Smtc Corporation (NASDAQ:SMTX)

First Quarter 2013 Results

• Revenue for the quarter was $65.4 million, an 11% decrease sequentially from the fourth quarter of 2012, and a 10% decrease over the first quarter of 2012.
•  Adjusted EPS for the quarter was $0.04 vs $0.15 in prior year period.

TORONTO, Sept. 28, 2012 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX) ("SMTC"), a global electronics manufacturing services provider, announced the signing today of an agreement to acquire the manufacturing assets of Seksun Array Electronics (Suzhou) Co. Ltd.'s ("Seksun") in Suzhou, China. The acquisition is expected to close in Q4, 2012. This acquisition will further expand SMTC's operations and capabilities in China, strengthen its global footprint, and support the growth of new business in the region.

Seksun provides printed circuit board assembly and full "box build" systems integration focused on low volume, high mix business for the industrial, commercial and medical sectors. SMTC expects the acquisition to be immediately accretive.

"This transaction will support SMTC's strategy to grow and diversify its revenue base via accretive acquisitions, and is consistent with our strategic plan to quickly capitalize on market opportunities", said Alex Walker, Co-CEO at SMTC.

"This acquisition will further strengthen SMTC's global presence. This will allow us to provide additional manufacturing capabilities in China for our North American and European customers that demand world class quality and competitively priced solutions" said Claude Germain, Co-CEO at SMTC. "The Seksun team will bring extensive supply chain, engineering and general management depth to SMTC which will complement our current capabilities in China."

This acquisition will also complement SMTC's Asia procurement office and fulfillment warehouse, both located in Hong Kong, which allow both current and new customers to benefit from SMTC's strong global supply chain capabilities and localized purchasing power.

The following is summary of GeoBargain SMTX's earnings for the second quarter of 2012:

• $75.1 million in revenue, up 54% over second quarter 2011 revenue.
• $2.8 million net income and $4.3 million in adjusted EBITDA.
• Maintains guidance for fiscal 2012 of $14-$16 million adjusted EBITDA, increases revenue guidance from $250-$270 million revenues to $270-$290 million revenues.

Management commentary:

Co-Chief Executive Officer Claude Germain stated, "Revenue for the quarter was at its highest level since the fourth quarter of 2006. Going forward into the second half of the year, we anticipate revenues to level off from significant first half growth rates, but we expect to continue to achieve solid profitability coupled with improved free cash generation and debt reduction."

"Although we have not fully optimized our business to take advantage of our significant revenue growth, we have made progress in improving operating efficiencies this quarter. Our focus continues to be on improving gross margins, effectively managing working capital, and reducing our debt through free cash generation. We are pleased to have successfully integrated our ZF acquisition and we will continue to look for opportunistic accretive acquisitions," stated Co-Chief Executive Officer, Alex Walker.

Source: Globe Newswire

TORONTO, June 8, 2012 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX) ("SMTC"), a global electronics manufacturing services provider, announced the successful buyout of their Chinese joint venture partner, Alco Electronics, and the expansion at their Dongguan China manufacturing facility. This investment and expansion is part of SMTC's strategic plan to strengthen its global footprint, to enhance manufacturing capabilities in China, and to support the growth of new business in the region.

This expansion in Asia, combined with its existing facilities in Mexico and North America, highlights SMTC's commitment to its growing global footprint; it also caters specifically to global OEMs seeking a sophisticated Asia-based manufacturing solution. More specifically, SMTC has strengthened its capabilities in Asia by adding engineering resources to support New Product Introduction, by adding state-of-the-art testing equipment, and by boosting capacity. The expansion is supported by SMTC's Asia procurement office and fulfillment warehouse, both located in Hong Kong, which allow both current and new customers to benefit from SMTC's strong supply chain capabilities and localized purchasing power in order to bring products to market faster and more cost effectively.

"We are excited to announce this further expansion in China, which meets our strategic initiative to align our footprint to meet the needs of our growing customer base. This growth and investment is consistent with our corporate objective of delivering intelligent, profitable growth to customers with products in the mid-to-low-volume, higher-mix segment of the market," said Claude Germain, President and CEO for SMTC.

