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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

 

 

For the quarterly period ended June 28, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

FOR THE TRANSITION PERIOD FROM                 TO

 

COMMISSION FILE NUMBER 000-31051

 

SMTC CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

Delaware

98-0197680

(STATE OR OTHER JURISDICTION OF 

INCORPORATION OR ORGANIZATION)

(I.R.S. EMPLOYER IDENTIFICATION NO.)

 

7050 WOODBINE AVENUE

MARKHAM, Ontario, Canada L3R 4G8

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(905) 479-1810

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SMTX

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emerging growth company”. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 6, 2020, SMTC Corporation had 28,214,800 shares of common stock, par value $0.01 per share, outstanding.

 

 

 

 


 

SMTC CORPORATION

 

Table of Contents

 

PART I FINANCIAL INFORMATION

3

  

  

 

Item 1

Financial Statements

3

  

  

 

 

Interim Consolidated Balance Sheets (unaudited)

3

  

  

 

 

Interim Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)

4

  

  

 

 

Interim Consolidated Statements of Changes in Shareholders’ Equity (unaudited) 

5

  

  

 

 

Interim Consolidated Statements of Cash Flows (unaudited)

6

  

  

 

 

Notes to Interim Consolidated Financial Statements (unaudited)

7

  

  

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

  

  

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

35

  

  

 

Item 4

Controls and Procedures

36

  

 

PART II OTHER INFORMATION

37

  

  

 

Item 1A

 Risk factors

37

 

 

 

Item 6

Exhibits

38

 

2


 

Part I FINANCIAL INFORMATION

Item 1 Financial Statements

Interim Consolidated Balance Sheets:

(Expressed in thousands of U.S. dollars)

(Unaudited)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

311

 

 

$

1,368

 

Accounts receivable — net (note 3)

 

 

65,071

 

 

 

69,919

 

Unbilled contract assets (note 3)

 

 

38,647

 

 

 

26,271

 

Inventories (note 3)

 

 

50,125

 

 

 

47,826

 

Prepaid expenses and other assets

 

 

6,813

 

 

 

7,044

 

Derivative assets (note 9)

 

 

459

 

 

 

 

Income taxes receivable

 

 

160

 

 

 

 

Total current assets

 

 

161,586

 

 

 

152,428

 

Property, plant and equipment — net (note 3)

 

 

23,495

 

 

 

25,310

 

Operating lease right of use assets — net

 

 

6,419

 

 

 

3,330

 

Goodwill (note 3)

 

 

18,165

 

 

 

18,165

 

Intangible assets — net (note 3)

 

 

10,383

 

 

 

12,747

 

Deferred income taxes — net

 

 

473

 

 

 

540

 

Deferred financing costs — net

 

 

749

 

 

 

859

 

Total assets

 

$

221,270

 

 

$

213,379

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Revolving credit facility (note 4)

 

$

33,943

 

 

$

34,701

 

Accounts payable

 

 

70,591

 

 

 

74,126

 

Accrued liabilities (note 3)

 

 

20,039

 

 

 

11,164

 

Warrant liability (note 4)

 

 

1,612

 

 

 

1,730

 

Restructuring liability (note 10)

 

 

675

 

 

 

1,597

 

Income taxes payable

 

 

267

 

 

 

157

 

Current portion of long-term debt (note 4)

 

 

1,875

 

 

 

1,250

 

Current portion of operating lease obligations

 

 

1,494

 

 

 

1,128

 

Current portion of finance lease obligations

 

 

1,110

 

 

 

1,226

 

Total current liabilities

 

 

131,606

 

 

 

127,079

 

Long-term debt (note 4)

 

 

32,903

 

 

 

33,750

 

Operating lease obligations

 

 

5,339

 

 

 

2,615

 

Finance lease obligations

 

 

8,278

 

 

 

8,838

 

Total liabilities

 

 

178,126

 

 

 

172,282

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Capital stock (note 5)

 

 

508

 

 

 

508

 

Additional paid-in capital

 

 

293,706

 

 

 

293,389

 

Deficit

 

 

(251,070

)

 

 

(252,800

)

 

 

 

43,144

 

 

 

41,097

 

Total liabilities and shareholders’ equity

 

$

221,270

 

 

$

213,379

 

 

Commitments (note 11)

 

Subsequent event (note 12)

 

See accompanying notes to interim consolidated financial statements.

