SOURCE: Merix Corporation

October 08, 2007 08:00 ET

Merix Corporation Announces First Quarter Results

BEAVERTON, OR--(Marketwire - October 8, 2007) - Merix Corporation (NASDAQ: MERX) today announced consolidated financial results for the fiscal 2008 first quarter ended September 1, 2007.

The Company reported a net loss from continuing operations of $2.5 million or $0.12 per share on revenue of $100.1 million for the first quarter of fiscal 2008, which compares to net income of $3.6 million or $0.17 per share on revenue of $103.0 million for the first quarter of fiscal 2007. Included in the first quarter of fiscal 2008 net loss was $0.2 million of severance costs associated with the previously announced Hong Kong closure. Excluding these charges, the Company reported a first quarter 2008 net loss from continuing operations of $2.3 million.

For comparison purposes it's important to note that the Company's 52 week fiscal year reporting convention results in one additional week of reporting approximately every five years. As a result, the first quarter of fiscal 2008 contains 14 weeks compared to the standard 13 weeks.

On an adjusted 13 week basis, first quarter fiscal 2008 revenue declined 10% and 1% when compared to the first and fourth quarters of fiscal 2007, respectively. The declines were expected and are primarily a result of the normal cyclical slowdown that was experienced in the North American markets. Reviewing the sequential quarter revenue change by geography, North American revenue declined 2% to $56.9 million as a result of a backlog reduction in the fourth quarter of fiscal 2007 that was not repeated. Partially offsetting the North American sequential decline was 2% growth in Asia to $43.3 million. Asia's modest sequential quarter revenue growth was a result of a continuing recognition by our customers of the investments we made in improved quality, on time delivery, and customer service in this region.

Gross margin averaged 14.0% of revenues for the first quarter of fiscal 2008 compared to 19.6% and 16.5% in the first quarter and fourth quarter of fiscal 2007, respectively. The decline in gross margin when compared to both periods was primarily a result of the lower North American revenue and its impact on factory fixed cost absorption. In addition, first quarter fiscal 2008 Asia gross margins declined 2.7 percentage points to 10.1% compared to the fourth quarter of fiscal 2007 as a result of product mix variations and modest seasonal cost increases.

Operating expenses totaled 14.7% of revenues for the first quarter of fiscal 2008 compared to 13.8% in the first quarter of fiscal 2007 as a direct result of the decrease in revenue. On an adjusted 13 week basis, operating expense decreased $0.5 million over the same time period as a result of initial actions taken to improve our overall financial model.

"While our first quarter operating results are in line with the expectations set earlier in the quarter," said Michael D. Burger, President and Chief Executive Officer. "I am disappointed in the Company's overall financial performance. We must continue to accelerate the transformation of the Company to produce acceptable returns throughout the market cycles."

Mr. Burger commented further on the transformation, "I am pleased to report that we are making the planned progress related to our Asia integration and transition that was outlined in our July conference call. We have initiated and nearly completed the customer transitions from our Hong Kong facility to both of our Chinese facilities and our customer retention rate is better than initially expected. Our primary operational focus remains on increasing our technological capabilities in Asia and I am pleased to report we are ahead of schedule. Once complete, we will have a unique global offering that is unmatched by any of our competitors and gives many of our customers the ability to use Merix' manufacturing services through their entire product life cycle."

Mr. Burger continued, "As anticipated North American demand continues to show improvement and orders over the last 90 days reflect these signs of market recovery resulting in above parity book to bill in the first quarter of fiscal 2008. This combined with our actions in Asia will provide a solid foundation from which to improve profitability."

Business Outlook

The Company completed the first fiscal quarter of 2008 with $57.4 million of backlog to be shipped during the second fiscal quarter of fiscal 2008. We currently estimate revenues for the second quarter of fiscal 2008 to be in the range of $98 million to $102 million and associated profitability from continuing operations to range from a net loss of $2.0 million to break even. This profit performance excludes an estimated $1.0 to $1.5 million of severance costs associated with the Hong Kong factory closure. The estimated second quarter income includes an estimated $0.7 million for stock option expense. It is important to note that due to the Company's weekly seasonality change within our fiscal quarters combined with the one month lag reporting of Asian results, the second quarter of fiscal 2008 will contain 14 weeks of results for Asian operations and the normal 13 weeks for North America.