SMTC's 150,000 sq/ft facility is located in China (Dongguan), is ISO 9001:2008 registered and serves as a medium to high volume, medium to low mix facility servicing both regional and global OEMs requiring lowest cost manufacturing. This manufacturing facility offers a full suite of turnkey solutions; New Product Introduction and prototyping, Printed Circuit Board Assembly and testing, box/module build, final product integration and worldwide customer logistics.

TORONTO, May 16, 2012 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX) (TSX:SMX) ("SMTC"), a global electronics manufacturing services provider, today announced that they have completed the integration of ZF Array and subsequent expansion at their San Jose manufacturing facility.

This expansion highlights SMTC's commitment in advancing their current manufacturing capabilities and development of new services offered to OEMs in California. SMTC now has advanced capabilities to offer such as dedicated prototyping lines, additional SMT capacity and state of the art testing technology. Also added to the facility is a new Class 10,000 Clean Room which will service the growing demand from medical device OEM's seeking controlled environment capabilities for final assembly and packaging services. SMTC has also introduced an In-Plant Store which allows current and new customers to leverage SMTC's supply chain and purchasing capabilities, ultimately allowing our OEM customers to bring products to market faster and more cost efficiently.

"These are exciting times for SMTC in San Jose, and with a new wave of innovation emerging in the valley, we are seeing growing interest from OEMs looking to develop and manufacture these complex products right here in the heart of Silicon Valley," said Joel Bustos, VP and GM of SMTC San Jose. "This next generation of innovative OEMs is leveraging SMTC's expertise in engineering and design so it can manufacture low volume development prototypes here in the Valley, with the option of low cost high volume production at one of our other global locations. We aim to become their virtual manufacturing partner and a key enabler in getting their product to market quickly and effectively."

SMTC's 65,000 square ft. center for excellence facility is located in the heart of Silicon Valley and operates with ISO 9001:2008 and ISO-13485:2003 certification and has achieved the FDB Licensing to manufacture Class 1 and 2 medical devices. This specialized technology center provides design expertise for proof of manufacturability and NPI into full production.  The high mix, low to medium volumes 'Copy-Exact' facility services OEMs in the Western U.S. requiring low-cost North American manufacturing. 

First Quarter 2012 Results

• Revenue for the quarter was $72.5 million, a 29% increase over the first quarter of 2011, and a slight increase over fourth quarter 2011 revenue due to increased demand from both existing and new customers.
• Gross margins were 10.4% including unrealized gains from foreign currency forward contracts of $462 thousand.
• Reports first quarter results of $72.5 million in revenue, $4.3 million in adjusted EBITDA and $0.18 adjusted EPS. Adjusted EPS is GAAP EPS excluding the effect of restructuring charges relating to the integration of the ZF Array Technology acquisition
• Maintains guidance for remainder of fiscal 2012 of $14-$16 million adjusted EBITDA, $250-$270 million revenues and $0.53 - $0.65 EPS

Co-Chief Executive Officer Claude Germain stated, "Revenue for the quarter was at its highest level since the fourth quarter of 2006. For the balance of 2012, we anticipate continued strong top and bottom line performance in line with our previously announced guidance."

"Over the next few quarters we expect to leverage our fixed cost infrastructure as we grow to further improve gross margins, and to effectively manage working capital and reduce our debt through free cash generation," stated Co-Chief Executive Officer, Alex Walker.

Year end review:

Potential road blocks: Even though visibility has improved, outlook in this industry beyond 6 months can still be challenging; Company is not recession resistant; Could be fairly sensitive to changes in the U.S. economic outlook; Some investors may be taking 2011 year end conference call comments too literal.

On 12/20/2011 we coded SMTX a GeoBargain @ 2.74 after company issued bullish guidance in its third quarter 2011 earnings release.  It seems new managments restructuring efforts are begining to pay off.  Commentary from fourth quarter 2011 release by Claude Germain:

"We have focused our restructuring efforts towards delivering more value to our customer, and have won more business from new and existing customers through the last six months of the year than in any of the past several years."   

