Merix Corporation Announces Financial Results for Fourth Quarter and Fiscal Year 2006
FOREST GROVE, Ore.--June 28, 2006--Merix Corporation today announced consolidated financial results for the quarter and year ended May 27, 2006. Sales for the fourth quarter increased 95% to $100.4 million compared to $51.6 million for the fourth quarter of fiscal 2005, due primarily to the inclusion of sales activity for Merix Asia which was acquired in September 2005 along with growth in its quick-turn services business and increased premium opportunities. On a GAAP basis, net income in the fourth quarter of fiscal 2006 was $3.5 million or $0.17 per diluted share compared to a net loss of $1.7 million or $0.09 per share in the fourth quarter of fiscal 2005. On a non-GAAP basis, Merix had income of $3.9 million, or $0.19 per diluted share, in the fourth quarter of fiscal 2006 compared to a non-GAAP loss of $124 thousand, or $0.01 per share, in the fourth quarter of fiscal 2005.Sales for the fiscal year 2006 increased approximately 65% to $309.0 million, compared to $187.0 million for fiscal 2005. The increase in sales is primarily attributable to the acquisition of Merix Asia in September 2005 as well as the December 2004 acquisition of Merix San Jose. On a GAAP basis, the Company had net income of $1.4 million or $0.07 per share in fiscal 2006, compared to a net loss of $2.6 million or $0.14 per share in fiscal 2005. On a non-GAAP basis, Merix had income of $8.0 million, or $0.41 per diluted share, for the fiscal year 2006 compared to a non-GAAP loss of $88 thousand, or $0.00 per share, for the fiscal year 2005.
"Fiscal 2006 was a transformational year for Merix," said Mark Hollinger, Chairman and Chief Executive Officer of Merix Corporation. "We achieved records this year in consolidated revenues and quick-turn sales. The strength of our strategy of establishing a diversified, global manufacturing footprint through the acquisition of Merix Asia combined with our focused expansion of quick-turn capability in North America was demonstrated in the operating results for this period."
Hollinger added, "As we continue the integration of our Asian operations, we are gaining traction on cross-selling opportunities with continued program wins from traditional Merix customers to be serviced from our Asian factories and Merix Asia customers utilizing our North American quick-turn capability. At the same time we continue to enhance our customer service globally through advances in our technology offerings. We continue to diversify our customer base and industry end markets as part of our growth initiatives."
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted for one-time acquisition related and debt restructuring charges) was $12.9 million in the fourth quarter of fiscal 2006 and $33.0 million for the fiscal year 2006. This is compared to EBITDA of $2.7 million for the fourth quarter of fiscal 2005 and $12.4 million for the fiscal year 2005.
Merix generated cash from operations of $8.4 million in the fourth quarter. Cash and short-term investments were $31.1 million at the end of the quarter, which was a decrease from the end of fiscal year 2005 due to the use of cash for the Merix Asia acquisition. Total debt increased to $99.0 million at the end of the quarter compared to $27.0 million at the end of fiscal 2005 as a result of incurring additional debt to finance the acquisition of Merix Asia. Debt, net of cash and investments at the end of the fourth quarter fiscal 2006 was $67.9 million, down from $70.7 million at the end of the third quarter of fiscal 2006. Incremental borrowing capacity under revolving lines of credit was $36.8 million at the end of the fourth quarter fiscal 2006, compared to $18.1 million at the end of the third quarter 2006.
In May 2006, Merix issued $70.0 million in 4% convertible debentures, using the net proceeds to redeem the $25 million 6.5% convertible debenture, prepay and cancel the $30 million Asian Credit Agreement and reduce approximately $12.0 million in outstanding borrowings under its domestic revolving line of credit. The Company expects to save up to $2.0 million in annual interest expense as a result of this refinancing transaction and will also benefit from a simplified capital structure, elimination of debt covenants and extension of debt maturity to seven years.
Business Outlook
For the first quarter of fiscal 2007, Merix expects sales to range between $102.0 million and $106.0 million with GAAP net income of between $5.2 million and $6.1 million or between $0.25 and $0.30 per diluted share. GAAP net income includes an estimated $500 thousand for stock option expense required to be recorded beginning in our fiscal 2007 under SFAS No.123(R). Non-GAAP earnings are expected to range between $6.3 million and $7.2 million or between $0.31 and $0.35 per diluted share and exclude stock option expense and amortization of identifiable intangibles. EBITDA, adjusted to eliminate stock option expense, in the first quarter is expected to range between $13.3 million and $14.3 million.