Commenting on the outlook, Mr. Burger stated, "During the first quarter of fiscal 2008, our customer booking rates increased modestly over the prior 90 days. We anticipate this booking rate to continue into our second quarter resulting in improved performance in North America." Burger continued, "While the demand in Asia is also improving, the timing of our Hong Kong closure and capacity ramp in Huiyang, China temporarily prevents us from capturing the available market opportunity. We anticipate being well positioned for further growth in Asia's revenue during the second half of fiscal 2008."

Conference Call and Webcast Information

Merix will conduct a conference call and live webcast today Monday, October 8, 2007 at 8:00 a.m. Pacific Time. Management will discuss first quarter fiscal 2008 results, its business outlook for the second quarter and comment further on the strategic direction of the Company.

To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 4:00 pm PT on Monday, October 8, 2007. A phone replay will be available until approximately 6:00 pm PT on Monday, October 22, 2007 by calling (719) 457-0820, access code 8114159.

Use of Non-GAAP Financial Measures

"Adjusted EBITDA" and "Pre-Tax income/(loss) before impairment items" are disclosed in this press release and are non-GAAP financial measures. Management believes the disclosure of these non-GAAP financial measures, when presented in conjunction with the corresponding GAAP measures; provide useful information to the Company, investors and other users of the financial statements. Management believes these measures are important factors of the Company's business because they reflect financial performance that is unencumbered by debt service and/or other non-recurring or unusual items. The EBITDA financial measure is commonly used in the Company's industry, however, it should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or as an alternative to net income or operating results in accordance with generally accepted accounting principles. The Company's definition of adjusted EBITDA may differ from definitions of such financial measures used by other companies. The Company has provided a reconciliation of both measures to GAAP financial information in the attached schedules.

About Merix

Merix is a leading manufacturer of technologically advanced, multilayer, rigid printed circuit boards for use in sophisticated electronic equipment. Merix provides high-performance materials, quick-turn prototype, pre-production and volume board production to its customers. Principal markets served by Merix include communications and networking, computing and peripherals, industrial and medical, defense and aerospace, and automotive 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 second quarter of fiscal 2008 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. 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: our ability to control or pass through increases in the cost of raw materials and supplies; changes in customer order levels, product mix and inventory build-up; lower than expected or delayed sales; ability to successfully restructure Merix Asia and complete the related capital expansion; the ability to successfully and timely integrate the operations of Merix Asia; fluctuations in demand for products and services of the Company, including quick-turn and premium services; foreign currency risk; the introduction of new products or technologies by competitors; 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; 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 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 26, 2007. 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

                  CONSOLIDATED STATEMENTS OF OPERATIONS
        (in thousands, except earnings per share data, unaudited)





                                    For the                     For the
                                    Fourteen      For the       Thirteen
                                  Weeks Ended     Thirteen    Weeks Ended
                                  September 1,  Weeks Ended    August 26,
                                      2007      May 26, 2007      2006
                                  ------------  ------------  ------------

Net sales                         $    100,149  $     93,572  $    102,979
Cost of sales                           86,106        78,162        82,817
                                  ------------  ------------  ------------
Gross profit                            14,043        15,410        20,162

Operating expenses:
    Engineering                          2,343         2,265         1,946
    Selling, general and
     administrative                     11,506        10,895        11,489
    Amortization of identifiable
     intangible assets                     613           599           762
    Severance charges                      241           453             -
    Impairment charges - fixed
     assets and other                        -        26,627             -
    Impairment charges - goodwill            -        53,311             -
                                  ------------  ------------  ------------
      Total operating expenses          14,703        94,150        14,197
                                  ------------  ------------  ------------