3


 

Interim Consolidated Statements of Operations and Comprehensive Income (loss)

(Expressed in thousands of U.S. dollars, except number of shares and per share amounts)

(Unaudited)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Revenue (note 3)

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

Cost of sales (note 9)

 

 

79,720

 

 

 

81,939

 

 

 

165,219

 

 

 

175,964

 

Gross profit

 

 

10,686

 

 

 

8,997

 

 

 

20,325

 

 

 

17,621

 

Selling, general and administrative expenses

 

 

7,107

 

 

 

6,560

 

 

 

14,326

 

 

 

13,359

 

Change in fair value of contingent consideration

 

 

 

 

 

 

 

 

 

 

 

(3,050

)

Restructuring charges (reversal) (notes 3 and 10)

 

 

(125

)

 

 

1,546

 

 

 

(346

)

 

 

2,170

 

Operating income

 

 

3,704

 

 

 

891

 

 

 

6,345

 

 

 

5,142

 

Fair value measurement loss (gain) on warrant liability (note 4)

 

 

399

 

 

 

40

 

 

 

(118

)

 

 

(61

)

Interest expense (note 3)

 

 

1,987

 

 

 

2,800

 

 

 

4,080

 

 

 

5,670

 

Net income (loss) before income taxes

 

 

1,318

 

 

 

(1,949

)

 

 

2,383

 

 

 

(467

)

Income tax expense (note 6):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

311

 

 

 

416

 

 

 

586

 

 

 

695

 

Deferred

 

 

52

 

 

 

103

 

 

 

67

 

 

 

95

 

 

 

 

363

 

 

 

519

 

 

 

653

 

 

 

790

 

Net income (loss) and comprehensive income (loss)

 

 

955

 

 

 

(2,468

)

 

 

1,730

 

 

 

(1,257

)

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

(0.10

)

 

$

0.06

 

 

$

(0.05

)

Diluted

 

$

0.03

 

 

$

(0.10

)

 

$

0.06

 

 

$

(0.05

)

Weighted average number of shares outstanding (note 7):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,213,729

 

 

 

23,557,944

 

 

 

28,204,514

 

 

 

23,403,431

 

Diluted

 

 

29,493,472

 

 

 

23,557,944

 

 

 

29,484,257

 

 

 

23,403,431

 

 

See accompanying notes to interim consolidated financial statements.

4


 

Interim Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in thousands of U.S. dollars)

Three months ended June 28, 2020

(Unaudited)

 

 

 

Common

Shares

 

 

Capital

stock

 

 

Additional

paid-in

capital

 

 

Deficit

 

 

Total

Shareholders’

equity

 

Balance, March 29, 2020

 

 

28,195,300

 

 

$

508

 

 

$

293,551

 

 

$

(252,025

)

 

$

42,034

 

RSU vested and stock options exercised

 

 

19,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Net income

 

 

 

 

 

 

 

 

 

 

 

955

 

 

 

955

 

Balance, June 28, 2020

 

 

28,214,800

 

 

 

508

 

 

 

293,706

 

 

 

(251,070

)

 

 

43,144

 

 

Three months ended June 30, 2019

(Unaudited)

 

 

 

Common

Shares

 

 

Capital

stock

 

 

Additional

paid-in

capital

 

 

Deficit

 

 

Total

Shareholders’

equity

 

Balance, March 31, 2019

 

 

23,350,558

 

 

$

460

 

 

$

278,734

 

 

$

(245,594

)

 

$

33,600

 

RSU vested and issued in common shares

 

 

18,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares from rights offering

 

 

4,642,030

 

 

 

46

 

 

 

13,998

 

 

 

 

 

 

14,044

 

Stock-based compensation

 

 

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,468

)

 

 

(2,468

)

Balance, June 30, 2019

 

 

28,011,088

 

 

$

506

 

 

$

292,829

 

 

$

(248,062

)

 

$

45,273

 

 

See accompanying notes to interim consolidated financial statements.

