SMTC Corp : SMTC Corporation Reports Second Quarter 2013 Results

NEWS PRESS RELEASE

FOR IMMEDIATE RELEASE August 7th, 2013

SMTC Reports Second Quarter Results

? Reports second quarter results of $64.9 million in revenue; a net loss of $(6.0) million; $(1.3)

million in adjusted EBITDA; EPS of $(0.37) and adjusted EPS of $(0.19).

? Reports a significant improvement in working capital due to collection of accounts receivable and inventory reduction leading to positive quarterly cash flow and an $8.9 million reduction in total debt, net of cash.

? Receives waivers relating to violations of credit arrangement covenants and amendments to certain credit agreement covenants going forward.

? Reports that the second quarter gross profit was negatively affected by $2.1 million in unrealized foreign exchange loss on derivatives, a $1.3 million negative gross margin from the Markham manufacturing facility (which is now closed) and $1.2 million in non-recurring costs. The non- recurring costs include a physical inventory count adjustment, scrap inventory and inventory reserves. In addition SG&A was higher by $1.2 million due to non-recurring expenses which included executive severance, lease exit costs and CEO recruiting fees. Excluding gross margin from the now closed Markham manufacturing facility and the non-recurring expenses, adjusted second quarter EBITDA was $2.3 million compared to $1.9 million in the prior quarter.

TORONTO, CANADA - August 7, 2013 - SMTC Corporation (Nasdaq: SMTX) ("SMTC"), a global electronics manufacturing services provider, today announced second quarter 2013 unaudited results.
Revenue for the quarter was $64.9 million, a 1% decrease sequentially from the first quarter of 2013 and a 13.6% decrease from the second quarter of 2012. The decrease was mainly due to the decrease in revenue from one long standing customer in addition to the closure of the Markham production facility which resulted in the disengagement of certain customers. Gross margin was
1.9% compared to 10.6% in the prior quarter and 9.7% in the second quarter of 2012. However, when removing the effects of unrealized foreign exchange on derivatives, the negative gross margin from the now closed Markham manufacturing facility and the non-recurring expenses highlighted above, the gross margins were 9.1% in the second quarter compared to 8.4% in the prior quarter and 10.2% in the second quarter of 2012. Adjusted EBITDA was $(1.3) million in the second quarter compared to $2.3 million in the prior quarter and $4.8 million in the second quarter of 2012. However when removing the gross margin from the now closed Markham manufacturing facility, and the non-recurring expenses, adjusted EBITDA was $2.3 million in the second quarter compared to
$1.9 million in the prior quarter and $4.7 million in the second quarter of 2012. Working capital decreased to $16.4 million from $22.3 million in the prior quarter and $21.4 million in the second quarter of 2012 and total debt including capital lease obligations net of cash decreased to $22.5

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million, down from $31.4 million in the first quarter of 2013 and $29.1 million from the second quarter in 2012.
"The second quarter was very challenging, but we feel that we have addressed many issues. In addition, we are making numerous improvements to the operations that should lead to margin improvement in the future. Our order book remains strong and we believe profitability should improve in the third and fourth quarters," stated interim President and Chief Executive Officer, Larry Silber.
Executive Chairman Clarke Bailey stated, "We initiated an aggressive campaign to reduce working capital in order to pay down our revolving credit with PNC. The campaign has paid off and we will continue to focus on working capital. PNC has waived covenant violations in the second quarter and amended the covenants going forward to a more realistic level."
Adjusted EBITDA and adjusted EPS are non-GAAP measures. Adjusted EBITDA is computed as net income from continuing operations excluding depreciation, restructuring charges, loss on extinguishment of debt, unrealized foreign exchange gains/losses on derivative financial instruments, acquisition expenses, interest and income tax expense. Adjusted EPS is GAAP EPS excluding the effect of restructuring charges and unrealized foreign exchange gains/losses on derivative financial instruments. SMTC Corporation has provided in this release non-GAAP calculations of adjusted EBITDA and adjusted EPS as supplemental information regarding the operational performance of SMTC's core business. Management uses these non-GAAP financial measures internally in analyzing SMTC's financial results to assess operational performance and liquidity as well as to provide a consistent method of comparison to historical periods and to the performance of competitors and peer group companies. SMTC believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing SMTC's performance and when planning, forecasting and analyzing future periods. SMTC believes these non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial metrics we use in making operating decisions and because our investors and analysts use them to help assess the health of our business. Non-GAAP measures are subject to material limitations as these measures are not in accordance with, or an alternative for, Generally Accepted Accounting Principles and may be different from non-GAAP measures used by other companies. Because of these limitations, investors should consider adjusted EBITDA and adjusted EPS along with other financial performance measures, including revenue, net income and SMTC's financial results presented in accordance with GAAP.
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. For these

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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 SMTC's most recent filings with securities regulators in the United States. The forward-looking statements contained in this release are made as of the date hereof and SMTC 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.
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, Mexico, and China, with more than 2,220 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 was recognized in 2012 by Frost & Sullivan with the Global EMS Award for Product Quality Leadership and 2013 with the North American Growth Leadership Award in the EMS industry, as one of the fastest growth companies in 2012.
SMTC is a public company incorporated in Delaware with its shares traded on the Nasdaq National
Market System under the symbol SMTX. For further information on SMTC Corporation, please visit our website at www.smtc.com (http://www.smtc.com/).
For further information: Larry Silber
Interim President and Chief Executive Officer, SMTC Corporation
[phone]
Email: [e-mail]

Investor Relations Information: Public Relations Information:

Larry Silber Tom Reilly
Interim President and Chief Executive Officer Director of Marketing
Telephone: [phone] Telephone: [phone]
Email: [e-mail]: [e-mail]