SMTC Corp. (SMTX) Reports Fourth Quarter Sequential Growth

TORONTO, March 10 /PRNewswire-FirstCall/ – SMTC Corporation (Nasdaq: SMTX, TSE: SMX), a global electronics manufacturing services provider, today reported 2009 fourth quarter unaudited results. Revenue for the quarter was $51.2 million increasing $7.0 million or 16% sequentially. Net earnings from continuing operations for the quarter of $2.4 million compares with $0.5 million in the third quarter of 2009 and $1.0 million for the comparable period last year. Net earnings after discontinued operations for the quarter of $2.2 million compares with net earnings of $0.2 million in the third quarter of 2009 and a net loss of $0.1 million for the fourth quarter of 2008. Net earnings for the fourth quarter included a $0.5 million income tax recovery. The Company produced $55.3 million in revenue in the fourth quarter of 2008, a period largely unaffected by the global recession.

Gross profit for the fourth quarter was $5.9 million or 11.5% of revenue compared with $3.7 million or 8.5% for the previous quarter and $4.8 million or 8.6% for the fourth quarter of 2008.

Despite an extremely challenging economic environment in which SMTC’s revenue declined from $206.9 million to $179.5 million, the Company produced net earnings from continuing operations for the full 2009 year of $2.4 million increasing $0.8 million or 46% over 2008 results. Gross profit also increased to 9.8% from 8.9% of revenues in the corresponding period.

In spite of continuing North American economic headwinds, SMTC produced strong fourth quarter results with revenue and earnings from continuing operations increasing sequentially by 16% and over 400% respectively above the third quarter of 2009.” stated John Caldwell, President and Chief Executive Officer. “Our revenue growth came from seven of our top ten customers together with five new customers at the early stage of ramping production. Our solid earnings performance reflects the effect of previous quarters’ expense reduction initiatives and continuing cost containment measures. Unquestionably, 2009 was a difficult year as our customers’ end markets were significantly adversely affected by the recession that ultimately impacted our revenue. However, through this period we were able to reduce costs and substantially increase overall profitability and margins.”

“In the quarter our working capital, excluding cash, and net debt levels increased by $5.4 million and $3.1 million, respectively, due to increased revenue, the delay in receipt of a significant customer payment until immediately subsequent to quarter end and the effect of industry wide component shortages that caused a substantially higher end of quarter customer order backlog,” stated Jane Todd, SVP Finance and Chief Financial Officer. “We expect to improve our working capital and lower debt through the later part of 2010 as supply chain issues abate and timing issues reverse.”

“Historically, the Company has not provided specific full year financial guidance. However, in the first quarter there are signs of some economic recovery and customer inventory rebuilding. Accordingly, we are experiencing continued strong order flow from longstanding and newer customers together with a strong opening backlog, which should result in continued sequential revenue growth in the first quarter, and continuing strength through the first half of the year.” stated Mr. Caldwell.

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 1,000 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, except as required by law.

    Consolidated Statements of Operations and Comprehensive Income
    (Unaudited)

                           Three months ended          Twelve months ended
    -------------------------------------------------------------------------
    (Expressed in
     thousands of
     U.S. dollars,
     except number
     of shares and       January 3,   January  4,    January 3,    January 4,
     per share amounts)       2010          2009          2010          2009
    -------------------------------------------------------------------------

    Revenue           $     51,237  $     55,260  $    179,509  $    206,879
    Cost of sales           45,329        50,499       161,951       188,419
    -------------------------------------------------------------------------
    Gross profit             5,908         4,761        17,558        18,460
    Selling, general
     and
     administrative
     expenses                3,405         3,301        12,767        12,892
    Other recoveries             -          (185)            -          (185)
    Restructuring
     charges                     -            50           783           493
    Loss on
     extinguishment
     of debt                     -             -             -           613
    -------------------------------------------------------------------------
    Operating earnings       2,503         1,595         4,008         4,647
    Interest expense           622           672         1,960         2,914
    -------------------------------------------------------------------------
    Earnings from
     continuing
     operations before
     income taxes            1,881           923         2,048         1,733
    Income tax expense
     (recovery)
    Current                   (567)          (44)         (500)          119
    Deferred                    62             4           191            (2)
    -------------------------------------------------------------------------
                              (505)          (40)         (309)          117
    -------------------------------------------------------------------------
    Net earnings from
     continuing
     operations              2,386           963         2,357         1,616
    Net loss from
     discontinued
     operations               (208)       (1,100)       (5,952)       (7,511)
    -------------------------------------------------------------------------
    Net earnings
     (loss), also
     being
     comprehensive
     income (loss)    $      2,178  $       (137) $     (3,595) $     (5,895)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings
     (loss) per
     share
    - continuing
     operations       $       0.16  $       0.07  $       0.16  $       0.11
    - discontinued
     operations       $      (0.02) $      (0.08) $      (0.41) $      (0.51)
    -------------------------------------------------------------------------
    Basic (loss)
     earnings per
     share            $       0.14  $      (0.01) $      (0.25) $      (0.40)