Commenting on the outlook, Hollinger stated, "We continue to see strength in our global markets through the first quarter of fiscal 2007 and we expect to progress towards achieving our longer term gross margin goal of 22% to 24%."
Hollinger concluded, "Our focus for fiscal 2007 will be to:
-- Accelerate the realization of our global sales and operating synergies
-- Increase our quick-turn market share
-- Expand our technological capability in Asia
-- Enhance throughput in all factories
-- Optimize our sales mix
We believe that progress in these areas will better position us for sustained growth and a global competitive advantage"
Conference Call and Webcast Information
Merix will conduct a conference call and live webcast on Thursday, June 29 at 5:30 am PT. To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 8:30 am PT on June 29, 2006. A phone replay will be available until approximately 10:00 am PT on July 5, 2006 by calling 719-457-0820, access code 4675431.
Use of Non-GAAP Financial Measures
In fiscal 2006, Merix defined its non-GAAP income as GAAP net income before amortization of identifiable intangibles, inventory purchase accounting adjustments resulting from acquisitions, the write-off of unamortized deferred financing charges, debt restructuring charges and the earnings effect of the valuation allowance against deferred taxes. In fiscal 2007, non-GAAP income will be defined as GAAP net income before amortization of identifiable intangibles and stock option expense. Management believes the excluded items are not representative of underlying trends in the Company's operating performance and that excluding them provides investors with additional information to assess the Company's results over multiple periods and compare the Company's results with the results of its competitors. See Related Financial Highlights in this earnings release for a reconciliation of GAAP to non-GAAP results.
About Merix
Merix is a leading manufacturer of technologically advanced, multilayer, rigid printed circuit boards for use in sophisticated electronic equipment. Merix provides quick-turn prototype, pre-production and volume board production to its customers. Principal markets served by Merix include data communications and wireless telecommunications, automotive, high-end computing, and test and measurement end markets in the electronics industry. Additional corporate information is available on the internet at www.merix.com.
Forward Looking Statements
This release contains "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 relating to the Company's business operations and prospects, including statements related to estimates of financial results for the first quarter of fiscal 2007 that are made pursuant to the safe harbor provisions of the federal securities laws. These forward-looking statements, which may be identified by the inclusion of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "goal" and other similar expressions, are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Many factors, including the following, could cause actual results to differ materially from the forward-looking statements: changes in customer order levels, product mix and inventory build-up; lower than expected or delayed sales; the ability to realize the anticipated benefits or synergies of the Merix Asia acquisition in a timely manner or at all; fluctuations in demand for products and services of the company, including quick-turn and premium services; the introduction of new products or technologies by competitors; the ability to successfully and timely integrate the operations of Merix Asia; the ability to avoid unanticipated costs, including costs relating to product quality issues and customer warranty claims; pricing and other competitive pressures in the industry from domestic and global competitors; foreign currency risk; all other risks inherent in foreign operations such as increased regulatory complexity and compliance cost and greater political and economic instability; our ability to fully utilize our assets and control costs; our ability to control or pass through increases in the cost of raw materials and supplies; our ability to retain or attract employees with sufficient know-how to conduct our manufacturing processes and maintain or increase our production output and quality; and other risks listed from time to time in the Company's filings with the Securities and Exchange Commission or otherwise disclosed by the Company, including those set forth in the Company's Annual Report on Form 10-K for the year ended May 28, 2005. Merix Corporation does not undertake to update any such factors or to publicly announce developments or events relating to the matters described herein.
MERIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data, unaudited)
Three Months Twelve Months
Ended Ended
------------------ -------------------
May 27, May 28, May 27, May 28,
2006 2005 2006 2005
--------- -------- --------- ---------
Net sales $100,393 $51,612 $308,982 $186,994
Cost of sales 77,877 45,320 254,864 163,205
--------- -------- --------- ---------
Gross profit 22,516 6,292 54,118 23,789
Engineering 2,008 1,781 6,655 6,774
Selling, general and
administrative 10,846 5,537 33,353 18,278
Amortization of identifiable
intangibles 674 739 3,106 1,374
Severance and impairment
charges - - 1,135 -
--------- -------- --------- ---------
Total operating expense 13,528 8,057 44,249 26,426
Operating income (loss) 8,988 (1,765) 9,869 (2,637)
Debt restructuring costs (1,820) - (1,820) -
Interest and other income
(expense), net (3,302) 62 (5,785) 35
--------- -------- --------- ---------
Income (loss) before taxes
and minority interest expense 3,866 (1,703) 2,264 (2,602)
Income tax expense (16) 7 433 8
--------- -------- --------- ---------
Net income (loss) before
minority interest expense 3,882 (1,710) 1,831 (2,610)
Minority interest expense 368 - 399 -
--------- -------- --------- ---------
Net income (loss) $3,514 $(1,710) $1,432 $(2,610)
========= ======== ========= =========
Net income (loss) per diluted
share $0.17 $(0.09) $0.07 $(0.14)
========= ======== ========= =========
Shares used in per share
calculations 20,507 19,318 19,715 19,224
========= ======== ========= =========
MERIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
May 27, May 28,
2006 2005
--------- ---------
Assets
Cash and short-term investments $31,141 $77,685
Accounts receivable, net 75,379 37,338
Inventories 24,384 11,227
Assets held for sale 1,987 -
Other current assets 8,090 2,451
--------- ---------
Total current assets 140,981 128,701
Property, plant and equipment, net 122,862 88,132
Goodwill 89,394 25,551
Identifiable intangibles, net 13,916 9,754
Other assets 11,282 1,803
--------- ---------
Total assets $378,435 $253,941
========= =========
Liabilities and Shareholders' Equity
Accounts payable $47,260 $16,957
Other accrued liabilities 11,106 4,767
Accrued compensation 11,487 4,721
Accrued warranty 2,319 1,519
Income taxes payable - 6
Current portion of long-term debt 7,607 1,000
--------- ---------
Total current liabilities 79,779 28,970
Long-term debt 91,377 26,000
Other long-term liability 1,036 960
--------- ---------
Total liabilities 172,192 55,930
Minority interest liability 4,118 -
Shareholders' equity 202,125 198,011
--------- ---------
Total liabilities and shareholders'
equity $378,435 $253,941
========= =========
MERIX CORPORATION
RELATED FINANCIAL HIGHLIGHTS
(dollars and shares in thousands, except EPS, unaudited)
----------------------------------------------------------------------
Q4 05 Q3 06 Q4 06
----------------------------------------------------------------------
SUMMARY OPERATING RESULTS
----------------------------------------------------------------------
Net sales 100.0% $51,612 100.0% $95,130 100.0% $100,393
Cost of sales 87.8% 45,320 82.6% 78,559 77.6% 77,877
Gross margin 12.2% 6,292 17.4% 16,571 22.4% 22,516
Engineering expense 3.5% 1,781 1.8% 1,756 2.0% 2,008
Selling, general &
administrative
expense 10.7% 5,537 11.5% 10,909 10.8% 10,846
Amortization of
identifiable
intangibles 1.4% 739 0.9% 854 0.7% 674
Total operating
expense 15.6% 8,057 14.2% 13,519 13.5% 13,528
Operating income
(loss) -3.4% (1,765) 3.2% 3,052 9.0% 8,988
Debt restructuring
costs 0.0% - 0.0% - -1.8% (1,820)
Interest and other
income (expense),
net 0.1% 62 -1.9% (1,834) -3.3% (3,302)
Income (loss) before
taxes and minority
interest -3.3% (1,703) 1.3% 1,218 3.9% 3,866
Net income (loss) -3.3% (1,710) 0.9% 809 3.5% 3,514
Effective tax rate 0.0% -32.1% 0.4%
Shares for diluted EPS 19,318 19,766 20,507
Diluted income (loss)
per share ($0.09) $0.04 $0.17
----------------------------------------------------------------------
SALES BY END MARKETS
(% of Sales)
----------------------------------------------------------------------
Communications 71% $36,874 44% $42,221 41% $41,517
Automotive 0% - 20% 19,020 17% 16,786
High-end computing &
storage 7% 3,518 10% 9,271 12% 11,953
Test & measurement 4% 2,280 6% 6,107 6% 6,495
Aviation & aerospace 3% 1,530 2% 1,616 2% 1,813
EMSI & other 15% 7,410 18% 16,895 22% 21,829
----------------------------------------------------------------------
OTHER FINANCIAL DATA
----------------------------------------------------------------------
Cash provided by
operations $4,755 $1,743 $8,442
EBITDA, adjusted $2,666 $11,339 $12,879
