SMTX - Earnings call transcript Q2 2019

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Operator

Good afternoon and welcome to the SMTC Second Quarter 2019 Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Blair McInnis, Vice President. Please go ahead.

Blair McInnis

Thank you.

in call, include to events statements results are the the everybody and begin to that will subject presentation about forward-looking we I’d uncertainties. remind like that financial risks Before and and nature expected future

Form various the actual are what information. and company’s Discussion The which results required affected contained by by many the annual may call that events XX-Q, Securities the forward-looking report and this company’s foresees. and do with of control, factors we vary filings law, made reports will on a company performance and the future X-K this be intend Form the from of company affect number currently Form results of cautions are except Commission. to of in factors, update All future substantially XX-K, statements and, on that beyond as of may and that the not Exchange subsequent other as date is

in and in annual investor call our upcoming This on the be Investor about Alpha Angeles. Main Event the SMTC’s Doherty’s Information Micro New LD Craig-Hallum’s website, on www.smtc.com. Institutional will replay XXXX which will Conference will website posted York, at be section calendar in for Investor SMTC participating Relations audio and conferences of conference in XXth investor Minneapolis, Select be include available the in Los also

Smith, over call Eddie the SMTC’s and pass to now Officer. will Chief President I Executive

Edward Smith

Fitzgerald, Operating and President Chief ladies gentlemen. Thank Officer. and SMTC’s is with you, I’m Financial call SMTC’s our Officer, Chief this Eddie Blair Executive Chief and Waszak, Officer. Smith, Rich On Steve and good afternoon, today

our we of the today indicates, issued integration Assembly. press market the have release we after activities As MC closed completed

last revenue to continued over which adjusted EBITDA, show and in of our guidance. on and strong We within and communicated growth previously substantial range operational track reported growth to year the improve remains efficiencies, year-over-year we have our

second the the financial will of results XXXX. Steve quarter for balance for and our discuss guidance

my review in our on our made and value. priorities results share delivering and class thoughts on second best XXXX, I’ll customers focus and service Steve’s Following shareholder progress increasing with we of quarter providing our outlook for as

Steve Waszak?

Steven Waszak

and Thank to time thank us. the for afternoon and taking everyone joining Good you, you join Eddie.

the As we financial turn review with my Eddie mentioned, Eddie call will for results, start second the his call on back then quarter comments the to the I’ll and business.

sets second, as did reported our which, we X combined last quarter’s call, we be which, As by XXXX which conference SMTC SMTC, the XXXX includes of year-over-year, I mentioned, as first, results; Assembly in MC will quarter, numbers includes previously numbers; referencing and GAAP this and includes and Assembly, of MC from as reminder, will hear XXXX; finally, date X, will the SMTC XXXX. of entire second part was the for and the a quarter of you assuming include November acquisition word SMTC Assembly MC MC "pro-forma",

the for results. Now

the QX in $XX.X assuming second been in revenue second second XXXX, to compared XX.X% forma quarter quarter million, of previously was quarter the $XX.X the XXXX MC XXXX. a XXX% XXXX. basis, Our part of of the increased in million pro On again revenue compared had second as Assembly reported of quarter in up SMTC to

in prior $X.X of in in second the year. ASC quarter the XXXX of due the reported the million the of to accounting million this the to compared of $X.X XXX period was Approximately revenue same for impact standard revenue revenues

one we we had During can period. in XX% XXXX, that report customer

MC quarter-over-quarter increase Assembly. percentage XXXX. of $XX.X to for $X million gross X.X% gross the basis, quarter to quarter increase in the due GAAP This revenues of in of revenues, was second or in the GAAP as XXXX or $X.X a compared of X.X% second margin revenues million the On million previously the for of profit acquisition year-over-year was primarily reported

connection XXXX which adjusted adjusted was and QX revenues. of was transformative million year. In million gross non-cash recorded a profit XX.X% of Assembly XXXX or comparison, in $X.X of or of last measure, gross amortization our Our $X.X X.X% intangibles is million revenue profit, excludes with $XX.X of acquisition non-GAAP MC

XXXX general, Selling, administrative $X.X up period was same in as and reported million, million of expenses for QX the XXXX. $X.X

XXXX. of decreased function reported percent X.X% a in the As as a This in in to revenues, revenues X.X% period primarily compared revenues higher of revenues XXXX, as XXXX. in of is to SG&A QX QX of same

In We reported in $X.X Assembly. in ago. of reported of second quarter loss integration period the same a the of the with net restructuring the million XXXX, which net which company a primarily associated loss $X.X included $XX,XXX a comparison, charges, MC million is of year