    Diluted earnings
     (loss) per
     share
    - continuing
     operations       $       0.16  $       0.07  $       0.16  $       0.11
    - discontinued
     operations       $      (0.02) $      (0.08) $      (0.41) $      (0.51)
    -------------------------------------------------------------------------
    Diluted (loss)
     earnings per
     share            $       0.14  $      (0.01) $      (0.25) $      (0.40)
    Weighted average
     number of shares
     outstanding
    Basic               14,646,333    14,646,333    14,646,333    14,646,333
    Diluted             14,646,333    14,646,333    14,646,333    14,798,731

    Consolidated Balance Sheets as of
    (Unaudited)

    -------------------------------------------------------------------------
    (Expressed in
     thousands of                                    January 3,    January 4,
     U.S. dollars)                                        2010          2009
    -------------------------------------------------------------------------
    Assets

    Current assets:
    Cash                                          $      1,589  $      2,623
    Accounts receivable - net                           37,688        28,648
    Inventories                                         37,026        36,823
    Prepaid expenses                                     2,122         1,203
    -------------------------------------------------------------------------
                                                        78,425        69,297
    Property, plant and equipment                       14,266        16,743
    Deferred financing fees                                627           786
    Deferred income taxes                                  290           479
    -------------------------------------------------------------------------
                                                  $     93,608  $     87,305
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Shareholders' Equity

    Current liabilities:
    Accounts payable                              $     41,589  $     37,209
    Accrued liabilities                                  6,218         6,909
    Income taxes payable                                   540           504
    Current portion of long-term debt                    5,013         2,738
    Current portion of capital lease obligations           789         1,101
    -------------------------------------------------------------------------
                                                        54,149        48,461

    Long-term debt                                      20,666        15,943
    Capital lease obligations                              543         1,587

    Shareholders' equity:
    Capital stock                                        7,093         7,456
    Warrants                                                 -        10,372
    Additional paid-in capital                         253,304       249,655
    Deficit                                           (242,147)     (246,169)
    -------------------------------------------------------------------------
                                                        18,250        21,314
    -------------------------------------------------------------------------
                                                  $     93,608  $     87,305
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consolidated Statements of Cash Flows
    (Unaudited)

                           Three months ended          Twelve months ended
    -------------------------------------------------------------------------
    (Expressed in
     thousands of
     U.S. dollars)
    -------------------------------------------------------------------------

    Cash provided by     January 3,   January  4,    January 3,    January 4,
     (used in):               2010          2009          2010          2009
    -------------------------------------------------------------------------
    Operations:
    Net earnings
     (loss)           $      2,178  $       (137) $     (3,595) $     (5,895)
    Items not
     involving cash:
    Depreciation               784           714         2,877         3,302
    Gain on disposition
     of property, plant
     and equipment               -          (185)         (224)         (185)
    Other                        -           100             -           100
    Impairment of property,
     plant and equipment         -             -             -         4,921
    Deferred income taxes       60            10           189             4
    Non-cash interest          118            57           310           352
    Stock-based
     compensation              326           (84)          582           133
    Loss on extinguishment
     of debt                     -             -             -           613
    -------------------------------------------------------------------------
                             3,466           475           139         3,345
    Change in non-cash
     operating working
     capital:
      Accounts
       receivable           (7,555)        1,976        (9,040)       10,195
      Inventories           (9,713)        3,827          (203)       (5,944)
      Prepaid expenses        (664)          592          (919)         (263)
      Income taxes payable     (38)          (56)           36          (100)
      Accounts payable      11,879        (3,448)        4,380            37
      Accrued liabilities     (430)       (1,528)         (706)         (162)
    -------------------------------------------------------------------------
                            (3,055)        1,838        (6,313)        7,108
    Financing:
    Borrowings of
     long-term debt - net    5,811           304         9,736        19,149
    Repayment of long-term
     debt                   (1,375)         (800)       (2,738)      (21,452)
    Principal payment of
     capital lease
     obligations              (170)         (254)       (1,356)         (908)
    Debt issuance and
     deferred financing
     costs                       -          (145)         (151)         (395)
    -------------------------------------------------------------------------
                             4,266          (895)        5,491        (3,606)
    Investing:
    Purchase of property,
     plant and equipment       (58)         (320)       (1,042)       (1,329)
    Proceeds from sale of
     property, plant and
     equipment                   -             -           830           268
    -------------------------------------------------------------------------
                               (58)         (320)         (212)       (1,061)
    -------------------------------------------------------------------------
    Increase (decrease)
     in cash and cash
     equivalents             1,153           623        (1,034)        2,441
    Cash, beginning of
     period                    436         2,000         2,623           182
    -------------------------------------------------------------------------
    Cash, end of the
     period           $      1,589  $      2,623  $      1,589  $      2,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary Information:

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

                           Three months ended          Twelve months ended
                        -------------------------  --------------------------

                         January 3,   January  4,    January 3,    January 4,
                              2010          2009          2010          2009
    -------------------------------------------------------------------------
    Operating
     earnings         $      2,503  $      1,595  $      4,008  $      4,647
    Add:
      Depreciation             784           714         2,877         3,302
      Restructuring
       charges                   -            50           783           493
      Loss on
       extinguishment
       of debt                   -             -             -           613
    -------------------------------------------------------------------------
    EBITDA                   3,287         2,359         7,668         9,055
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------