Published: May 18, 2006
PEMSTAR Reports Fiscal Fourth Quarter and Full Year 2006 Results
Achieves Q4 Revenue of $196.2 Million; EPS of $0.04 Exceeds Guidance; Gross Margin Expands to 7.3% (10.1% Excluding Turnkey Business)
PEMSTAR Inc. (NASDAQ: PMTR), a leading provider of
global engineering, product design, manufacturing and fulfillment services to
technology, industrial and medical companies, today announced financial results
for its fiscal 2006 fourth quarter and full year ended March 31, 2006.
Revenue for the three months ended March 31, 2006 increased to $196.2 million,
compared to $145.5 million in the same quarter a year ago. The increase
included approximately $55.5 million of additional revenue resulting from the
full turnkey operation with a wireless handset customer, which was in the
Company's prior guidance. Revenue for the three months ended March 31, 2006
compared to the fiscal 2005 comparable quarter, included increases led by the
company's computing, storage, industrial and development engineering businesses,
offset by declines in sales of the communications (when adjusted for turnkey
sales) and medical businesses. Revenue for the fiscal year ended March 31, 2006
increased to $871.0 million, as compared with $659.7 million for the fiscal year
ended March 31, 2005, driven primarily by turnkey sales.
Net income for the fiscal 2006 fourth quarter ended March 31, 2006 was $1.9
million or $0.04 per share, compared to a net loss of $(12.3) million or $(0.27)
per share in the same quarter a year ago. Net loss for the full year ended
March 31, 2006 was $(28.2) million or $(0.62) per share, compared to net loss of
$(33.7) million or $(0.75) per share for the full year ended March 31, 2005.
Loss from continuing operations for fiscal year 2006 includes restructuring and
impairment charges totaling $10.5 million or $(0.23) per share. The prior year
loss from continuing operations includes restructuring and impairment charges
totaling $5.0 million or $(0.11) per share.
Roy Bauer, PEMSTAR's President and COO stated, "This was another encouraging
quarter for PEMSTAR as our profit continues to improve, reflecting strength in
our core business segments combined with the benefits of right sized and
refocused structure. We accomplished a great deal during Fiscal 2006. We have
shifted our focus and resources from managing the restructuring effort to
supporting growth initiatives and ongoing operational improvements. Our ability
to design and produce highly complex and configurable products has
differentiated PEMSTAR with our key customers and has been an integral aspect of
our turnaround."
Greg Lea, PEMSTAR's Executive Vice President and CFO commented, "This was
another solid quarter for PEMSTAR. Our continued focus on our cost structure,
combined with our growing top-line allowed us to achieve positive adjusted
EBITDA performance for three straight quarters. We are improving our margins
and constantly trying to drive down the cost to our customers by leveraging our
global footprint. Importantly, although our gross margin in the fourth quarter
of fiscal 2006 was 7.3%, our adjusted gross margin, excluding turnkey business,
expanded to 10.1%. While our turnkey business in China has been profitable and
significant to our business, our future focus is on maximizing the more
profitable growth opportunities across PEMSTAR. We are reviewing strategic
alternatives and partnerships for this China location."
Business Update
During the fourth quarter of fiscal 2006, sales to the industrial sector
accounted for 38.3% of net sales; computing and data storage was 23.0% of net
sales; communications was 37.5% of net sales; and medical was 1.2% of net sales.
Excluding incremental turnkey revenue, the respective percentages are 53.4%,
32.0%, 12.9% and 1.7%.
Accounts receivable at March 31, 2006 was $121.1 million with days sales
outstanding (DSO) of 56 compared with $148.2 million in accounts receivable with
DSO of 53 at December 31, 2005. Net inventories of $54.5 million as of March
31, 2006 with a turn rate of 13.3 times, compared with $65.7 million at December
31, 2005 and a turn rate of 14.5 times. PEMSTAR's cash cycle was 40 days
compared to the December quarter's level of 30 days. The unrestricted cash
balance at March 31, 2006, was $17.9 million, compared to $21.5 million at
December 31, 2005. Liquidity, defined as worldwide unrestricted cash plus
available domestic borrowing, was $33.3 million, as of March 31, 2006, compared
to $40.8 million at December 31, 2005. Please note that the full turnkey
transaction change in PEMSTAR's Tianjin facility materially affected these
statistical points given the increases in sales, accounts receivable and
accounts payable.
