SOURCE: DDi Corp.

November 08, 2006 16:00 ET

DDi Corp. Announces Third Quarter 2006 Results

ANAHEIM, CA -- (MARKET WIRE) -- November 8, 2006 -- DDi Corp. (NASDAQ: DDIC)

Selected Highlights:

--  Third quarter net sales of $51.4 million up 11.7 percent from prior
    year quarter
--  Completed divestiture of assembly business
--  Completed acquisition of Sovereign Circuits in October
--  Completed recapitalization with retirement of all Series B Preferred
    Stock
    
DDi Corp. (NASDAQ: DDIC), a leading provider of time-critical, technologically advanced PCB engineering and manufacturing services, today reported financial results for its third quarter ended September 30, 2006.

Third Quarter Operating Results

The Company reported third quarter 2006 net sales of $51.4 million, an 11.7 percent increase over the $46.0 million from the same period in 2005. Gross profit improved to $9.1 million, or 17.7 percent of net sales, from $6.5 million, or 14.2 percent of net sales, in the prior year third quarter. PCB net sales for the third quarter 2006 were $43.2 million reflecting a 12.3 percent gain over the third quarter of last year. PCB gross profit of $9.0 million, or 20.8 percent of net sales in the third quarter 2006, improved from $5.8 million, or 15.1 percent of net sales in the third quarter of 2005.

Adjusted EBITDA (excluding non-cash compensation, restructuring charges and loss on sale of assembly business) for the third quarter was $4.7 million, a 78.0 percent improvement over the adjusted EBITDA (excluding non-cash compensation, restructuring charges and goodwill impairment) in the third quarter of 2005 of $2.6 million.

The increase in third quarter 2006 net sales and gross margin over the same period in 2005 is due to increased volume of shipments accompanied by a slight increase in pricing and improved loading of the facilities.

Sequentially, the third quarter's net sales were down 2.2 percent, primarily due to a 7.0 percent reduction in assembly net sales, with PCB net sales essentially flat. The third quarter's gross margin was down sequentially from the second quarter by 1.5 points, again, primarily due to a 7.1 point reduction in the assembly business's gross margin while the PCB business's gross margin was essentially flat.

Total sales and marketing expenses for the third quarter of 2006 were $3.9 million, or 7.6 percent of net sales, down as a percentage of net sales from $3.8 million, or 8.4 percent of net sales, in the third quarter of 2005, due primarily to improved leverage of our fixed sales costs across higher net sales. Sequentially, sales and marketing expenses were essentially flat from $4.0 million, or 7.7 percent of net sales, for the second quarter.

Total general and administrative expenses were $3.3 million, or 6.5 percent of net sales versus $3.4 million, or 7.3 percent of net sales, for the third quarter of 2005. Sequentially, general and administrative expenses remained consistent from $3.4 million, or 6.4 percent of net sales, for the second quarter of 2006.

The net loss applicable to common stockholders for the third quarter of 2006 was $6.3 million, or $0.32 net loss per share, compared to $28.8 million, or $5.06 net loss per share, for the same period in 2005. The year-over-year decrease in net loss applicable to common stockholders was primarily due to improved operating performance in 2006 and the goodwill impairment charge of $23.5 million in the third quarter of 2005, offset by a $4.5 million loss on the sale of the assembly business in the current quarter.

On September 29, 2006, as announced, DDi completed the sale of its assembly business to Veritek Manufacturing Services LLC, for approximately $12.0 million in cash.

In October 2006, DDi completed its acquisition of Sovereign Circuits, Inc. for $5.2 million in cash, 1.2 million shares of DDi common stock, and the assumption of Sovereign's debt of approximately $2.3 million.

During September, DDi redeemed for cash $8.3 million face value of Series B Preferred Stock put to the Company for redemption. In October, the Company repurchased the remaining balance of $11.0 million face value of Series B Preferred Stock for $5.5 million in cash and the issuance of 731,737 shares of DDi common stock. As a result of these transactions, the Company has now retired all shares of its Series B Preferred Stock.

Mikel Williams, President and Chief Executive Officer of DDi Corp., stated, "We have completed both transactions we announced last quarter, reflecting our strategic realignment around our core printed circuit board operations. The Sovereign acquisition strengthens our position in key, strategic markets and adds flex and rigid-flex capabilities to our PCB product offering. I am very excited about Sovereign joining DDi, and we look forward to servicing our collective customers' requirements. We have already been working across both companies to improve operational performance and better service our customer demands.

