SMTC's (SMTX) CEO Sushil Dhiman on Q2 2016 Results - Earnings Call Transcript

| About: SMTC Corporation (SMTX)

SMTC Corporation (NASDAQ:SMTX)

Q2 2016 Earnings Conference Call

August 08, 2016, 17:00 ET

Executives

Sushil Dhiman - President & CEO

Roger Dunfield - CFO

Greg Gaba - VP, Finance

Analysts

Operator

Welcome to the SMTC Second Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand the conference over to Sushil Dhiman, President and Chief Executive Officer. Please go ahead.

Sushil Dhiman

Thank you, Karen. Welcome and good morning, ladies and gentlemen. I’m Sushil Dhiman, SMTC’s President and Chief Executive Officer. On this call with me today is Roger Dunfield, SMTC’s Chief Financial Officer; and Greg Gaba, Vice President of Finance.

Before we begin the call, I would like to remind everybody that the presentation includes statements about expected future events and financial results that are forward-looking in nature and subject to risks and uncertainties. The company cautions that the actual performance will be affected by a number of factors, many of which are beyond the company’s control and that future events and results may vary substantially from what the company currently foresees. Discussion of the various factors that may affect future results is contained in the company’s Annual Report on Form 10-K, on Form 10-Q and subsequent reports on Form 8-K and other filings with the Securities and Exchange Commission.

Our Q2 revenue of $43.6 million was lower than expected due to three key reasons, the first reason was a result of complete disengagement with two customers, a transition process we reported in the beginning of 2015 and one product line reaching it's end of life. The second reason related to the conversion of one of our new customers business to consignment model versus a full turnkey revenue model. This resulted in lower revenue for this customer but has no impact to profitability. The third key reason is attributed to the products and delays for some of our customers due to unpredictability in their end customers demand. While the impact of these factors has caused our revenue level to drop we’re expecting to revenues to grow sequentially for the balance of the year.

As I stated during the third quarter 2015 earning call we made a strategic shift to focus on medical, industrial, aerospace, defense and security sectors. While the new business development cycle for these sectors is longer the quality of these customers is important to us due to revenue productivity and attractive margins. To launch this strategy we obtained the required certifications for our targeted factories enabling us to focus on these industries. We have found the momentum, have added customers in these target industries to our sales funnel. We continue to make progress in managing working capital as a result of exceptional account receivable management and improvement in inventory turns.

Our net debt improved by $6.6 million from the second quarter of 2015 to $10.6 million in second quarter of 2016. Our 2016 initiatives include further improvement in cash cycle days during the second half of the year.

I will now hand over the call to Roger to review financial details. Roger?

Roger Dunfield

Thanks, Sushil. Revenue for the second quarter was $43.6 million with a net loss of $0.6 million and adjusted EBITDA of $0.9 million compared to revenue in the second quarter of 2015 of $57.7 million, net income of $1 million and an adjusted EBITDA of $1.8 million. Gross profit for the second quarter was $3.1 million or 7.1% compared to $5.4 million or 9.4% in the second quarter of 2015. Adjusted gross profit which excludes the effects of the unrealized portion of foreign exchange gains or losses and unsettled derivative financial instruments was $3.1 million or 7.2% compared to $4.6 million or 8% in the second quarter of the prior year.

The reduction in gross profit in the second quarter of 2016 was a result of product mix and the impact of covering our fixed cost at lower revenues partially offset by improved manufacturing efficiencies and reduced direct labor charges. Cash flow from operations was $3.1 million for the second quarter of 2016 compared to $0.2 million in the second quarter of the prior year. We continue to strengthen our balance sheet as we actively improve our cash cycle resulting in paydown of debt.

I will now hand back to Sushil to provide some closing remarks.

Sushil Dhiman

Thanks, Roger. In summary, we remain focused on adding high quality customer with more predictable product demand. We have been shifting our focus in our customer funnel to include more medical, industrial, aerospace, defense and security products. During the quarter we have continued to make changes in our sales organization to align with subject matter expertise and factory focus. We’re also adding additional talent to help accelerate the new customer acquisition strategy. We expect that as a result of this industry focus and the additional sales force we will add longer life cycle products and a more predictable revenue stream. Finally I want to thank our customers for their trust in SMTC. Thank our shareholders for their continued investment in our company and thank our employees across the globe for their hardwork and dedication.

We will now open the lines for questions.

Question-and-Answer Session

Operator

Sushil Dhiman

Thank you, Karen. Thank you all for joining the call and for your continued support of our company. we expect our next earning calls to take during place during first week of November. We look forward to speaking with you then. Thank you.

Operator

Thank you. Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.

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