 

 

 

Six months ended June 28, 2020

 

Common

Shares

 

 

Capital

stock

 

 

Additional

paid-in

capital

 

 

Deficit

 

 

Total

Shareholders’

equity

 

Balance, December 29, 2019

 

 

28,195,300

 

 

$

508

 

 

$

293,389

 

 

$

(252,800

)

 

$

41,097

 

RSU vested and stock options exercised

 

 

19,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

317

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,730

 

 

 

1,730

 

Balance, June 28, 2020

 

 

28,214,800

 

 

$

508

 

 

$

293,706

 

 

$

(251,070

)

 

$

43,144

 

 

 

Six months ended June 30, 2019

 

Common

Shares

 

 

Capital

stock

 

 

Additional

paid-in

capital

 

 

Deficit

 

 

Total

Shareholders’

equity

 

Balance, December 30, 2018

 

 

23,189,381

 

 

$

458

 

 

$

278,648

 

 

$

(246,805

)

 

$

32,301

 

RSU vested and issued in common shares

 

 

179,677

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Issuance of common shares from rights offering

 

 

4,642,030

 

 

 

46

 

 

 

13,998

 

 

 

 

 

 

14,044

 

Stock-based compensation

 

 

 

 

 

 

 

 

185

 

 

 

 

 

 

185

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,257

)

 

 

(1,257

)

Balance, June 30, 2019

 

 

28,011,088

 

 

$

506

 

 

$

292,829

 

 

$

(248,062

)

 

$

45,273

 

 

5


 

Interim Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

(Unaudited)

 

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

Net income(loss)

 

$

1,730

 

 

$

(1,257

)

Items not involving cash:

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

3,222

 

 

 

3,253

 

Amortization of intangible assets

 

 

2,364

 

 

 

3,688

 

Unrealized foreign exchange gain on unsettled forward exchange contracts

 

 

(459

)

 

 

 

Deferred income taxes

 

 

67

 

 

 

95

 

Amortization of deferred financing fees and debt insurance costs

 

 

588

 

 

 

545

 

Stock-based compensation

 

 

317

 

 

 

185

 

Change in fair value of warrant liability

 

 

(118

)

 

 

(61

)

Change in fair value of contingent consideration

 

 

 

 

 

(3,050

)

Change in non-cash operating working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,848

 

 

 

8,035

 

Unbilled contract assets

 

 

(12,376

)

 

 

(7,214

)

Inventories

 

 

(2,299

)

 

 

7,054

 

Prepaid expenses and other assets

 

 

231

 

 

 

(1,128

)

Income taxes receivable/payable

 

 

(50

)

 

 

203

 

Accounts payable

 

 

(3,377

)

 

 

(10,130

)

Accrued liabilities

 

 

8,875

 

 

 

(9

)

Restructuring liability

 

 

(919

)

 

 

(857

)

Net change in operating lease right of use asset and liability

 

 

1

 

 

 

465

 

 

 

 

2,645

 

 

 

(183

)

Financing:

 

 

 

 

 

 

 

 

Repayments of revolving credit facility

 

 

(758

)

 

 

(11,272

)

Repayment of long-term debt

 

 

(625

)

 

 

(625

)

Deferred financing fees

 

 

(75

)

 

 

(50

)

Principal repayments of finance lease obligations

 

 

(676

)

 

 

(809

)

Proceeds from issuance of common stock through rights offerings

 

 

 

 

 

14,044

 

 

 

 

(2,134

)

 

 

1,288

 

Investing:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(1,568

)

 

 

(2,072

)

 

 

 

(1,568

)

 

 

(2,072

)

Decrease in cash

 

 

(1,057

)

 

 

(967

)

Cash, beginning of period

 

 

1,368

 

 

 

1,601

 

Cash, end of the period

 

$

311

 

 

$

634

 

 

 

 

 

 

 

 

 

 

Supplemental Information

 

 

 

 

 

 

 

 

Cash interest paid

 

$

3,946

 

 

$

2,363

 

Increase in operating right of use assets

 

$

3,840

 

 

$

5,559

 

Property, plant and equipment acquired that was unpaid in cash

   and included in accounts payable and accrued liabilities

 

$

71

 

 

$

260

 

 

See accompanying notes to interim consolidated financial statements.

 

 

6


 

Unaudited Notes to Interim Consolidated Financial Statements

(in thousands)

1.

Business and Nature of Presentation

Background

SMTC Corporation (the “Company,” “we,” “our,” or “SMTC”) is a provider of end-to-end electronics manufacturing services (“EMS”), including product design and engineering services, printed circuit board assembly (“PCBA”), production, enclosure, cable assembly, precision metal fabrication, systems integration and comprehensive testing services, configuration to order (“CTO”), build to order (“BTO”) and direct order fulfillment (“DOF”). SMTC has more than 50 manufacturing and assembly lines at strategically located facilities in the United States, Canada and Mexico that provide local support and manufacturing capabilities to our global customers. SMTC’s services extend over the entire electronic product life cycle from new product development and new product introduction (“NPI”) through to growth, maturity and end of life phases.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with the accounting principles and methods of application disclosed in the audited consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019, (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020.  The accompanying unaudited interim consolidated financial statements include adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of the consolidated financial statements under generally accepted accounting principles in the United States (“U.S. GAAP”). These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Form 10-K. The consolidated balance sheet at December 29, 2019 was derived from the audited annual consolidated financial statements, but does not contain all of the footnote disclosures from the annual consolidated financial statements.