Debt as of March 31, 2006, was $100.1 million, compared to $102.3 million as of
December 31, 2005. Debt is calculated as debt plus capital leases, including
current maturities in both cases.
Al Berning, Chairman and CEO of PEMSTAR stated, "Our revenue and margins for the
fiscal 2006 fourth quarter are the strongest they have been in over three years.
We set out with a turnaround plan and have successfully completed it. Our
current business momentum with existing and new customers, along with our
improved profitability, underscore the company's strength. We continue to
narrow our focus on a core set of customers and market segments where we have
differentiated value and provide strong performance. In the fourth quarter we
launched over 25 new projects with existing customers and added projects with
nine new customers."
Berning continued, "Some of the areas of our business that have been
particularly strong during the last quarter compared to sequential preceding
quarters include our industrial equipment, particularly
semi-conductor capital equipment and military/aerospace businesses. In the
fourth quarter, we successfully launched production of General Dynamics' Land
Warrior program. Also, during the quarter we continued launching new projects
with 3M, Boston Scientific, Fluke, Given Imaging, Hitachi Global Storage
Technologies, Honeywell and IBM, among others. We are focused on profitable top-
line growth by continuing to partner with the right customers and projects for
our specialized services. We will continue to control expenditure levels,
better utilize existing capacity and drive productivity improvements. We enter
fiscal 2007 in a strong position. We are headed in the right direction with the
right business strategy."
Fiscal 2007 First-Quarter Outlook
The following forward-looking statements are based on current expectations, and
today's economic uncertainties make it difficult to project results going
forward. PEMSTAR currently expects net sales in the traditionally softer fiscal
first quarter ending June 30, 2006 of $200 million to $220 million, including
planned, seasonally softer, turnkey revenue in China, with net income of $0.03
to $0.07 per share. As is the company's practice, this guidance excludes
reserves to adjust capacity to market conditions and customer demands, along
with further restructuring or unusual charges.
Use of Non-GAAP Measures
From time to time management uses financial measures which do not reflect
"generally accepted accounting principles" (GAAP) in analyzing PEMSTAR's
operating performance, and believes that these non-GAAP measures may assist
investors in analyzing the underlying trends in PEMSTAR's business over time.
Investors should consider any non-GAAP measures in addition to, not as a
substitute for or as superior to, financial reporting measures prepared in
accordance with GAAP. In this press release, PEMSTAR has reported a non-GAAP
measure for the fiscal quarters ended September 30, 2005, December 31, 2005 and
March 31, 2006, called "Adjusted EBITDA," which represents earnings before
certain restructuring charges as well as interest, taxes, depreciation and
amortization. Management uses the adjusted EBITDA measure in its internal
analysis and review of operational performance, monitoring compliance with debt
agreement covenants and for providing guidance to investors. Also in this press
release, PEMSTAR has reported a non-GAAP measure for the fiscal quarter ended
March 31, 2006 called "Adjusted gross margin excluding turnkey business," which
represents gross margin adjusted to exclude the equivalent sales revenue and
material cost value associated with the decision of a significant wireless
handset customer to require PEMSTAR to purchase and resell content from that
customer in the delivery of product to it. A third non-GAAP measure is included
for the fiscal quarter ended March 31, 2006 discloses the percentage of sales to
the main industries served with total sales and sales to the communications
sector reduced by the same amount used to calculate adjusted gross margin
excluding turnkey business. Management believes that these adjusted measures
provide investors with useful information in comparing PEMSTAR's performance
over different periods, particularly when comparing this period to periods in
which PEMSTAR did not incur some or all of the charges and adjustments described
above. By using these non-GAAP measures management believes that investors get
a better picture of the performance of PEMSTAR's underlying business.