QX in period as as EBITDA EBITDA increase year in increased adjusted period jumped driven previously revenue companies. million of XXXX. the XXXX million $X.X to again and basis, well QX prior XXX% as adjusted same XXXX second of quarter as were year assuming a forma the $X.X to the compared operating adjusted same on the prior to reported efficiencies upon period EBITDA the XXXX, XX% the the in MC in compared for The QX the over pro gross of in SMTC increase XXXX. some was combined by combination Now,

that sheet the other balance the for on comment to reported key quarter. metrics and were like I’d financial

XXXX, of cash. we the of had QX $XXX,XXX As end of

our and was of quarter days, was was XX XXXX. at our turns DPOs the approximately Inventory X.X XX at days with second Our days. at cash-to-cash XX for cycle turnover DSOs

of million included A January standards, of million of of financed incurred associated at ASC represents and liabilities million the the leases million of the leases, Assembly the Term XXXX debt $X.X on on new leases. of of quarter of right-to-use million with $XX $XX.X November, debt which million second B, operating in Net and accounting XXX, the was $XX end associated $XX.X XXXX and acquisition included financing with the adoption Term operating and in MC the the $XX X, the

of was XXXX leases end June million at $XX.X XXXX of $XX.X at excluding end the XX, million. to In as compared as the Net $XX.X comparison, our of XXXX. operating million debt net debt was

that of our a end and registered we X, part July structure, June. our direct million to rights Term B proceeds of improve On the standing a used to offering our proceeds $XX.X pay-off accelerate completed of offering generated of at As of $XX ongoing gross million activities those capital we debt.

This refinanced to reduced credit from week we our $XX outstanding The $XX A million. agreements. agreements and balance recorded million amended credit Term the approximately

to borrowing improved $XX We support under our capacity also with expanded from million growth. these million to revolver $XX asset-based our facilities future better covenants

sheet reshaping flexibility very focused remain our balance We to our and further efficiencies as well growth as capacity. provide to improve added

alternatives evaluating additional currently Eddie well as are number is appropriate. will as provide on we comment which of We updates a

the of year’s to turning me has quickly call and about comment to concerns as and continuing we whom Before to impact where on outsource back as caused, review they our their experienced Customer factors customers the begin macroeconomic and the tariffs with in second revise to many let Eddie, quarter, outlook. manufacturing.

North to global While the we believe expect to half may is demand the well-positioned and react customer of American trade. our ongoing as second over be facilities, SMTC and of the with impacted impacts our customers continue adjust geopolitical year we the

for is EBITDA $XX for million XXXX. for XXXX revenues adjusted of of of million guidance the for $XXX revenue full $XX adjusted As the to $XXX a expectation and to million the end our result, and EBITDA the lower approach will prior the million year current more likely for in

allow Eddie the comments me business. With additional for call on that, return to back the to

Edward Smith

Thank you, Steve.

balance progress on indicate, As now the XXXX a SMTC numbers of we solid add the make my Steve color journey the I’ll into presented stronger SMTC. on our some second to and the of stronger progress made company. that continue quarter building for in a priorities transforming in

sectors, semiconductor, our equipment, data capital to First, all robust for center continue growth experience across except top we line sectors. year-over-year and of industry

was of million XXX% our which led custom measurement growth sales increased sector, XXXX. Our QX by from or $XX.X

in in this part Our the by Korea. adoption growth in XG telecom supported sector was

power, tech sales and to XXX%, who $X.X in XXXX customers, in grew Florida clean XX.X% million, and industrial, QX added and business million over sales XXXX. QX -- aerospace zero $XX.X based defense our compared Our

to semi call, last a constrained on As when slow in the the not likely many start semiconductor environment. orders as there I sector was last conference surprising, supply the industry year this double-booked mentioned our was year quarter’s

anticipate do that earliest. As at rebound a we ahead, for the industry look until XXXX not we

a aerospace business positive our start defense business new and for purchase to awards we past as note, shipments. and On do orders expect time, gain more traction placing over

of contribution We section specific have posted Investor various a slide deck our on the the website provides segments. market from our Relations that revenue

year double-digit another SMTC. growth of revenue we ahead, for expect Looking

our customers customers, is being were programs quarter, for business plus their our the programs. growth awarded to existing driven In and addition customers. Our of expect of customers, at we programs second existing the from new new growth existing see we several new by X in increased

customer QX As growing X roster. new important, to customers we another added in our

started we steps initiate MC the realignment sites, in our the Zacatecas, Assembly to to and of our the and at in workforce Mexico. strengthening several improve of completed the including efficiencies of Second, integration our leadership on-site our at Fresnillo as quarter expected

some that needs. would their also SMTC plants have specific reassigned better reviewed and and We specific to customers meet teams

acquisition, Those are pay discussed initiatives, we to from off. starting as well as savings in the past synergistic cost the

our other approximately high-volume/low increase standalone SMTC capacity upgraded line by Fresnillo equipment adding enterprise and automated will we quarter, the customers’ that by for During full needs, copy facility exact, designed mix our a XX%.