On March 7, 2012 SMTX reported its fourth quarter 2011 results exceeding company's EPS guidance and raising full year 2012 EPS guidacne to a range of $0.53 to $0.65 from previous guidance of $0.47 to $0.59.  Overall, commentary in the year end conference call was bullish.  Investors may have been mildly disapointed that the company stated that its internal top line growth rate will be about 10%. However, managemnet stated that earnings are expected to grow faster than sales and that growth assumptions do not include acquisitions. Considering the fact that SMTX is hardly paying any taxes, using a P/E of 15 on GeoTeams tax adjusted EPS estimate of $0.44 (our previous estimate was $0.40) for 2012 gives us a short-term price target of $6.60.  Originally, we had also provided some valuation sceunarios based on trailing:

Short-Term Potential value based on fully taxed adjusted trailing EPS

P/E 20 * $0.17 = $3.40
P/E 25 * $0.17 = $4.25

Given SMTX's recent achievements and an overall improving stock market environment, we now feel that a trailing P/E of 25 2011 tax adjusted EPS of $0.18 is warranted which insinuates a short-term price target of $4.56

On January 5, 2011 SMTX adopted a shareholder friendly policy reconfirming managements efforts to increase shareholder value.  This commitment could lead to valuation multiples. 

For a recap of all GeoBargain and GeoSpecial 2011 financial reviews as well as valuation scenarios please visit our blog.

Fourth Quarter 2011 Results

• Fourth quarter results exceed guidance for revenue, adjusted EBITDA and EPS
• Fourth quarter results of $71.1 million in revenue, $4.3 million in adjusted EBITDA, $2.9 million in net income, $5.5 million operating cash flow, and $0.18 EPS
• Presents Q1 guidance of $72-$74 million of revenue, $4.3 to $4.5 million of adjusted EBITDA, and $0.17-$0.19 adjusted EPS. Adjusted EPS is GAAP EPS excluding the effect of anticipated restructuring charges relating to the integration of the ZF Array Technology acquisition.
• Raises 2012 guidance to $14-16 million adjusted EBITDA, $250-270 million revenue, and $0.53 - $0.65 EPS, up from $13-15 million adjusted EBITDA, $240-260 million revenue, and $0.47 - $0.59 EPS prior guidance

"Despite solid fourth quarter results, we see room for improvement on both the revenue and margin front moving forward. These results reflect the efforts made during our first six months to right size costs, drive new business, and make our culture more customer-centric," stated Co-Chief Executive Officer, Alex Walker. "We expect to leverage our fixed cost infrastructure as we grow to further improve gross and operating margins and to effectively manage working capital and reduce our debt through free cash generation."

Co-Chief Executive Officer Claude Germain added, "We have focused our restructuring efforts towards delivering more value to our customer, and have won more business from new and existing customers through the last six months of the year than in any of the past several years. This has had a significant impact on our Q4 and our expected 2012 results. We anticipate improved performance in 2012 in line with our guidance, while targeting a longer term annual organic revenue growth rate of 10%."

GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities (It is very important for readers to see Foot Note 2 to learn more about the GeoNugget process)

On 12/20/2011 we alerted our premium members that we coded SMTX as a GeoBargain @ $2.74.

SMTC Corporation (NASDAQ:SMTX)

Company Description: A mid-size provider of end-to-end electronics manufacturing services (EMS)

Data Ended 2/01/2012

• Price = $ 3.17
• Geo Taxed Adjusted Trailing EPS = $0.17
• 2011 EPS Guidance = $0.27
• 2012 EPS Guidance = $0.47 to $0.59
• Tax Adjusted EPS Guidance for Fiscal 2011 = $0.23
• Tax Adjusted EPS Guidance for Fiscal 2012 = $0.36 - $0.44
• P/E based on Geo Taxed Adjusted Trailing EPS = 18.6
• P/E based on Fully-Taxed Guidance for Fiscal 2011 = 13.8
• P/E based on Fully-Taxed Guidance for Fiscal 2012 = 7.9 (based on midpoint guidance of $0.40)

SMTX is not paying a full U.S. tax rate. Therefore, all EPS numbers have been adjusted by the GeoTeam to reflect a tax rate of 36%. Also, EPS has been adjusted for certain non-cash and non-operating items.

