SMTX - Earnings call transcript Q3 2018

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Operator

Welcome to the SMTC Third Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Blair McInnis, Vice President of Finance. Please go ahead.

Blair McInnis

you. Thank

in the be with intend various and over include to Form events and from number to Chief call. company audio statements will Commission. results XX-K, are begin and the the everybody and results cautions I'd events to that will of which subject that what Smith, will this conference by presentation about Officer. forward-looking the that Discussion report call, Exchange law, on information. actual pass replay made www.smtc.com. the All The we Form not forward-looking company's future annual statements uncertainties. filings President be will the company update remind like factors that many financial Eddie a Executive as foresees. are risks beyond of future except performance Before Relations call and subsequent we this of Securities XX-Q the contained and of on do at affected SMTC's available now the in vary The nature expected date substantially are affect that of factors, and Form the the currently company's on results I control, the in may may website for by reports of to is Investor required as company's And other X-K section and also call future and

Eddie Smith

call for and revenue, $XX.X today plan, Steve on our Adjusted quarter you, I'm XXXX third last of another On and up year margin and to Executive again strong Eddie a results me, gentlemen. pleased XX. we XX.X% years. exceeding Welcome, Smith, ago quarter XXXX. is I track our quarter I'm million review morning, this the and from business first on quarter. quarter, quarter our QX end now of X.X% President many good CFO; improved prior Chief in our Rich year with COO. high results. profitable from ladies will SMTC's Thank pre-announcement for SMTC's Officer. Waszak, Fitzgerald, in from report market we're our Blair. third and XX% with to that comparable gross the close finished exceeded a yesterday, X.X% of July and in the year reported the After We the our

and QX same $X.X year Our third to quarter report was adjusted $X.X a ago fact, customer in prior $XXX,XXX we I'm industry $XXX,XXX, quarter. year over improvement in increased year over million of prior was the the revenue and a our saw in a ago. of the QX, EBITDA million than that same pleased our improvement segments. million strong all $X.X representing demand, major quarter In in income net higher a our period over

address aerospace recently program certification, nearly now recently of growing investment equipment our the time $X our multibillion-dollar the America customer SMTC million We for and industries. and and also earned our support needs opportunity. for the in in completed North global A The of defense customers ASXXXXD can to we first avionics, base. facility expansion

new XXXXX many should received up that us. also opportunities to certification We open our

on the are XX, of time. success we board management which in and we more have business you Terry of so of remains in October SMTC in growth the by profitable suppliers, barring worked what marketing. over of at of extensive EBITDA strategic reported in manufacturing revenue Our a further positive highest We others business. track sales, excess issued and Rich But for year-over-year Terry gross SMTC. trends and strong of profit and any Marketing. backlog XX have component detailed margins of on full-year of execution brings should all review. we record Sales release the a our always tightening his product over to focused brought Terry team, Terry long-lasting, deliveries met, me, the delivered our service. marketing To before attention and and on be sales XXXX with Vice excellence press Senior and for We support supply of Rich to our electronic remain and on encourage contract that XXXX, and couldn't Wegman valuable adjusted chain as intensely plan to respect operational and accuracy recently excited. to with I here metrics. and experience with and quality have to President account years build rejoins The I strengthen level, firsthand knowledge Terry orders XX%

are to pursue. are for we of financial our come with pleased our two will now with the to There in Steve take three additional growth QX then having year. than to SMTC top some last growth and track been I progress many quarters comments and we date, While profitable Welcome, first over year review internal questions. opportunities years XX% organic that with with and to additional or line for continue the profitable on call back details, hand Steve. better