identifying uncertain achieving quarter operating best Mexican the environment. is to operations production additional facility metrics remain among important we improving in peers. tariff focused geopolitical in our on financial light minds pursuit concerns additional our Increasing implementing in today’s With as this China costs our customers’ the customers, capacity in Mexico. efficiencies from class of of and particularly shifted and efficiencies second high some We and of the of incurred we our in

from world-class customers, to in manufacturing today’s sheet support flexibility our to like or launch the our our call, provide namely Manufacturing geography Massachusetts Center the a low-cost and growth. support into Excellence of to other can I’d that available strengthening Billerica, products in our point NPI, final our emphasize to better turn which the open customers is To expect quick of focus me New brings and with accelerate to with sites, DFX this third scale balance that to on we Product, quarter

with week, At of restrictive capital. working a we to debt used our pay June, the which and less this higher have covenants completed $XX.X loan. restructured And total an a raise level down million, B Term of our available of for end we we equity

manage we to improve addition, capital. working actively working how In are we our

to recently plan steps and implemented collections an turns. improvement taken we’ve example, For other increase our inventory AR

our rewarding EMS sheet, that wrap even delights taking business premier we this Tier shareholder employees, to making our the balance industry-leading service, remain metrics, with achieving an become leader, me company further to care X stronger Let performance our superior deleveraging our customers up and advanced stockholders our committeed of value. by segment growing saying our company with

With Rich, from myself those on and will call that, the take questions Steve, today.

Operator

first Your Instructions] Christian from [Operator with question Schwab Craig-Hallum. today comes

Unidentified Analyst

This is on Tyler behalf Christian. of

if any geopolitical I markets you being affected end give the first, really by on issues, tariff hoping or it’s or other broad-based. color customers So maybe if could was this particularly that guys pretty are and

Edward Smith

Yes.

started the facility, in additional the side customers on and hit with buy all our -- our the customers and XX% the our all in for Americas, shifted of products, addition it’s and on of we was so types hit Dongguan component specific announcement with our It products XX% Billerica, across Freemont. now customers. so to on Obviously, out that So Melbourne, or new specific going China. it anything all out go focused tariff, didn’t the facilities of we electronics tariffs the in it it

now So broader it forward. going impact has much clearly a

of happen, they tariffs, the were Mexico cost they not unsurety was The last, the going would were happen, to on be. what how the mid-quarter Tyler, thing, part it long they would other of going tariff to that

customers orders so to for they future. And we with had want did hesitating the place

think I will back. come that

a was that think I short-term issue.

tariff the China Mexico. Many clearly, customers longer-term is looking of to And to to issue. issue much other are I to from them move a Chinese looking locations. move think our are

we unsurety, of customers think increased it the some down Mexico. out to our plants. our short Mexico, long of capacity creates And an in that’s a opportunity for move prepare little term why to to it move Mexico China So and I creates term for

Unidentified Analyst

of recovery some would thought, was the your And $XXX see could a you the trajectory then maybe Are up full train end decent I reach on a there year at what low guidance the same provide in QX similar thoughts weighted? helpful. million to second in to we like. if suggest on Any would the half. at looks that or step thoughts wondering be linear, more going of any ladder QX,

Edward Smith

Yes.

in at up QX see So pace. I then going a top and line, following think with a on bottom up obviously line a much to step QX the we’re in quicker jump further the

on additional had we loan besides things have you going conservative right? much used and tariffs. covenants, by if clearly quickly us. We working problem our two were QX, with on sales Term taking too capital been working B the The And capital capital, because customers constrained the spent that would that we have and and would up new working very bringing a our were for

So we add bit now less into growth after to quarter. customers, headroom back significant higher poised have which expands the as that we’re quarter little a with we restrictive go have a covenants, I you more think ABL, mode

Unidentified Analyst

out, there Is basically call that you there be gross range the or should thinking QX Just operating maybe low the at your nature, in revenue? end want margins margins, the you going can on forward to pretty the in basically XX.X%, to anything are we the range. strong of XX% with recovery one-time in anything XX% in be here

Edward Smith

Yes.