"We have now completed significant milestones in our continuing efforts to improve the financial position of the Company and realign our capital structure. We received proceeds of $12.1 million pursuant to the exercise of the warrants issued in the 2005 capital raise and have now retired the remaining Series B Preferred stock," added Williams.

As of September 30, 2006, DDi had total cash and cash equivalents of $27.2 million, of which $5.2 million has been utilized in the Sovereign Circuits acquisition and $5.5 million has been used in the retirement of the Series B Preferred stock. As of September 30, 2006, the Company had no borrowings outstanding under its revolving credit facility which had a borrowing capacity of $14.1 million.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss third quarter 2006 financial results will be held today at 5:00 p.m. Eastern / 2:00 p.m. Pacific. The call is being webcast and can be accessed at the Company's web site: www.ddiglobal.com/investor. Participants should access the website at least 15 minutes early to register and download any necessary audio software. A telephone replay of the conference call will be available through November 15, 2006 by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and entering the conference ID 19415696. An online replay of the webcast will be available for 12 months at www.ddiglobal.com/investor under "Financial Calendar." For more information, visit the www.ddiglobal.com.

About DDi

DDi is a leading provider of time-critical, technologically advanced, electronics manufacturing services. Headquartered in Anaheim, California, DDi and its subsidiaries offer PCB engineering, fabrication and manufacturing services to leading electronics OEMs and contract manufacturers worldwide from its facilities across North America and with manufacturing partners in Asia.

Non-GAAP Financial Measures

This release includes 'adjusted EBITDA', a non-GAAP financial measures as defined in Regulation G of the Securities Exchange Act of 1934. Management believes that the disclosure of non-GAAP financial measures, when presented in conjunction with the corresponding GAAP measure, provides useful information to the Company, investors and other users of the financial statements and other financial information in identifying and understanding operating performance for a given level of net sales and business trends. Management believes that adjusted EBITDA is an important factor of the Company's business because it reflects financial performance that is unencumbered by debt service and other non-recurring or unusual items. This financial measure is commonly used in the Company's industry. It is also used by the Company's lenders to determine components of covenant compliance. However, adjusted EBITDA should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or as alternatives to net income as a measure of operating results in accordance with generally accepted accounting principles. The Company's definition of adjusted EBITDA may differ from definitions of such financial measure used by other companies. The Company has provided a reconciliation of adjusted EBITDA to GAAP financial information in the attached Schedule of Non-GAAP reconciliations.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

Except for historical information contained in this release, statements in this release may constitute forward-looking statements regarding the Company's assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "targets," "will likely result," "will continue," "may," "could" or similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, DDi's ability to extend its presence in other markets which it believes are less vulnerable to other manufacturers, and the anticipated benefits of the acquisition of Sovereign Circuits. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management's examination of historical operating trends, data contained in records, and other data available from third parties, we cannot assure you that the Company's projections will be achieved. In addition to other factors and matters discussed from time to time in the Company's filings with the U.S. Securities and Exchange Commission, or the SEC, some important factors that could cause actual results or outcomes for DDi or its subsidiaries to differ materially from those discussed in forward-looking statements include changes in general economic conditions in the markets in which we may compete and fluctuations in demand in the electronics industry; the Company's ability to sustain historical margins; increased competition; increased costs; loss or retirement of key members of management; increases in the Company's cost of borrowings or unavailability of additional debt or equity capital on terms considered reasonable by management; and adverse state, federal or foreign legislation or regulation or adverse determinations by regulators. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors.


                                      DDi Corp.
                   Condensed Consolidated Statements of Operations
                      (In thousands, except per share amounts)
                                    (Unaudited)


                                     Qtr. Ended   Qtr. Ended   Qtr. Ended
                                      Sep. 30,     Sep. 30,     Jun. 30,
                                        2006         2005         2006
                                    -----------  -----------  -----------

Net sales                           $    51,374  $    45,974  $    52,511
Cost of goods sold:
  Cost of goods sold                     42,177       38,758       42,320
  Non-cash compensation                      86          670          130
                                    -----------  -----------  -----------
Total cost of goods sold                 42,263       39,428       42,450

   Gross profit                           9,111        6,546       10,061

Operating expenses:
  Sales and marketing:
    Sales and marketing expenses          3,879        3,748        4,003
    Non-cash compensation                     -           99           30
                                    -----------  -----------  -----------
  Total sales and marketing               3,879        3,847        4,033