Steve Waszak

this taking us and to Eddie, interest the you, and morning, join I Thank having good time everyone. morning. everyone appreciate the

same were for quarter the Eddie $XX.X XXXX. $XX.X commented, quarter million, revenues compared million As third in to

as revenues I the year-over-year of gross was industry of QX quarter, X.X% on or $XXX,XXX unrealized added a comprised XXXX, XXXX, Now, XX% said, third revenue accounting compared power in $X.X new of the we as of million pleased million million operating spend a our to in of a was months. revenue expenses revenue million That is $X.X $X.X three expenses X% QX of variable for hire remainder same QX of or chain, for result our the in administrative X.X% increase the senior XXX. for increased was past as the report related contracts, we sectors. and of travel quarter in the third to primarily industrial, revenues. XXXX of across in due foreign had medical of profit compared than XXXX. to X.X% largely to quarter or the currency increase profit million network the same standard, which revenues, existing percent same the or revenue. excludes XXXX. period customers million XX we new saw losses forward XXXX, of expenses, compared This selling, Adjusted quarter is in the year-over-year growth from to of customers the gains our impact year-over-year quarter $X.X XX.X% revenues, was accounting XXXX in Gross were of higher and am $X.X reported That that recorded X.X% of XX% increased related management orders and and and $X.X in this importantly the as ASC communications, In during revenues customers the percent energy, total third to million or and marketing, revenue in to a said, of QX over which impact to X.X% in QX sales of compensation Operating $X.X and were XXXX. supply XXXX.

to for to EBITDA third the addition of EBITDA million $XXX,XXX net XXXX. was $X.X ago. for year quarter improved As in the increase In XXXX, reported period adjusted in of the million the higher in comparison, of third Eddie expenses was percentage XXXX. Adjusted in gross the quarter the compared due same year mentioned, income same for quarter $X.X company period the of company a and revenues. to of administrative the quarter reported a revenue, same of The $XXX,XXX to to margins lower relates on it compared prior as the loss

Eddie, I a that sheet. end At $XX.X cash, certainly third on it to back contribution from in available the and We of million support the quarter, PNC. for line quarter, $XX.X Rights debt, want we cash credit in we inventory have with receivable I in to the comment the capital the revenues which had revolving primarily accelerating turn in million flow utilized quarter. $XX.X was from working million of Now, expanded our of borrow net completed August. under have the Offering funds in before to in operations and the we $X.X was balance accounts million

basis days XX days. available for of was to cycle days, XX investments X.X market times compared at Our additional strong DPO quarter, requiring annualized as on inventory recognition for supply prior the today XX the components the with and chain turnover was third quarter in shipments. constrained to some And of an XXXX, have QX the cash-to-cash of in XX for days of DSOs

to Eddie some for I'd call open additional Now, before we comments questions. turn provide like to you. back to Thank the

Eddie Smith

gross annual strong, our we we're additional our fact, business with share growth poised existing remain with margins we customers summarize, EBITDA. goals win To new in revenue, customers. demand in Steve. and Global on with market strong and a are year-over-year remain at taking trends to exceeding and are, adjusted adjusted strategic track plan, believe Thanks, QX

With a supply service, tariffs year I chain far this look to on full-year of barring we that growth look from XXXX others you to with to focus XXXX mitigate for shortages XX% that's mentioned, earning to take customers on to revenue and to Our SMTC allowed pay positions. thus from forward Steve disruptions company the stockholders excellence on strong, has off progress and stronger delighted even reported the enhanced rewards impacts questions. balance just to its future over with an for expect, component the continues have updating value. as any calls of make let's operational us excess unforeseen in the outlook the or continues year. and impact that, may superior we as The achieve

Operator

B. Riley from first Please The Instructions] ahead. comes Gulani Aman [Operator question go of FBR.

Aman Gulani

Hi my strong question congratulations another quarter. on taking and guys, thanks for

for you meaningful you me, how make have and you and avionics, now that a quickly and segment certification of aerospace revenue? do ramp first The can defense part question for a that think

Eddie Smith

Yes.