Criteria Check List

SMTX meets 7 out of 10 of our most important requirements for growth and risk-based quantitative data. All of the following data is based on non-GAAP and fully taxed assumptions.

	Requirement	Comments
	Recent 52-week High(generally within 3 months)	Must Reach $3.74
	Strong EPS Growth Rate	Based on 2012 company EPS guidance
Yes	> 30% EPS Growth Rate	2012 EPS are expected to grow 74%
Yes	GeoPowerRanking (GPR); Number of consecutive quarters that EPS is expected to grow at least 30%.	GPR of 4
	10% Revenue Growth	15% growth rate based off mid-point 2012 Revenue guidance of $240 to $260 million
	Strong Operating Cash Flow and Balance Sheet	As of 3rd Qtr.. 2011
Yes	Positive Cash Flow	$1.6 million
No	Long Term Debt to Equity Ratio less than 20%	59%
No	Current Ratio is at least 2:1	1.6:1
Yes	Days in receivables < 90. This shows that the company converts its account receivables to cash within 90 days. (measure of liquidity)	53
	Return on Equity is at least 15%	Tracking at ~30% based on 4th quarter financial guidance
	Minimum Pre-tax Operating Margins of 8%	~3% to 4%implied by 2012 financial guidance
	Preferably Under 50 Million Shares	16.2 Million shares as of 3rd Qtr. 2011
	High Insider Ownership (generally greater than 15%)	17% (Yahoo)
	Limited Institutional Ownership (generally less than 20%)	13.4% (Yahoo)
	P/E Divided by Growth Rate (PEG Ratio) is Less Than 1.	0.25

Additional factors to consider in analysis

• Effective Internal Controls: Yes
• Need to raise capital: No

Reasons for Optimism

1. Restructuring efforts are starting to pay off.

   "SMTX's objective is to create increasing long term value to its stockholders through continuing growth in sales, profitability and debt reduction. A cornerstone to SMTC’s strategy is our customer-centric focus throughout the organization."

   More specifically, the company has defined specific revitalization initiatives that we believe will allow the company to drive sales and profits, while strengthening its competitive position. Some of the notable details include the following:
   
   
   • Acquisitions- SMTX will look to acquire companies and customer accounts to obtain more quality customers, leverage existing fixed costs and penetrate new markets. Part of this focus will be to gain access to customers who desire to gain exposure to the Chinese market where the company already has a manufacturing partner, but will soon operate its own facility.
   • Customer Focus- SMTX aims to earn a higher wallet share per customer (to attain more sales from existing customer accounts). This falls in line with their goal to maintain a higher quality customer base. The company has also increased its emphasis to be more aware of product life cycles so they are ready to meet customers' needs before new product cycles begin.
   • By investing in manufacturing, engineering, supply chain and quality process improvements, the company now runs a more efficient organization. The company has also centralized, integrated and simplified departments. This has fostered a more tightly knit organization where communication among employees has improved.
   • The company will strive to attract, motivate and retain the best possible talent. SMTX expects its managers to be more involved in the sales process and has created a more incentive-based environment. The company now expects its sales force to become more intimate with its customer base
     
     To see more on SMTX's revitalization initiative please see their investor presentation.
     
2. Favorable industry trends- Starting in the 1980's, through-hole mount technology for placing electronic components began to transition to surface-mount technology. In laymen terms, surface-mount technology has enabled companies to include more components on circuit boards, utilizing less space. This benefits companies like SMTX that specialize in providing surface-mount technology applications. In 2001 the industry imploded when the dot com bubble burst. Margins for companies like SMTX were negatively impacted due to industry over capacity versus demand. Since then, this imbalance has gradually reversed, which is helping to drive sales and margins for industry participants that were able to adapt. Companies with a good footprint in the surface-mount technology industry will be able to address the needs of customers who want to include more components on less space. This desire of companies to put more on less is only intensifying as the mobile nation gains speed. Furthermore, ample growth opportunities exist as OEM'S increase outsourcing activities. Currently, OEM's only outsource a minimal percent of their surface mount needs. Ultimately, many companies want to outsource manufacturing to focus on customer service, product engineering and design.
   