Capital expenditures $1,793 $3,121 $1,553
Depreciation and
amortization (% of
sales) 8.7% $4,505 6.7% $6,354 5.8% $5,853
----------------------------------------------------------------------
NON-GAAP EARNINGS
RECONCILIATIONS
----------------------------------------------------------------------
EPS Net EPS Net EPS Net
Loss Income Income
(Loss) (Loss)
--------------------------------------------------
GAAP net income
(loss) $(0.09) $(1,710) $0.04 $809 $0.17 $3,514
Adjustments:
Amortization of
identifiable
intangibles 0.04 739 0.04 854 0.03 674
Legal fees for
defense of
securities
litigation 0.03 550 - - - -
Executive
severance 0.01 230 - - - -
Restructuring and
related activities - - - - - -
Debt restructuring
costs - - - - 0.09 1,820
Asia purchase
adjustments - - 0.11 2,158 - -
Adjustment to
valuation allowance
on deferred tax
asset 0.00 67 (0.05) (1,083) (0.10) (2,113)
--------------------------------------------------
Non-GAAP net income
(loss) $(0.01) $(124) $0.14 $2,738 $0.19 $3,895
--------------------------------------------------
--------------------------------------------------
GAAP net income (loss) $(1,710) $809 $3,514
Add back items:
Interest expense 431 1,987 2,101
Interest income (567) (360) (392)
Debt restructuring
costs - - 1,820
Income tax expense
(benefit) 7 391 (16)
Amortization 841 1,121 978
Depreciation 3,664 5,233 4,874
Asia purchase
adjustments - 2,158 -
--------------------------------------------------
EBITDA, adjusted $2,666 $11,339 $12,879
----------------------------------------------------------------------
MERIX CORPORATION
RELATED FINANCIAL HIGHLIGHTS
(dollars and shares in thousands, except EPS, unaudited)
----------------------------------------------------------------------
FY2005 FY2006
----------------------------------------------------------------------
SUMMARY OPERATING RESULTS
----------------------------------------------------------------------
Net sales 100.0% $186,994 100.0% $308,982
Cost of sales 87.3% 163,205 82.5% 254,864
Gross margin 12.7% 23,789 17.5% 54,118
Engineering expense 3.6% 6,774 2.2% 6,655
Selling, general & administrative
expense 9.8% 18,278 10.8% 33,353
Amortization of identifiable
intangibles 0.7% 1,374 1.0% 3,106
Severance and impairment charges 0.0% - 0.4% 1,135
Total operating expense 14.1% 26,426 14.3% 44,249
Operating income (loss) -1.4% (2,637) 3.2% 9,869
Debt restructuring costs 0.0% - -0.6% (1,820)
Interest and other income
(expense), net 0.0% 35 -1.9% (5,785)
Income (loss) before taxes and
minority interest -1.4% (2,602) 0.7% 2,264
Net income (loss) -1.4% (2,610) 0.5% 1,432
Effective tax rate 0.0% 23.2%
Shares for diluted EPS 19,224 19,715
Diluted income (loss) per share $(0.14) $0.07
----------------------------------------------------------------------
SALES BY END MARKETS (% of Sales)
----------------------------------------------------------------------
Communications 78% $145,053 52% $159,898
Automotive 0% - 13% 39,764
High-end computing & storage 8% 14,803 9% 29,012
Test & measurement 4% 8,302 6% 19,371
Aviation & aerospace 0% - 2% 6,888
EMSI & other 10% 18,836 18% 54,049
----------------------------------------------------------------------
OTHER FINANCIAL DATA
----------------------------------------------------------------------
Cash provided by operations $9,781 $16,520
EBITDA, adjusted $12,372 $32,943
Capital expenditures $15,813 $7,261
Depreciation and amortization (% of
sales) 8.2% $15,306 7.0% $21,693
----------------------------------------------------------------------
NON-GAAP EARNINGS RECONCILIATION
----------------------------------------------------------------------
EPS Net EPS Net
Income Income
----------------------------------
GAAP net income (loss) $(0.14) $(2,610) $0.07 $1,432
Adjustments:
Amortization of identifiable
intangibles 0.07 1,374 0.16 3,105
Legal fees for defense of
securities litigation 0.03 550 0.03 575
Executive severance 0.01 230 - -
Restructuring and related
activities - - 0.06 1,135
Debt restructuring costs - - 0.09 1,820
Purchase adjustments 0.02 320 0.20 3,885
Adjustment to valuation allowance
on deferred tax asset 0.00 48 (0.20) (3,915)
----------------------------------
Non-GAAP net income (loss) $(0.00) $(88) $0.41 $8,037
----------------------------------
GAAP Net Income (Loss) $(2,610) $1,432
Add back items:
Interest expense 1,681 5,513
Interest income (2,013) (1,833)
Debt restructuring costs - 1,820
Income tax expense (benefit) 8 433
Amortization 15,306 3,902
Depreciation - 17,791
Asia purchase adjustments - 3,885
----------------------------------
EBITDA, adjusted $12,372 $32,943
----------------------------------------------------------------------