us So, the we I – it take will have customers previously conversations engaged with we got think certification. before with

go in our early process. expect remaining XXXX. have I to QX would late to I And orders would somewhere the expect come XXXX, late qualification so, first QX, revenue will that early get us to through

a in medical cult already we really aerospace, us. some of the medical building are think little us. quicker and a The because bit is have markets I the place. defense for for had stock already certifications We us with avionics customers some

expect us and of this So, we're would specific for strong a XXXX very there. customers. have targeting limited have to But I we pipeline customers, upside

late would I orders receive year. early not till the really in get revenue us late expect qualification QX, So, start the to QX, but significant process,

Aman Gulani

wins? now? that's mostly coming growth up And from you market growth customer production the then ramping like is right end And customers you driving existing then say that's are seeing helpful. are would it biggest And what or also, new that

Eddie Smith

Yes.

is you quickest if market the market, even them center of though the the for growing, growing a So, many make. data products us we are single is think smart

products center the So, we make metal, PCBs smart particular for customers, those some the also and also. growth But whole growing. do market. data and build that We're products I the growth market semiconductor product. that their and the metal, That's case the bend and fastest product. the in we would equipment We market we're in the communications you the systems the build create seeing are in whole tell in payment seeing

stands some is seeing good data out the board, the that but one we're pretty clearly business. as star growth a center the So, across

Aman Gulani

quarter, like And sequentially improvement, in to? gross I particularly this drivers margin gross do from margin key terms of in the last also and for year Okay. mean, you the attribute improvement the the then what then

Eddie Smith

Yes.

get combination think bigger better, we our and as Rich it's I and utilize efficient team of and So, to two more is, factories continue his One get things. a to continue distributors. that factories, get use helps is of from obviously, then our second to pricing and our leverage expanded margin. the better scale the in continuing part our gross And it to

the parts, better in and clearly factories. a then on helps our PPD that better So utilization

Aman Gulani

it. Got

specifically you How Okay. there? And do And have then right in be facility. much what's your that like production looking the Mexico to capacity now? overall capacity biggest then seems

Eddie Smith

Yes.

and both in So of great that's there, metal $X.X shop equipment put in We facility. our question. our capital electronics manufacturing million about another in

would in in terms significantly. have capacity. just of the plenty to of mid-XXs terms capital in So, there. floor some It capacity We're require expand space, we're of XX%. probably we But in

We see expansion. continue some to

utilized. Our less XX% than other plants are

capital for But grew sure. more XX% we plants, We to a than lot equipment more XX%-plus, we capacity of there in probably this make that So, without expand. to we efficient have we XX%, capacity have other grew like in. of in we Mexico in plenty capital more equipment would Mexico clearly year, put if even and have some could some putting grow and

Aman Gulani

Got it.

quarter then I'm some That and sense. the CapEx? are there at more ramp next we terms be for of more sort add as CapEx, number should what Okay. you early in capacity, QX makes looking And and of guessing

Eddie Smith

going based probably to QX, for half this quite of added on we not year. session, it's just probably in year. It's this as going a And be bit on a our had of year. clearly, that's what XXXX say as I we And we capacity much on and our again this planning assume QX, I the would come finished year. to plan, would

we're think through good I QX.

think I some capacity then we'll add think I QX, we'll go and from And add QX, there some capacity. then QX.

Aman Gulani

still to if guidance then Offering, I That's And I know Rights with the stands. but usually just know provided guidance, wanted Okay. mean Yes. you give sort All that right. guidance. helpful. of quarter you fourth I

Eddie Smith

very in late pleased don't are I'm especially since risk was we going lot QX, see Obviously, feel into a all. strong guidance I the QX. quarter. very QX strong we're so at our where and of QX We Yes. But about very in to

Aman Gulani

Okay. capacitors sort how and of And shortages business? is for mitigating the that you for seeing And still question are Are then Capacitors] that how [Multilayered Chip risk? me. you Ceramic MLCC impacting last

Eddie Smith

Yes.