   
3. Maximizing Profit Margins:
   
   
   • Favorable operating leverage due to excess capacity.
   • Net income can grow faster than sales.
   • Increase Wallet Share. The company will eliminate customers where pricing does not lead to profitability. They will instead maximize pricing to get maximum margin out of new and current customer accounts.
     
     
4. Improved visibility is another positive factor that drew us to SMTX. In the past the company has only provided limited financial guidance. However, the company has now provided guidance not only for the fourth quarter of 2011 of $69 million in revenue and EPS of $0.16(vs. $0.06 in 2010 fourth quarter) but also provided full year 2012 guidance of $240 to $260 million in revenue and EPS of $0.47 to $0.59 (vs. implied 2011 EPS of $0.27 based on company guidance)
   
   
5. The new management team has a track record of turning companies around. Dave Sandberg (Chairman of the Board), a very successful activist fund manager who is focused on turnarounds, is currently working to improve the earnings of the company. David Sandberg founded Red Oak Partners, a New York area hedge fund with approximately $24 million in assets. It invests in under-followed or mispriced micro-cap situations, sometimes becoming an activist for the companies goals. Red Oak has a successful track record of around 15% compounded annual growth rate (CAGR) and was instrumental in the Asure Software Inc (NASDAQ:ASUR) turnaround story. ASUR has seen its stock rise from the low $2's to a recent high of $8.95 since Red Oak became its advisors in January 2009.

GeoTeam overall subjective/confidence comfort level: Pertains to the ability of a company to achieve solid and consistent EPS growth over the next several quarters (from 1 to 10): 7

Potential Valuation Scenarios if the company can achieve its EPS growth goals (We believe that company guidance could be fairly conservative, offering upside to our valuations scenarios).

Short-Term Potential value based on fully taxed adjusted trailing EPS

P/E 20 * $0.17 = $3.40
P/E 25 * $0.17 = $4.25

Note:As 2011 comes to an end, we believe it is more appropriate to apply tax adjusted 2012 EPS guidance of $0.27

P/E 20 * $0.23 = $4.6
P/E 25 * $0.23 = $5.75

Short-term Potential value based on the midpoint of 2012 fully Implied EPS Guidance

P/E 15 * $0.40 = $6.00

Long-term (Twelve months) Potential value based on midpoint 2012 EPS estimates

P/E 25 $0.40 = $10.00

Caveats:

1. Company is not recession resistant. Could be fairly sensitive to changes in the U.S. economic outlook.
2. P/E expansion may be difficult due to industry
3. Has no investor relations campaign
4. Even though visibility has improved, outlook in this industry beyond 6 months can still be challenging.
5. Stock has unsuccessfully attempted to break through $3 to the upside several times, however, if shares convincingly crack $3.08 (which we believe will happen soon) momentum investors could find SMTX.

¹Valuation scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

²Our analysis is based on Quantitative and Qualitative factors. Even if a company does not meet the majority of our quantitative requirements, strong qualitative factors can still influence our optimism for a given story. Furthermore, gaining alpha in a market entails finding companies before the masses do, which means that their is value added when one can identify stocks that may currently have weaker quantitative data, but will soon improve. The GeoTeam typically considers EPS Growth, Revenue Growth and PEG Ratio as the most important quantitative attributes that affect short term valuation.

Disclosure: Long SMTX

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TORONTO, Jan. 5, 2012 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX) (TSX:SMX) ("SMTC"), a recognized global electronics manufacturing services provider, today announced changes to its Charter and Bylaws aimed at improving shareholder rights, and an agreement with its largest shareholder, Red Oak Partners, LLC to limit its voting rights in certain circumstances.