Management encourages investors to review PEMSTAR's net income (loss) and gross
margin prepared in accordance with GAAP to understand its performance taking
into account all relevant factors, including those that may only occur from time
to time but have a material impact on PEMSTAR's financial results. A
reconciliation of the non-GAAP measures used in this release to their closest
GAAP counterparts are included in tables appearing at the end of this release.
Investor Conference Call / Webcast Details
PEMSTAR will host a live Webcast to review fiscal 2006 fourth-quarter results
today, Thursday, May 18, at 4:00 p.m. CT (5:00 p.m. ET). To access the Webcast,
go to the investor relations portion of PEMSTAR's Web site, www.pemstar.com, and
click on the Webcast icon. A replay of the Webcast will be available on
PEMSTAR's Web site for one month.
If you do not have access to the Internet and want to listen to an audio replay
of the fourth quarter and full year results conference call, phone 800-633-8284
(domestic), or 402-977-9140 (international), access number 21288268. The
telephone replay will be available beginning at 6:00 p.m. CT (7:00 p.m. ET) on
Thursday, May 18, through 6:00 p.m. CT (7:00 p.m. ET) on Saturday, May 20.
About PEMSTAR
PEMSTAR Inc. (www.pemstar.com) provides a comprehensive range of engineering,
product design, manufacturing and fulfillment services to customers on a global
basis through facilities strategically located in North America, Asia and
Europe. The company's service offerings support customers' needs from product
development and design, through manufacturing to worldwide distribution and
aftermarket support. PEMSTAR has over one million square feet in 10 locations
worldwide.
This press release may contain "forward-looking" statements. These
forward-looking statements, including statements made by Mr. Berning, Mr. Bauer
and Mr. Lea, may contain statements of intent, belief or current expectations of
PEMSTAR Inc. and its management. Such forward-looking statements are not
guarantees of future results and involve risks and uncertainties that may cause
actual results to differ materially from the potential results discussed in the
forward-looking statements. In addition to factors discussed above, risks and
uncertainties that may cause such differences for PEMSTAR include but are not
limited to: recession or decline in economic conditions; rumors or threats of
war; actual conflicts or trade disruptions; trade disruptions resulting from
world health alerts or actual disease outbreaks; changes in demand for
electronics manufacturing services; changes in demand by major customers due to
cancellations, reductions or delays of orders; shortages or price fluctuations
in component parts; difficulties managing expansion and integration of acquired
or restructured businesses; increased competition; and other risk factors listed
from time to time in PEMSTAR's Securities and Exchange Commission filings,
including but not limited to risks as included in PEMSTAR's Annual Report on
Form 10-K for the fiscal year ended March 31, 2005 and PEMSTAR's quarterly
reports filed on form 10-Q filed with the SEC.
Pemstar Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Year Ended
Ended
March 31, March 31,
--------------- -------------
2006 2005 2006 2005
------- ------- ------- -------
Net sales $196216 $145501 $871018 $659651
Cost of goods sold 181976 139119 828970 616241
------- ------- ------- -------
Gross profit 14240 6382 42048 43410
Selling, general and administrative
expenses 9873 14715 43786 56892
Restructuring and impairment charges (26) 47 10462 4956
------- ------- ------- -------
Operating income (loss) 4393 (8380) (12200) (18438)
Other expense (income) - net 1014 31 47 (738)
Interest expense 2370 2166 9587 8162
------- ------- ------- -------
Income (loss) before income taxes 1009 (10577) (21834) (25862)
Income tax benefit (435) (914) (965) (1825)
------- ------- ------- -------
Income (loss) from continuing operations 1444 (9663) (20869) (24037)
Income (loss) from discontinued operations 469 (2650) (7284) (9700)
------- ------- ------- -------
Net income (loss) $ 1913 $(12313)$(28153)$(33737)
======= ======= ======= =======
Basic income (loss) per common share:
Income (loss) from continuing
operations $ 0.03 $(0.21) $(0.46) $(0.53)
Income (loss) from discontinued
operations 0.01 (0.06) (0.16) (0.22)
------- ------- ------- -------
Net income (loss) $ 0.04 $(0.27) $(0.62) $(0.75)
Diluted income (loss) per common share:
Income (loss) from continuing
operations $ 0.03 $(0.21) $(0.46) $(0.53)
Income (loss) from discontinued
operations 0.01 (0.06) (0.16) (0.22)
------- ------- ------- -------
Net income (loss) $ 0.04 $(0.27) $(0.62) $(0.75)
Shares used in computing income (loss) per
common share:
Basic 45217 45173 45212 45154
Diluted 47948 45173 45212 45154
Pemstar Inc.
