENTAGE OF NET SALES:
GAAP gross profit as a percentage of net sales 19.2% 12.0% 20.2%
Effect of non-cash compensation 0.2% 1.5% 0.2%
Effect of restructuring-related inventory impairment -- 2.8% --
Gross profit as a percentage of net sales excluding non-cash
compensation 19.4% 16.3% 20.4%
SALES AND MARKETING EXPENSES AS A PERCENTAGE OF NET SALES:
GAAP sales and marketing expenses as a percentage of net sales 7.7% 8.4% 8.4%
Effect of non-cash compensation and officer's severance -0.1% -0.2% -0.5%
Sales and marketing as a percentage of net sales excluding non-cash
compensation and officer's severance 7.6% 8.2% 7.9%
GENERAL AND ADMINISTRATIVE EXPENSES AS A PERCENTAGE OF NET SALES:
GAAP general and administrative expenses as a percentage of net sales 6.4% 6.1% 7.6%
Effect of non-cash compensation and officer's severance -0.5% -0.3% -0.2%
General and administrative expenses as a percentage of net sales
excluding non-cash compensation and officer's severance 5.9% 5.8% 7.4%
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DDi Corp. Second Quarter 2006 Earnings
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DDI CORP.
SCHEDULE OF NON-GAAP RECONCILIATIONS
(IN THOUSANDS)
(UNAUDITED)
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2005
-------------- --------------
GAAP net loss available to common stockholders $ (6,253) $(34,244)
Add back:
Interest expense 862 2,472
Foreign currency exchange and other (gains) losses (58) 18
Income tax expense 1,757 648
Depreciation 5,141 4,927
Amortization of intangibles 2,299 2,299
Goodwill impairment -- 31,129
Non-cash compensation 667 477
Officer's severance 240 --
Restructuring and other related charges 872 5,643
Litigation reserve 1,727 --
Net (income) loss from discontinued operations -- (9,740)
Series B preferred stock dividends and accretion 3,600 2,683
-------- --------
Adjusted EBITDA ** $ 10,854 $ 6,312
======== ========
** Earnings before income taxes, depreciation, amortization,
net interest expense, foreign currency exchange and other
gains/losses, non-cash compensation, restructuring and other
related charges and net income from discontinued operations
GROSS PROFIT AS A PERCENTAGE OF NET SALES:
GAAP gross profit as a percentage of net sales 19.7% 14.9%
Effect of non-cash compensation 0.2% 0.5%
Effect of restructuring-related inventory impairment -- 1.4%
Gross profit as a percentage of net sales excluding non-cash compensation
and restructuring-related inventory impairment 19.9% 16.8%
SALES AND MARKETING EXPENSES AS A PERCENTAGE OF NET SALES:
GAAP sales and marketing expenses as a percentage of net sales 8.0% 7.6%
Effect of non-cash compensation and officer's severance -0.3% 0.4%
Sales and marketing as a percentage of net sales excluding non-cash
compensation and officer's severance 7.7% 8.0%
GENERAL AND ADMINISTRATIVE EXPENSES AS A PERCENTAGE OF NET SALES:
GAAP general and administrative expenses as a percentage of net sales 7.0% 7.7%
Effect of non-cash compensation and officer's severance -0.4% -0.4%
General and administrative expenses as a percentage of net sales
excluding non-cash compensation 6.6% 7.3%
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