conference date: February 10, 2009 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2008 (4th quarter)
Overview: Not bad, but GAAP numbers look bad due to goodwill impairment charges, which are non-cash.
Basic data (GAAP) :
Revenues were $164.9 million, down 2.5% sequentially from $169.0 million and down 1.5% from $167.5 million year-earlier.
Net income was negative $68.5 million, down sequentially from positive $9.5 million, and down from positive $11.8 million year-earlier.
EPS (earnings per share) were negative $1.60, down from positive $0.22, and down from positive $0.28 year-earlier.
First quarter 2009 revenues between $146 and $154 million. Earnings between $0.01 and $0.06. A restructuring charge of $2.8 million is expected.
$2.7 million in convertible debt interest to be recorded in Q1 due to accounting rule changes.
In contrast to GAAP net income and earnings, cash balances increased by $17.1 million to $152.1 million. Sales exceeded guidance. Non-GAAP gross margin was 18.6% and non-GAAP EPS was $0.18.
Closed Redmond, Washington facility. Reduced headcount by 140. No additional restructuring plans.
Aerospace/Defense market was "a significant part of our success." A review of good and assets showed a decline in market capitalization, so non-cash impairment charges of $117 million for goodwill and $6.3 million for fixed assets were made.
GAAP operating loss was $108.9 million, but operating income was $14.5 million non-GAAP. EBITDA was negative $102.7 million, but excluding charges was positive $20.7 million.
PCB manufacturing segment revenues were $144.2 million and operating income before amortization was $13.1 million. 3% increase in average panel price due to mix change.
Backplane assembly revenues were $31.1 million. Operating income was $2.3 million.
Aerospace/Defense increased from 39% to 40% of net sales.
Networking and Communications end market was at 37% of sales, dropping from 39% due to drop in orders from a couple of major customers.
Computing and Storage 12%, an increase due to renewed buying by storage customers.
Medical and Industrial 11% of revenue, steady.
12% of revenue was from quick turn, up from 11% in Q3.
CISCO, ITT, Juniper, Northrop, and Raytheon were five largest OEM customers.
Average layer count was 1.37.
Continue to evaluate acquisitions.
Cost of goods sold was $134.2 million. Gross profit $30.7 million. Operating expenses of $139.5 million include $123.3 million in non-cash impairments, $7.4 million for marketing, $7.8 million for general and administrative, and $1 million for amortization of definite-lived intangibles. Other income was negative $0.4 million. Income tax benefit was $42 million.
Inventories ended at $71.0 million, accounts receivable at $115.2 million, accounts payable at $48.8 million.
$4.2 million in capital expenditures in quarter.
Margins in March quarter? PCB side is already at 50% level. Redmond transfer will increase utilization at other plants without requiring additional labor or equipment.
Timing of restructuring savings? In Q2 we will see full cost savings of $5 million per quarter. We will see about $2 million in Q1.
Pricing? Q4 increase was due to a mix change. Prices appear to be holding steady, but there is some spotty competition this quarter.
Materials costs? Have gone down for some items, believes that trend will continue. Copper in particular.
Is capacity in the industry decreasing in line with demand? There is still excess capacity, but we don't know if it will become an issue, but is not so far. We sell engineering support as well as the actual final products.
Our objective is to buy well-run companies that are producing income. These companies are not lowering their selling prices so far. No acquisition is on the horizon.
Softness in orders by segment? Backplane business may decrease 16% in Q1. PCB business down about 10%. Aerospace and Defense will be off 2 to 3% in quarter due to softness in commercial aerospace; Defense is solid. Network/Communications will be most negatively impacted by economic downturn. Computing, we saw some rush storage orders at the end of the quarter that won't be repeated in Q1, but other than that should be steady. Industrial projects like windmills look pretty solid so far, but semiconductor test equipment demand is weak.
Inventories? We don't have visibility. This is not an inventory drawdown for us, it is end demand.
If there are revenue drops, cost of materials won't drop enough to compensate for that.
Customer in China? Expect demand from them to be relatively strong the next few quarters.
Growth strategy? There is too much competition in North America. We have to gain share in a shrinking market. Growth in the U.S. may not be possible until smaller competitors drop out. We do win sometimes against Asian competition, even during this time when you would think they would be trying to fill their facilities.
We expect aerospace and defense business to be up in 2009, but with some weakness in first quarter. Guidance, radar, communications programs are in place.
Buy back of convertible debt? We discuss that internally. The debt is now available for $0.50 on the dollar, but we are also cautious about our cash use.
Capital expenditures this year? $13 million this year for technology improvements and replacement equipment. Was $16 million in 2008.
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