Unless otherwise specified or the context requires otherwise, all statements in these notes to the interim consolidated financial statements regarding financial figures are expressed in thousands of U.S. dollars.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains, created significant volatility and disruption in financial markets and has resulted in an economic slowdown. In response to the impact of the COVID-19 pandemic, and given the uncertainty of its duration, the Company has initiated measures designed to protect our employees and will continue to adapt in order to maintain operations while providing a safe environment.

The Company is actively monitoring the global COVID-19 pandemic and continuously communicating with our customers, key suppliers, employees and union representatives, in addition to government and state representatives where our manufacturing facilities reside. We have experienced increased workplace absenteeism as illness, potential COVID-19 exposure for higher risk employees or personal commitments that restrict the ability of some employees to come to work.  The Company has modified shift schedules and hired temporary labor to help address this situation and meet our customers’ product shipping schedules.  During the three months ended June 28, 2020, the Company incurred additional costs of $1,185 that we have attributed to the COVID-19 pandemic, including additional temporary headcount as at risk employees are mandated to stay home in our Mexico locations as well as the purchase of personal protective equipment and costs to sanitize and clean facilities.

As at June 28, 2020, the additional funds available to borrow under our PNC Facility (as described and defined in note 4 below) after deducting the current borrowing base conditions and subject to debt covenants, should the Company require additional funding during the COVID-19 pandemic, was $30,875 (March 29, 2020 - $31,185).  In addition, during the quarter ended June 28, 2020, the Company entered into amendments to its lending agreements with PNC and TCW, as disclosed in note 4, that would allow for the addback of certain costs attributable to the COVID-19 pandemic.

7


 

Transition of China Manufacturing

During the fourth quarter of 2019, we ceased manufacturing in China and began to relocate the equipment used at our Chinese manufacturing facility to our other North American sites. During the first quarter of 2020, the Company completed final shipments for customers serviced at our Chinese manufacturing facility and completed the relocation of the equipment to our other North American sites. Customer concerns about uncertainties relating to the prolonged impact of tariffs and macro-economic factors caused a number of our customers to begin to re-evaluate demand for some of their products and reconsider where they outsource their manufacturing. Revenues attributable to production from SMTC’s manufacturing operations in China declined in 2019 as compared to 2018, but more significant declines were anticipated in 2020 which would have resulted in negative operating margins from our China site. This ultimately resulted in the decision to close the manufacturing facility.

 

 

2.

Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In August 2018, the FASB published ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendment includes the removal, modification and addition of disclosure requirements under Topic 820. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The impact of the adoption of the standard expands the disclosure of certain assets and liabilities recorded at fair value.

In March 2020, the FASB published ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update are elective and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The amendments in this Update are effective for all entities as of March 12, 2020, through December 31, 2022.  An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The impact of the adoption of the standard is not material to the Company, as alternative reference rates are available under the agreements governing the financial instruments.

Recent Accounting Pronouncements Not Yet Adopted

In May 2016, the FASB published ASU 2016-13: Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of Topic 326 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In April 2019, the FASB published ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which made certain amendments and corrections to the original codification. In May 2019, the FASB published ASU 2019-05 Financial Instruments – Credit losses (Topic 326) which made transitional relief available, specifically allowing the option to elect a fair value option for financial instruments measured at amortized cost. In November 2019, the FASB published ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments – Credit losses, which made certain amendments and corrections to the original codification.  In November 2019, the FASB published ASU 2019-10 Financial Instruments – Credit losses (Topic 326), which made certain amendments to the effective dates of the new standard.  The amendment is effective for the Company for years beginning after December 15, 2022 including interim periods with those years. The Company is currently evaluating the impact of this accounting standard, but it is expected that the new standard may result in additional credit losses being recorded.

8


 

In January 2017, the FASB published ASU 2017-04: Intangibles – Goodwill and Other (Topic 350): Topic 350 seeks to simplify goodwill impairment testing requirements for public entities. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating the impact of this accounting standard.  However, it is expected that this may reduce the complexity of evaluating goodwill for impairment.