Charter and Bylaw Changes

After retaining a leading provider of shareholder corporate governance solutions to recommend ways to make its policies more shareholder friendly, SMTC's Board of Directors adopted changes to its Charter and Bylaws including:

• Special meetings may now be called up to twice per year by holders of 10% or more of shares outstanding. Previously, shareholders were unable to call special meetings;
• Shareholders are no longer limited to the number of Directors they may nominate for election to the Board. Previously, shareholders were limited to nominating three Directors;
• SMTC's Tax benefits preservation shareholder rights plan ("Net Operating Loss Plan," or "NOL plan") may no longer be extended at the Board's discretion – in the future an extension will require shareholder approval;
• Removal of a stakeholder clause considered poor policy by governance experts and which impeded SMTC's singular focus on shareholder value.

Third Quarter 2011 Results

• Announces third quarter results in line with guidance
• Confirms guidance for approximately $69 million revenue, $4 million EBITDA, and $0.16 earnings per share ("EPS") for Q4
• Updates 2012 guidance from $13 million EBITDA on $240 million revenue to guidance range of $13-15 million EBITDA, $240-260 million revenue, and $0.47 - $0.59 EPS
• Closes new banking facility with PNC in late Q3
• Completes acquisition of ZF Array in late Q3

Revenue for the quarter was $44.1 million, in line with guidance. Revenues declined as demand reductions and end of life programs from certain customers in Q3 resulted in what is expected to be SMTC's lowest revenue and profit quarter of 2011. During the quarter, the new management team continued its restructuring plan, and has eliminated 11 corporate positions simultaneous with an increase in direct labor headcount by 550 employees (to 1,750) in order to meet increased demand in Q4 and beyond. One-time charges of $1.1 million in the third quarter included severance costs, the write-off of financing costs related to the previous credit facility, and foreign exchange forward losses. Costs related to the third quarter increase in direct labor headcount were expensed in the quarter and excluded from one-time charges. For the fourth quarter, the Company expects one-time charges, including those related to the closing of ZF Array, to be less than the amount incurred in Q3. The Company anticipates few if any non M&A-related one-time charges in 2012.

Co-Chief Executive Officer Claude Germain added, "We've continued with our plan to restructure the business to make it more customer oriented. Our new customer and program wins are exciting and will allow us to leverage our fixed cost infrastructure, increase site utilization, and improve gross margins. Additional customer wins are expected to ramp in Q4 and 2012, and barring any major macroeconomic downturn, we are looking forward to improved performance going forward."

SMTC Provides Business Update -- Raises Q4 Forecast, Provides 2012 Guidance

-Confirms prior guidance for improved financial performance in Q4 and beyond
-Raises Q4 guidance to $4.0 million EBITDA on revenue of $69 million
-Introduces new 2012 EBITDA guidance to equal or exceed $13 million, and 2012 revenue guidance to equal or exceed $240 million
-Guides for $825,000 Q3 EBITDA, pre 1-time costs (related to restructuring and refinancing) on revenue of $44 million

TORONTO, Oct. 25, 2011 (GLOBE NEWSWIRE) -- SMTC Corporation (Nasdaq:SMTX) (TSX:SMX) ("SMTC"), a recognized global electronics manufacturing services provider, today provided a Q3, Q4, and 2012 business update.

"In an effort to offer increased transparency about the business to our shareholders, we are providing the following update about our expected Q3, Q4 and 2012 results. We continue to expect Q3 to be our weakest quarter of the year, and anticipate generating $825,000 in EBITDA for the quarter. However, due to new program wins from both current and new customers, recent cost reduction initiatives, and our recent acquisition, we now expect the business to generate $4.0 million in EBITDA in Q4, up from our prior guidance of $3.0 million," stated Claude Germain, Co-Chief Executive Officer. "Barring additional major macroeconomic changes and based on forecasts from our customers as well as our internal forecasts, we are also introducing a 2012 EBITDA guidance of $13 million in EBITDA and $240 million in revenues."