continue So, of not revenue we our and is down to saw I tight. have MLCC – lost because customers of chain it or really run shortening through and early But our others, that. supply tight be

think we'll continue do to ahead. buying that. We're I

So, to if there's one the negative tightness.

because the positives that holding But That's so MLCCs hurt in from chains return. our which and the taking our our lowering churns. negative of lot growth. been strong. one getting a we're get there’s any inventory, we're it us why we're Clearly, to is is inventory So, for our on supply suppliers, parts and tough

fact make I've additional saying, the can give our or then for we So, inventory numbers. the okay, had the take in up balance that revenue

from some I to in all easing tightness case. nobody hearing year. is through QX that getting marketplace, times on getting components you, about the the expect up. next continue are what components, it tell them in I lead this shorter. you going So, But alleviate not year. was get. easier thought that's to about things talking specifically, when the MLCCs, I to But clearly will talk other are But I'm

Aman Gulani

Got it.

that that you're Any who the third Okay. able one notable me. for customers And more to new talk about wins the in is, quarter are?

Eddie Smith

Yes.

we – revenue you'd business. that call a phase medical nice through if got I will but give space, get genome, don't are into So, we with in type significant know pretty clearly. the in disease qualification that it qualification next year. pretty of the going But think detection And us to I

getting And put so, press I our in ISO out we release about our that think XXXXX.

out But our press And question. take good at. so numbered look in release, guys for those you Thank are a it's you can that. a

Aman Gulani

Thank you. I’ll on. it pass

Eddie Smith

the joining for Thanks call.

Operator

ahead. The Please next go of Steve question comes Mangrove. from Kohl

Steve Kohl

morning, Good morning, Good guys. Eddie.

Eddie Smith

Good morning, Steve.

Steve Kohl

day me off. added lights time, with hour I’m asleep, of is only this savings XX not local here, it’s kind but throwing

the the we at our kind appreciate of few that I congratulations as fail First fully kind to the the quarter. downs end getting what we very quarter, good have but always what suspect and only and goes shareholders at look that. they again of on you are reducing numbers. the might It's we during think another We into of with appreciate up, stress ups you do quarter,

here about leverage, talk today right. that me One of Let things. was a jumped couple incremental thing out of me the

number up Can in Is think on stickier that opportunities on at ultimately that you your EBITDA little Is over speak stuff. kind your that a is drive little adjusted basis EBITDA you more revenues, the it see then get newer think also or XX something mix incremental drove start how that If that? XX%, look supply issue? over Number certification-based Is efficiencies? me, bit is I are it up XXXX? a to chain? over these and XX%. your higher the incremental as everything? that Does an greater I And that to what will But and some that towards we Is to do we of one. more margin you mix of time two, look revenue. at sequential they're the shifting a importantly, it

Eddie Smith

So, scale of clearly first thanks But on Steve. matters. coming for all,

make more go fill we net revenue the at as does our only So, a up, not factories our them efficient, pace. and faster EBITDA and grow up – but income

couple of a and amount model so, And Add] becomes Value MVA I think dropping the a calls our talked I about back, significant additional of plant profitable. MVA, once on of [Manufacturing

we ago, today When plants the nice here are profitable. profitable, year were about about two I our One got of was are of first all plants not. is our other of the where things one a

So, profitable, expect bottom drop of are two now to a line. that significant the the MVA we other to their amount

So, a as and profit you're you're to other of I going It get bottom think, and quarter. they profit that, they was grow And this do to higher the percentage XX%, to line. right. – drop EBITDA

XX% expect every of quarter, plus probably see would derivative to You some we that. XX%, but XX% if I won't grew grow EBITDA

so, are the the straight ASXXXX, line. to beginning at And at and into not as And level a we're higher starting we of process. start plants The profitability getting a utilize it's customers reason our those customers those XXXXX better.

profitability So, that help the will also.