 Operating income (loss)                  (660)      (78,740)        5,965

Other income (expense):
    Interest income                        294           259           335
    Interest expense                    (1,096)       (1,053)       (1,763)
    Other expense, net                    (348)         (142)         (561)
                                  ------------  ------------  ------------
      Total other expense, net          (1,150)         (936)       (1,989)
                                  ------------  ------------  ------------

Income (loss) from continuing
 operations before income taxes
 and minority interests                 (1,810)      (79,676)        3,976
Income tax expense                         413           159           500
                                  ------------  ------------  ------------
Income (loss) from continuing
 operations before minority
 interests                              (2,223)      (79,835)        3,476
Minority interests                         236           251            66
                                  ------------  ------------  ------------
Income (loss) from continuing
 operations                             (2,459)      (80,086)        3,410
Income from discontinued
 operations, net of income tax
 expense of $0, $0, $0                       -           164           233
                                  ------------  ------------  ------------
Net income (loss)                 $     (2,459) $    (79,922) $      3,643
                                  ============  ============  ============

Diluted income (loss) per share
 from continuing operations       $      (0.12) $      (3.87) $       0.16
Diluted income per share from
 discontinued operations                     -          0.01          0.01
                                  ------------  ------------  ------------
Diluted net income (loss) per
 share                            $      (0.12) $      (3.86) $       0.17
                                  ============  ============  ============

Shares used in per share
 calculations:
  Diluted                               20,909        20,720        25,012






                            MERIX CORPORATION

                  CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands, unaudited)



                                                  September 1,    May 26,
                                                      2007         2007
                                                  ------------ ------------


 Assets
 Cash and short-term investments                  $     26,604 $     26,200
 Accounts receivable, net                               75,988       76,825
 Inventories, net                                       26,961       25,231
 Income taxes receivable                                   394          295
 Assets held for sale                                    1,306        1,206
 Other current assets                                    9,512        6,824
                                                  ------------ ------------
   Total current assets                                140,765      136,581

 Property, plant and equipment, net                    103,869      101,264
 Goodwill                                               31,544       31,614
 Identifiable intangibles, net                          10,558       11,171
 Other assets                                            5,970        6,227
                                                  ------------ ------------
      Total assets                                $    292,706 $    286,857
                                                  ============ ============

 Liabilities and Shareholders' Equity
 Current portion of long-term debt                $      2,294 $      2,532
 Accounts payable                                       52,225       45,918
 Other accrued liabilities                              19,774       17,713
 Income taxes payable                                      284          352
                                                  ------------ ------------
   Total current liabilities                            74,577       66,515

 Long-term debt                                         75,503       75,503
 Other long-term liabilities                             1,923        1,845
                                                  ------------ ------------
   Total liabilities                                   152,003      143,863

 Minority interest                                       3,643        4,550

 Shareholders’ equity                                  137,060      138,444
                                                  ------------ ------------

       Total liabilities and shareholders' equity $    292,706 $    286,857
                                                  ============ ============






                            MERIX CORPORATION

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                        (in thousands, unaudited)



                                      For the Fourteen   For the Thirteen
                                         Weeks Ended        Weeks Ended
                                      September 1, 2007   August 26, 2006
                                      -----------------  -----------------
Cash flows from operating activities:
   Net income (loss)                  $          (2,459) $           3,643
      Net adjustments to reconcile
       net income (loss) to net cash
       provided by operating
       activities:
         Depreciation and
          amortization                            5,621              5,970
         Other non-cash adjustments               1,361                985
         Changes in working capital               3,069             (2,185)
                                      -----------------  -----------------
               Net cash provided by
                operating activities              7,592              8,413

Cash flows from investing activities:
   Purchases of property, plant and
    equipment                                    (5,828)            (5,948)
   Proceeds from disposal of
    property, plant and equipment                    23                  8
   Net changes in investments                     9,025              4,525
                                      -----------------  -----------------
               Net cash provided by
                (used in) investing
                activities                        3,220             (1,415)