Alex Walker, Co-Chief Executive Officer, added, "As recently appointed CEO's, we are cautious about providing new guidance, but our increased forecast reflects the strengthening of the business. In order to meet higher Q4 orders, we added to labor and increased working capital in late Q3. However, we continue to expect to generate positive operating cash flow for the year, and to generate strong free cash flow in 2012. We also expect our sizable tax loss carry-forwards to offset future taxable income and further increase earnings and cash flow."

EBITDA is a non-GAAP measure. EBITDA is computed as Net income from continuing operations excluding depreciation, amortization, restructuring charges, interest and income tax expense. SMTC Corporation provides this non-GAAP calculation of EBITDA as supplemental information regarding the operational performance of SMTC Corporation's core business. EBITDA is used by SMTC Corporation to provide a consistent method of comparison to historical periods and to the performance of competitors and peer group companies. SMTC Corporation believes that providing non-GAAP measures that management uses in its assessment of the business will allow its investors to better understand SMTC Corporation's financial performance and to evaluate SMTC Corporation's performance using the same methodology and information used by SMTC Corporation's management. 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.

SMTC Corporation delivered its third straight quarter of both sequential and year of year EPS growth.

2010 Second quarter highlights:

Comments in the the press release indicated that the 2010 third quarter would also be strong...

 "We enter the third quarter with a solid order backlog and continuing demand from our customers."

...but left a slight cloud of uncertainty regarding growth prospects thereafter:

However, we will take a cautious approach given continuing economic uncertainty and lack of visibility into customer end markets and into remaining customer inventory builds. We expect continued profitability through the remainder of the year but as has been our policy, we are not providing specific full year guidance." stated Mr. Caldwell.

We participated in the earnings conference call to gain more insight into future business prospects.  Management confirmed that the 2010 third quarter would build on the momentum established over the past several quarters. We asked management why it hesitated to give guidance past the third quarter.  It basically said that much of the recent growth was the result of customers restoring inventories that were inadequate to meet current demands. Thus, due to the uncertainty in the market place, the company was unwilling to make a definitive call that customers would not delay purchases until more certainty arrives on the scene.  

The company may also begin stepping up its IR efforts.

The SMTC story suddenly has a fly in the ointment. In its first quarter press release the company was able to make a broad assumption on 2010 as a whole:

"We continue to see signs of economic recovery. We experienced wide spread increased customer orders in the first quarter and thus far in the second quarter. With this strong order intake combined with a large opening order backlog, we expect continued sequential second quarter revenue growth. Although we have less visibility beyond the second quarter, at this point we expect aggregate revenue in the last two quarters at least to attain the first half level," stated Mr. Caldwell.

We have read too many press releases from other technology firms indicating that order bookings are at record highs and that visibility has improved. The question now becomes:  is the company being a little too conservative or does it see some weariness from its customers?  It is likely a little of both and in the end could lead to a disappointing 2010 fourth quarter.

With an erie feeling, we will keep the stock on the GeoSpecial on the Radar list, understanding the medium-term hurdles. With fully taxed adjusted trailing EPS of $0.35, we are not sure investors will take the stock much past a $3.00 to $5.00 range, until more clarity becomes evident about the future.

"As expected, SMTC produced strong first quarter results with revenue increasing 20% sequentially, the result of increased orders for most of SMTC's longstanding customers combined with five newer customers ramping production. This was our third consecutive quarter of robust revenue growth," stated John Caldwell, President and Chief Executive Officer. "We converted this increased revenue into more than a 50% sequential increase in net income adjusted for stock based compensation and income tax recoveries through leveraging our current manufacturing capacity and efficient cost structure."

"We continue to see signs of economic recovery. We experienced wide spread increased customer orders in the first quarter and thus far in the second quarter. With this strong order intake combined with a large opening order backlog, we expect continued sequential second quarter revenue growth. Although we have less visibility beyond the second quarter, at this point we expect aggregate revenue in the last two quarters at least to attain the first half level," stated Mr. Caldwell.

"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.

Source: PR Newswire (March 10, 2010)