Consolidated Balance Sheets
(In thousands, except per share data) March 31, March 31,
2006 2005
--------- ---------
Assets
Current assets:
Cash and equivalents $ 17,903 $ 25,883
Accounts receivable, net 121,107 98,759
Recoverable income taxes 222 971
Inventories 54,544 68,345
Unbilled services 6,214 8,173
Deferred income taxes 914 953
Prepaid expenses and other 28,132 10,413
Assets related to discontinued operations 437 9,395
--------- ---------
Total current assets 229,473 222,892
--------- ---------
Property, plant and equipment, net 61,073 76,169
Goodwill 33,878 33,878
Deferred income taxes 3,975 2,733
Other assets 5,817 4,210
Non-current assets related to discontinued operations 16 4,112
--------- ---------
Total assets $ 334,232 $ 343,994
========= =========
Liabilities and shareholders’ equity
Current liabilities:
Cash overdraft $ 4,110 $ 312
Revolving credit facilities and current maturities of
long-term debt 75,983 79,068
Current maturities of capital lease obligations 482 453
Accounts payable 82,325 84,375
Income taxes payable 1,497 1,491
Accrued expenses and other 41,215 26,001
Liabilities related to discontinued operations 1,637 5,695
--------- ---------
Total current liabilities 207,249 197,395
Long-term debt, less current maturities 11,967 6,560
Capital lease obligations, less current maturities 11,640 11,973
Other liabilities and deferred credits 8,635 2,895
Shareholders’ equity:
Common stock, par value $0.01 per share -- authorized
150,000 shares, issued and outstanding 45,289 shares
at March 31, 2006 and 45,178 shares at March 31,
2005 453 452
Additional paid-in capital 255,165 255,067
Accumulated other comprehensive income 1,225 3,601
Accumulated deficit (162,102) (133,949)
--------- ---------
Total shareholders’ equity 94,741 125,171
--------- ---------
Total liabilities and shareholders’ equity $ 334,232 $ 343,994
========= =========
Pemstar Inc.
Reconciliation of Non-GAAP financial disclosures
(In thousands)
Adjusted EBITDA
Three month ended
--------------------------------
March 31, December September
2006 31, 2005 30, 2005
---------- ---------- ---------
Net income (loss) $ 1,913 $ 1,012 ($ 13,459)
Interest 2,370 2,769 2,771
Tax benefit (435) (6) 168
Depreciation 3,844 3,793 4,120
Amortization 11 11 11
Restructuring charges (reversals) (124) 153 8,586
---------- ---------- ---------
Earnings before interest, taxes,
depreciation and amortization (EBITDA)
without restructuring charges $ 7,579 $ 7,732 $ 2,197
========== ========== =========
Adjusted Gross Margin Excluding Turnkey Business
Cost of
Goods Gross Gross
Net Sales Sold Margin Margin %
--------- --------- --------- --------
Gross margin $ 196,216 $ 181,976 $ 14,240 7.3%
Cost of materials bought and
resold in turnkey
China business (55,534) (55,534) - -
--------- --------- --------- --------
Adjusted gross margin $ 140,682 $ 126,442 $ 14,240 10.1%
========= ========= ========= ========
Adjusted Sales Percentages
Computing
and
Industrial Data Communi-
Storage cations Medical
-------- -------- -------- --------
Amounts
Net Sales $ 75,102 $ 45,063 $ 73,688 $ 2,363
Cost of materials bought and
resold in turnkey
China business (55,534)
-------- -------- -------- --------
Adjusted net sales $ 75,102 $ 45,063 $ 18,154 $ 2,363
======== ======== ======== ========
Percentages
Net Sales 38.3% 23.0% 37.5% 1.2%
Adjusted net sales 53.4% 32.0% 12.9% 1.7%
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