Cash flows from financing activities:
   Principal payments on long-term
    borrowings and capital leases                  (238)            (1,898)
   Other financing activities, net               (1,145)             3,063
                                      -----------------  -----------------
               Net cash provided by
                (used in) financing
                activities                       (1,383)             1,165

Increase in cash and cash equivalents             9,429              8,163

Cash and cash equivalents:
   Beginning of period                           17,175             12,280
                                      -----------------  -----------------
   End of period                      $          26,604  $          20,443
                                      =================  =================






                            MERIX CORPORATION

                       RELATED FINANCIAL HIGHLIGHTS
         (dollars and shares in thousands, except EPS, unaudited)





                           Q1 08             Q4 07             Q1 07
                      ----------------  ----------------  ----------------
SUMMARY OPERATING
 RESULTS AND
 RECONCILIATION
Net sales             100.0% $ 100,149  100.0% $  93,572  100.0% $ 102,979
Gross profit           14.0%    14,043   16.5%    15,410   19.6%    20,162
Income (loss) from
 continuing
 operations            -2.5%    (2,459) -85.6%   (80,086)   3.3%     3,410
Income Tax              0.4%       413    0.2%       159    0.5%       500
Impairment charges -
 fixed assets and
 other                  0.0%         -   28.5%    26,627    0.0%         -
Impairment charges -
 goodwill               0.0%         -   57.0%    53,311    0.0%         -
Pre-tax income (loss)
 before impairment
 items                 -2.0%    (2,046)   0.0%        11    3.8%     3,910
                      -----  ---------  -----  ---------  -----  ---------

SALES BY END MARKETS
 (% of Net Sales)
Communications &
 Networking              42% $  41,777     43% $  40,335     45%    46,170
Computing &
 Peripherals              9%     8,669     10%     9,666     13%    13,393
Industrial & Medical     10%    10,276      8%     7,786      8%     8,677
Defense & Aerospace       6%     5,770      5%     4,848      5%     5,122
Automotive               20%    20,208     20%    19,015     20%    20,400
Other                    13%    13,449     13%    11,922      9%     9,217
                      -----  ---------  -----  ---------  -----  ---------
Total Sales             100% $ 100,149    100% $  93,572    100%   102,979
                      -----  ---------  -----  ---------  -----  ---------
SHARE BASED
 COMPENSATION
Total share-based
 compensation                $     760         $     170         $     477
                             ---------         ---------         ---------
DILUTED EARNINGS PER
 SHARE CALCULATIONS
Weighted average
 shares outstanding             20,909            20,720            19,944
Add: Dilutive stock
 options                             -                 -               460
Add: Dilutive
 convertible notes
 net of tax                          -                 -             4,608
                             ---------         ---------         ---------
Shares used in
 diluted EPS
 calculations                   20,909            20,720            25,012

Net income from
 continuing
 operations                  $  (2,459)        $ (80,086)        $   3,410
Effect of dilutive
 convertible notes,
 net of tax                                                            684
                             ---------         ---------         ---------
Net income used in
 diluted EPS
 calculations                $  (2,459)        $ (80,086)        $   4,094
Diluted net income
 per share from
 continuing
 operations                  $   (0.12)        $   (3.87)        $    0.16
                             ---------         ---------         ---------

ADJUSTED EBITDA
 RECONCILIATIONS
   Net income (loss)         $  (2,459)        $ (79,922)        $   3,643
Add back items:
  Noncash charges                    -            79,938
  Interest expense,
   net of def'd
   financing cost                  843               820             1,529
  Interest income                 (294)             (259)             (335)
  Income tax expense               413               159               500
  Amortization of
   identifiable
   intangible assets               613               599               762
  Amortization, other              274               260               257
  Depreciation                   4,735             4,715             4,951
   (Income) loss from
    discontinued
    operations                       -              (164)             (233)
                             ---------         ---------         ---------
Adjusted EBITDA              $   4,125         $   6,146         $  11,074
                             ---------         ---------         ---------

Contact Information

  • Merix Investor Relations Contact:
    Allen Muhich
    Vice President, Finance & Investor Relations
    503.716.3667