So to operate blips to There’s over range. XX% increase we’re said And continue and X% term, have the on look XX% a long increase. in the particular a range short-term last to we’ll multiple But particular started we two based to that XX% shipment. sometimes we in quarters, over you continued years, XX%, going always range. customer, the the if to

this There’s really quarter. particular nothing special in about

more get XX%. so think more will to our And XX%, over be we in as quickly we I factories, efficient heading closer

Operator

B. Your next Riley. Aman from Gulani with question comes

Aman Gulani

said customers the some to you you’ve So moved question about facility. Mexico is my first

quickly wondering, start production benefiting in customers a those start low-cost from Just how and can region? ramping

Edward Smith

Yes.

great the that’s answered a it’s I’ll one best question, but So not easily can. do I

Some customers, it’s pretty quick.

and offer get customers to another other are they some to same one some we down able revenue because factory move. we’re either take stock to go could that other from certification, build try that or got to the PPAP and customers you’ve the longer quarter. to move So some slow through within or There

would in X approvals as getting with even X I X a good X it’s between and such job, you job, tell get it months it But great months; general months. we’ll a in a probably not rule, and months certifications. Doing really getting

Aman Gulani

in And then stand where just facilities, in Mexico utilization regards to that it capacity now? right your does

Edward Smith

put put into capacity capacity Yes, that’s Chihuahua a additional in. a in our Chihuahua in put lot almost last in We of a facility. year. SMT SMT question. our and XX% by great new year of line equipment We We increased a lot last

new that So added increased this a quarter, we in and our Zacatecas line, high-speed by XX%. a line, capacity facility SMT

I could we enough we’re capacity and range. add At if probably equipment, equipment to have both for lot, XX% have we point, So this existing the this question could not equipment, -- and a XX% facilities. our -- get sales footprint. more have we But either have we in to added how we more probably in another much the double

Aman Gulani

Is that facilities mentioned just profitable. were last still the that the you all quarter And case?

Edward Smith

not going only the profitable. to tariff but effect effect may facility, effect are tariff some to some our smaller Obviously, currently I’m on U.S. know all is effect, Yes. on facilities. the right? China naive the of have not Yes, have facilities our it

evaluating then it as we’ll whatever as We’re action to and that appropriate to now possible. take little make try hurt

Aman Gulani

up was there any has last And mean, about then now? I largely are shortages out that component you tightness year there? you I But MLCCs. seeing know talk can with loosened

Edward Smith

spot think No customers lead sell get I we off. in had are QX. no some safety the And I shortage, or could stock components longer we’ll about sales had may I safety if our you function overbooked of worry of -- this top about step the you you times times. actually quarter was at that why lead the are but money kinds burning all doubt this it, point. that’s QX, particular caused now stock held And and of by line softness see in think a

time. step is think the really this I

down across can peak think in peak. share I have were the looks trough the on you, from XX% terms it lead board where some about in times of the I also the where times. are they from U.S., about Aman, I about, the slides lead components to And with the

Aman Gulani

the the you’re be were more work And are Yes, that than Can up? end great. you are them of year? NPIs Are about doing would then amount NPIs you on toward year, the that doing you you last last NPIs? talk are you seeing doing of ramp

Edward Smith

Yes.

starting just breaking we so NPI orders. So are take started we specific now to NPI did We QX. orders out, XX in specific that

So what move and NPI. factories production. in production We’d NPI we’d used build we’d happen the then our to to is get

customers really and was convenience. do more do region. so of happy, customer I in so for of happened more then slow clearly this, our that locally have But they is we’ll think NPI hey, we’ll quickly not moving a some it’s our towards and this and But customers were we production low-cost

Operator

from comes question Retail. next Your Davenport Lucas with

Lucas Davenport

saved much on interest Can the a with How the money Term B off, paid ballpark figure quarterly? give that? refinancing payments was you and the

Edward Smith

we be savings of interest a about million in yes, expense. So think, ballpark yearly would $X

Lucas Davenport

In talked up significant defense to expect businesses? -- QX from I that to about you but the ramped QX, know which when growth QX? aerospace expect in you Is you and quarter sales see do do and in

Edward Smith

seeing obviously, to rate run a one plus $XX zero going growth, million year. in from Well, we’re

existing We customers. customers and continue to win our orders from new

And so that’ll quarters. to the ramp couple up over continue next

win And the to have defense. production in normally from to if pretty actual it some months were X win significant We them, and out. aerospace we quotes about takes

it, to be huge So probably out jump, so. I would tell you or will want whatever X a months you call

Lucas Davenport

expect what do obtain able be you to to in quarter? When profitability,

Edward Smith

EBITDA income talking net talking profitability say about are you are or you When profitability? profitability, you