  General and administration:
    General and administration
     expenses                             3,033        3,242        3,099
    Non-cash compensation                   298          131          264
                                    -----------  -----------  -----------
  Total general and administration        3,331        3,373        3,363

  Amortization of intangibles             1,150        1,149        1,149
  Restructuring and other related
   charges                                  120          182          475
  Litigation reserve                          -            -        1,727
  Goodwill impairment                         -       23,540            -
  Loss on sale of assembly business       4,544            -            -
                                    -----------  -----------  -----------
Operating loss                           (3,913)     (25,545)        (686)

Interest and other expense, net             265        1,598          255
                                    -----------  -----------  -----------
  Loss from continuing operations
   before income taxes                   (4,178)     (27,143)        (941)
Income tax expense                          307          160        1,209
                                    -----------  -----------  -----------
  Loss from continuing operations        (4,485)     (27,303)      (2,150)
  Income from discontinued
   operations                                 -          496            -
                                    -----------  -----------  -----------
  Net loss                               (4,485)     (26,807)      (2,150)
Less: Series B preferred stock
 dividends and accretion                 (1,798)      (1,986)      (1,800)
                                    -----------  -----------  -----------
Net loss applicable to common
 stockholders                       $    (6,283) $   (28,793) $    (3,950)
                                    ===========  ===========  ===========

Loss per common share from
 continuing operations - basic and
 diluted                            $     (0.32) $     (5.15) $     (0.22)
Net loss per share applicable to
 common stockholders  - basic and
 diluted                            $     (0.32) $     (5.06) $     (0.22)


Weighted-average shares used in per
 share computations - basic and
 diluted                                 19,819        5,692       18,308



                                          DDi Corp.
                            Condensed Consolidated Balance Sheets
                                      (In thousands)
                                        (Unaudited)


                                          9 Months Ended    9 Months Ended
                                          Sep. 30, 2006     Sep. 30, 2005
                                         ---------------   ---------------
Net sales                                $       154,838   $       136,461
Cost of goods sold:
  Cost of goods sold                             125,039           114,080
  Restructuring-related inventory
   impairment                                          -             1,253
  Non-cash compensation                              337             1,091
                                         ---------------   ---------------
Total cost of goods sold                         125,376           116,424

   Gross profit                                   29,462            20,037

Operating expenses:
  Sales and marketing:
    Sales and marketing expenses                  11,885            10,952
    Non-cash compensation                             43              (250)
    Officer's Severance                              240                 -
                                         ---------------   ---------------
  Total sales and marketing                       12,168            10,702

  General and administration:
    General and administration expenses            9,916             9,818
    Non-cash compensation                            671               536
                                         ---------------   ---------------
  Total general and administration                10,587            10,354

  Amortization of intangibles                      3,449             3,448
  Restructuring and other related
   charges                                           992             4,572
  Litigation reserve                               1,727                 -
  Goodwill impairment                                  -            54,669
  Loss on sale of assembly business                4,544                 -
                                         ---------------   ---------------
Operating income (loss)                           (4,005)          (63,708)

Interest and other expense, net                    1,069             4,088
                                         ---------------   ---------------
Loss from continuing operations before
 income taxes                                     (5,074)          (67,796)
Income tax expense                                 2,064               808
                                         ---------------   ---------------
Loss from continuing operations                   (7,138)          (68,604)
Income from discontinued operations                    -            10,236
                                         ---------------   ---------------
Net loss                                          (7,138)          (58,368)
Less: Series B preferred stock dividends
 and accretion                                    (5,398)           (4,669)
                                         ---------------   ---------------
Net loss applicable to common
 stockholders                            $       (12,536)  $       (63,037)
                                         ===============   ===============

Loss per common share from continuing
 operations - basic and diluted          $         (0.67)  $        (15.92)
Net loss per share applicable to common
 stockholders - basic and diluted        $         (0.67)  $        (13.70)


Weighted-average shares used in per
 share computations - basic and diluted           18,807             4,601



                                 DDi Corp.
                  Condensed Consolidated Balance Sheets
                              (In thousands)
                                (Unaudited)


                                         September 30,  December 31,
                                             2006           2005
                                         -------------  -------------
Assets
Current assets:
  Cash and cash equivalents              $      27,191  $      25,985
  Cash and cash equivalents, restricted              -          2,972
  Accounts receivable, net                      25,772         29,710
  Inventories                                   13,123         16,117
  Prepaid expenses and other                     1,725          1,506
                                         -------------  -------------
          Total current assets                  67,811         76,290