to the bottom the not for it's highly line. you can When $X.X sell $X. So, $X a regulated you $X make on markets,

big, why those we're also And very so, to they're are markets. that's They profitable. but are for going us, They more attractive.

side creep the goals, at look up bottom long-term to long-term our goals. we're starting If you to of the

our And X%. goal out EBITDA XX%. QX By X% XX%, about. out starting getting I we as to that we the to see, we put can on gain And think XX%. gain we into you side, talked goal on next we'll long-term gross starting you've going time a profit also to goals to the of that to long-term So, we're finish on be close seen XX% year, on those that on and we're put

to incremental every some leads So, incremental profitability. X-plus number terms dollar of in

and So, to expect get as better profitability I our we grow, better.

Steve Kohl

Sounds good.

area. me Let to one turn more

them last over talk had think company. quarters guess, of you talked the the several kind goals And you terms I that about for about the I I that strategic stores. of in

a you existing organic aviation, about customers, done moving four, and kind fourth is guess I a – of important maybe is which well. you've you've growing And of business Have Two new heading the medical. I But as you first have guys is I or job. it's military, in done that logos, of And where kind one is areas, of is specialty avionics at the aerospace, of four kind which the getting think corporate still an four-legged number directionally think one them kind -- store. of Three, quite part existing look your that, in wonderful organic in is the view off growth? knocked all, at on growth. I on with three. changed also we're

Eddie Smith

No.

take some I up I to take brought Terry the organization, for need time leading and to open of some so do so get on sales I was and the other things So, things – done. me do to

our defense is to go So, who what's going we aerospace. Bob brought the Miller, happen on run before is going Terry, initiative in to

then organic will existing some get the aerospace new business runs a logos, Josh he focus run new getting now we'll us us experience Bob And we're the lot So, looking growth there. our in customers. for. Terry market, Chien, of markets and in good at more defense getting has

he's successful products, our things. So that new customers, year. very with divisions this of And that new means been new

after we're different still those four going hope segments. So,

do a this person get Other to some have each have where And get we rule, really what work to. to get. some year. and to ones, their to as has to knows general think we But done team go I need well really,

don't expect bit the slow I growth here. to for So, down a

still we're of and in that. we think I of call all lot opportunities have we're closing and a

as So, goal. still have that our hope we

Steve Kohl

largely been And of the or Mexico, in type that spent? and million what that? you or its $X or of was – how the should the that million, that million returns we fund off $X about much is it is So, spent, of get $X.X that much the did actually Fremont you where where was spoke going? how on that And of

Eddie Smith

to of it. Sure. us give We as because willing money, spend now spent all it almost we'll anybody

spending some the got Soon got as in us, million it. gave about The the into installed million into of Mexico, $X.X $X.X went And as actually that into they went Fremont. went $XXX,XXX it QX, million so to QX, Mexico But went it started another installed $X.X predominance in Fremont. we QX. into

be now. say, probably expect would quarter. us installed all I its efficiencies in it But getting some to would it's of return start So, XXX% out that will I getting this QX.

Steve Kohl

very you Thank guys. much. Appreciate Right. time the

Eddie Smith

soon. And talk Steve. Thanks we will you to

Operator

comes Boots from [ph], next go Please question investor. a The Craig ahead. private

Unidentified Analyst

few a tariffs About issue affect if how would and greatly increase know could wondering that there's I'm things. China. tariff the possibility in a different us? that, I they did they

Eddie Smith

Yes.

of already an are because some electronic effect had it's tariffed. So, already being the components

building things. But board our Now, But they to some threatening, customers tariff it issue That they will with like there's If of we’ve board, that mean, just mitigate I the elsewhere no manufacturing it more moved across I customers. to across difficult. a to Mexico. all go different mitigated us have on think make products go ways for by some doing little happen. impact the the that that they're of through if and will we it there's a because continues our the doubt lot

other far, effect them issue. effect business customers, but So that on move, at hasn't had very tariff good very it in we've the had you than Craig, like little the seen yet. our a We've said,

next be to the could think significant I round us.