Lucas Davenport

income. Net

Steven Waszak

the Steve CFO. this Yes, Lucas, Waszak, is

to to very close be it. think I year continue we’ll this

with year, next the year, of think but that, sooner MC. some consistently of certainly I that. QX next had quarter restructuring by if by than we quarter charges But This not a acquisition QX certainly with showing

charges of us things that nature. all got So, we’ve and the behind restructuring

Operator

next Instructions] [Operator Your question Robert with comes [indiscernible]. Porier from

Unidentified Analyst

in wondering, board just But of I issue. that coming out -- that bringing with I’m I of have working was an where are there this the ourselves onboard is can onboard number know contacts existing to. and a issues way? wondering, out mean, and political been I us? curiosity, we now, must avail have anything tariffs from we be just positions we any

Edward Smith

I time? question, more Say it that understood hear the think I I properly. one don’t didn’t or

Unidentified Analyst

and to SMTC know issues you, I people the with the onboard and and the you’ve lot existing but sorry. a I’m out with possible or coming there’s there political contracts tariffs clients. that brought contacts of

You must It’s have anything in you they know. know people will you just I’m that wondering. onboard that just SMTC, bring and trust there there? out Is you on. something can I they -- the offering don’t to and move

Edward Smith

Sure. $XXX we’ve went in rate $XXX the from new the run We door things. type new a market and segments, is to million a I million of from those customers, and day rate. contacts of some our almost walked run And added that

sure it what not you’re had in If XX% was terms double digit it’s quarter of growth. we’ve Last asking I’m growth, me. year-on-year.

we This question grow. quarter use We’ll we’ll it our to continue to I’m to what was than continue other the to we’ll XX% sure contacts grow. And what not do plus. do. continue is,

to going covenants, quicker we to were But way we’re faster, and an some QX ate banking we QX cautious of If than more expected. our had needed with working to also are I that. our obviously, because our of during much we be QX you’re asking so in that we to integration, doing and from And have an capital integration. And up did be grew careful. careful on grow growth we

Unidentified Analyst

many, good. many frustrated. is, get thing and years, I’ve been That’s you for The here

don’t that other know the to questions sometimes questions sometimes and don’t really And think ask. ask, you ask you the they would people

I’m to it’s frustrated. this up everybody’s bit so But a And little know trying I liven long been conference call because here. getting

first trying to you probably on a sell-off. I’ve and you just all look to to, anymore. time or see people the I’m You to chat don’t the is for years. here go want And to know that’s to I’ve This feel really for. I turn this talked where boards whatever I don’t and and just want board, been talk confident, XX

Edward Smith

Here’s would what you. tell I

EMS So of one the grown in faster industry, last or years. provider top the than other we’ve over couple, two any the

either percent X companies ours is number number EBITDA Tier like in X how is get Our now EBITDA, or X which rated. really

continue continue question EBITDA. our a We’ll to somebody at And to grow. make now. margins, earlier we’re as in X asked about number margin We’ll gross gross

from do will company went those being job company. we very a think companies a that be So good premier that a to of I one didn’t

can up the But job stuff. rest of livens and cuts job go And there. the the pretty call. company reality worst job good we from up that which hopefully so that we’ll years. chat the X team’s down to we a run my in first hopefully is, it is my from board run, livens go And going And and feel best to the is

Unidentified Analyst

and to many to want the members Upanishads come at situations presidents you’ve you say? that. is through. I’m But previous it’s that What of the sometimes we’ve same to the really thank to you think to hard frustration you’re and I the understand that I time. shareholders And what but right, relay shareholders doing trying seen have for board when

Edward Smith

to of There’s Relations slide of to show going a was company are lot that our margin margin and the a that report. X% this company made class. a from to that second public show we was is EBITDA EBITDA, companies under progression negative the that be progression Investor to -- a conferences, quarter a EMS in do slide. of only best We We look and in the that X% that now one more than go

that. do thank for want in pretty feel We’ll your you right I to question. direction. to we’re so And I confident the continue

quarters. to for have over a reporting leadership a progress forward thank our and -- closing, to Thank to several I just great stockholders night. our stakeholders team, employees, look kind In let partners, our want want you various and I business and the me read next of statement. our thank to support, And their closing distributors, and

Operator

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

disconnect. may now You

Blair McInnis	VP, Finance & Corporate Controller
Edward Smith	President, CEO & Director
Steven Waszak	CFO & SVP, Mergers & Acquisitions
Rich Fitzgerald	COO
Aman Gulani	B. Riley
Lucas Davenport	Retail

SMTC (SMTX) 11 Aug 192019 Q2 Earnings call transcript