  Property and equipment, net                   24,584         31,063
  Goodwill and intangibles, net                 48,108         55,256
  Other assets                                     646          1,719
                                         -------------  -------------
     Total assets                        $     141,149  $     164,328
                                         =============  =============

Liabilities, Mandatorily Redeemable
 Preferred Stock and Stockholders'
 Equity

 Current liabilities:
   Revolving credit facility             $           -  $      19,929
   Accounts payable                             15,189         15,443
   Accrued expenses and other                   15,454         14,709
                                         -------------  -------------
     Total current liabilities                  30,643         50,081

  Other long-term liabilities                    4,267          4,745
                                         -------------  -------------
     Total liabilities                          34,910         54,826
                                         -------------  -------------

  Series B mandatorily redeemable
   preferred stock                               3,203          1,513

Stockholders' equity:
  Common stock and additional
   paid-in-capital                             233,839        231,839
  Deferred compensation                              -           (349)
  Accumulated other comprehensive income           182            346
  Accumulated deficit                         (130,985)      (123,847)
                                         -------------  -------------
          Total stockholders' equity           103,036        107,989
                                         -------------  -------------
   Total liabilities, mandatorily
    redeemable preferred stock and
    stockholders' equity                 $     141,149  $     164,328
                                         =============  =============



                                  DDi Corp.
                     Schedule of Non-GAAP Reconciliations
                               (In thousands)
                                 (Unaudited)

                                 Qtr. Ended     Qtr. Ended     Qtr. Ended
                               Sep. 30, 2006  Sep. 30, 2005  Jun. 30, 2006
                               -------------  -------------  -------------

GAAP net loss applicable to
 common stockholders           $      (6,283) $     (28,793) $      (3,950)
Add back:
  Interest expense, net                  230          1,215            415
  Foreign currency exchange
   and other (gains) losses               35            383           (160)
  Income tax expense                     307            160          1,209
  Depreciation                         2,372          2,391          2,454
  Amortization of intangible
   assets                              1,150          1,149          1,149
  Goodwill impairment                      -         23,540              -
  Non-cash compensation                  384            900            424
  Restructuring and other
   related charges                       120            182            475
  Net (income) loss from
   discontinued operations                 -           (496)             -
  Litigation reserve                       -              -          1,727
  Loss on sale of assembly
   business                            4,544              -              -
  Series B preferred stock
   dividends and accretion             1,798          1,986          1,800
                               -------------  -------------  -------------
Adjusted EBITDA **             $       4,657  $       2,617  $       5,543
                               =============  =============  =============


** Earnings before net interest expense, income taxes, depreciation,
   amortization, foreign currency and other gains/losses, non-cash
   compensation, restructuring and other related charges, goodwill
   impairment, litigation reserve, loss on sale of assembly business and
   income from discontinued operations



                                                9 Months       9 Months
                                                  Ended          Ended
                                              Sep. 30, 2006  Sep. 30, 2005
                                              -------------  -------------

GAAP net loss applicable to common
 shareholders                                 $     (12,536) $     (63,037)
Add back:
  Interest expense, net                               1,092          3,687
  Foreign currency exchange and other (gains)
   losses                                               (23)           401
  Income tax expense                                  2,064            808
  Depreciation                                        7,513          7,318
  Amortization of intangible assets                   3,449          3,448
  Goodwill impairment                                     -         54,669
  Non-cash compensation                               1,051          1,377
  Officer's severance                                   240              -
  Restructuring and other related charges               992          5,825
  Litigation reserve                                  1,727              -
  Loss on sale of assembly business                   4,544              -
  Income from discontinued operations                     -        (10,236)
  Series B preferred stock dividends and
   accretion                                          5,398          4,669
                                              -------------  -------------
Adjusted EBITDA **                            $      15,511  $       8,929
                                              =============  =============


** Earnings before net interest expense, income taxes, depreciation,
   amortization, foreign currency and other gains/losses, non-cash
   compensation, restructuring and other related charges, goodwill
   impairment, litigation reserve, officer's severance, loss on sale of
   assembly business and income from discontinued operations

Contact Information

  • For Further Information:

    Mikel H. Williams
    Chief Executive Officer
    (714) 688-7200

    Sally Goff
    Chief Financial Officer
    (714) 688-7200

    Kathleen Buczko
    NMC Partners
    Investor/Analyst Information
    (562) 366-1552