Unidentified Analyst

Yes.

occur. not does that hope Let's

that going something mention elaborate to did on. have I'm you you think I

that I'm affect And maybe going could to and or this mentioned don't release getting talked do that You already had new press how about if you've to million contracts. if to plant it a know just It me stuff seems more to move you $X new about could was I that. it's wondering said talk had a there Mexico. is altogether. with we recent

Eddie Smith

Yes.

affect think it don't contracts. new I So, will getting

bills remains think I demand are customers getting digital still strong. and

don't in some effect. that they're thing So, us is looks at, has U.S. have our looking the I should it U.S.? really is our move taking of other of for which think customers that at, upside the Craig, I who in build from are us But in started you a The opportunity Mexico ship plants out and hey, today Mexico for are do the China built product your enough China, the back U.S. customers good completed it U.S. move it to to in that to of capacity have saying, plant and then ship some

actually, so than And upside downside probably is there risk. more opportunity

Unidentified Analyst

That winner we a translate if certifications to Okay. that's the got I'm about anything new that lately? wondering been happen. have me. to like hopefully about sounds on going of going how just sort or How that's contracts new thing, discussed forward to that

Eddie Smith

Yes.

did all new we to those reason certifications the of So, get is contracts.

On announced the ISO it. XXXXX, with I the think we contract new

still that will opportunities So, I believe that, that. you I'll up announce us. open let other we read and for did

people On ASXXXX, a for to business. switch little the it longer takes

We wait happen. new for to have government to things contracts, new

So that take think longer. said a I significant QX like it QX XXXX XXXX I be that earlier, effect. a will And little will before has to

Unidentified Analyst

how I'm I'm I think, $XX turning Okay. that going did it you I that mention. recall. to are that million wondering familiar just contract believe it's with we into if I see revenue. And new Yes, like, quickly the was

Eddie Smith

You're some revenue. in already seeing it of

and continue as increase go of it, it some seeing to So, here. will you're already we

Unidentified Analyst

is that more in the we far may as everything or that to Rights do as Did need to want there bring potential the that everything growing? forward need going How we fulfill about Offering? for we

Eddie Smith

Rights Yes. It's the company structured. the the another really good is need foresee the question. today, way don't We Offering,

as to from probably bit cash grow And the we've Steve a while. a continue our have We in Rights with than Offering, quite we availability, some and said, ABL. more had

So, of had deploy about the working $XX could if We capital. customers. we million have we

see But a But an deploy the be I for working equity need today, need we need change I it. don't future. near So, to capital. would other reason some things don't and in there for see those might immediate capital working

Unidentified Analyst

out I Rights part guess real that's and I'm and good mean, fully I glad I took me. for turned I both it bad. in Offering did. good

in let another mind but seeing all I'm we opportunity I go. regard, with I'll you wouldn't guess, So, so. That's I good need more don't that also that money. glad,

Eddie Smith

You got it. Thanks Craig.

Operator

I the queue. questions in see no further

for So, to the like over President Eddie closing remarks. Officer Chief Smith, to any I would turn Executive and back conference

Eddie Smith

Thank a closing, you to Relations our employees, various Annual business Investor in for section Los we're I next our to partners, reporting and distributors, great Main have two of on the our our and will website. Event course, investors and stakeholders Craig-Hallum want In like over our leadership thank LD and these be the progress posted in Xth participating day. quarters. in team, support, customers Annual quarter. you. our their the of The several Thank you, that about Select Conference conferences to Angeles. this Micro remind Alpha XXth York, Information I'd Investment events Conference New

Operator

you The attending conference Thank today's has concluded. for presentation. now

may You now disconnect.

SMTC (SMTX) 11 Nov 182018 Q3 Earnings call transcript