In December 2019, the FASB published ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for income taxes. The purpose of this codification is to simplify the accounting for income taxes, which addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intraperiod allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in tax laws or rates. Topic 740 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The impact of the adoption of the standard has not yet been determined and is being evaluated.

3.

Interim Consolidated financial statement details

The following consolidated financial statement details are presented as of the period ended for the consolidated balance sheets and for the periods ended for each of the consolidated statements of operations and comprehensive income (loss).

Consolidated Balance Sheets

Accounts receivable – net:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Trade accounts receivable

 

$

67,192

 

 

$

71,113

 

Other receivables

 

 

188

 

 

 

1,098

 

Allowance for doubtful accounts

 

 

(2,309

)

 

 

(2,292

)

Total

 

$

65,071

 

 

$

69,919

 

 

The allowance for doubtful accounts pertains primarily to one customer previously serviced out of Dongguan China. This was provisioned and included with the restructuring charges for the closure of the facility in 2019. Refer to note 10 for further details. To date, there has been no material impact of the COVID-19 pandemic on the allowance for doubtful accounts.

Unbilled contract assets

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Opening

 

$

26,271

 

 

$

20,405

 

Contract assets additions

 

 

172,217

 

 

 

350,709

 

Contract assets invoiced

 

 

(159,841

)

 

 

(344,843

)

Ending

 

$

38,647

 

 

$

26,271

 

 

Inventories:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Raw materials

 

$

50,251

 

 

$

48,067

 

Parts and other

 

 

383

 

 

 

586

 

Provision for obsolescence

 

 

(509

)

 

 

(827

)

Total

 

$

50,125

 

 

$

47,826

 

 

9


 

The provision for obsolescence primarily pertains to customers previously serviced out of the Dongguan facility. These have been provisioned and included with the restructuring charges for the closure of the facility in 2019. Refer to note 10 for further details.

Property, plant and equipment – net:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Land

 

$

1,648

 

 

$

1,648

 

Buildings (b)

 

 

18,985

 

 

 

18,985

 

Machinery and equipment (a) (e)

 

 

43,192

 

 

 

42,732

 

Office furniture and equipment (c) (e)

 

 

836

 

 

 

1,005

 

Computer hardware and software (d) (e)

 

 

3,679

 

 

 

3,979

 

Leasehold improvements (e)

 

 

4,240

 

 

 

4,265

 

 

 

 

72,580

 

 

 

72,614

 

Less accumulated depreciation:

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

Buildings (b)

 

 

(10,944

)

 

 

(10,392

)

Machinery and equipment (a) (e)

 

 

(32,700

)

 

 

(31,192

)

Office furniture and equipment (c) (e)

 

 

(393

)

 

 

(546

)

Computer hardware and software (d) (e)

 

 

(3,082

)

 

 

(3,289

)

Leasehold improvements (e)

 

 

(1,966

)

 

 

(1,885

)

 

 

 

(49,085

)

 

 

(47,304

)

Property, plant and equipment—net

 

$

23,495

 

 

$

25,310

 

 

(a)

Included within machinery and equipment were assets under finance leases with costs of $2,275 and $2,275 and associated accumulated depreciation of $1,196 and $974 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $109 and $142, respectively. The related depreciation expense for the six months ended March 29, 2020 and June 30, 2019 was $222 and $284, respectively.

 

(b)

Included within buildings are costs associated with Melbourne facility under finance leases of $9,082 and associated accumulated depreciation of $1,303 and $900 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $201 and $201, respectively. The related depreciation expense for six months ended June 28, 2020 and June 30 29, 2019 was $403 and $402, respectively.  

 

(c)

Included within office furniture and equipment were assets under finance leases with costs of $307 and associated accumulated depreciation of $85 and $52 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $16 and $10, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30 29, 2019 was $33 and $20, respectively.

 

(d)

Included within computer hardware and software were assets under finance leases with costs of $91 and associated accumulated depreciation of $66 and $51 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $8 and $8, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30, 2019 was $15 and $15, respectively.

 

10


 

(e)

Fully depreciated machinery and equipment with cost of $636 and accumulated amortization of $636 was written off in the six months ended June 28, 2020. Fully depreciated office furniture and fixtures with cost of $209 and accumulated amortization of $209 was written off. Fully depreciated computer hardware and software with cost of $414 and accumulated amortization of $414 was written off. Write off charges of $3 were incurred on leasehold improvements with cost of $185 and accumulated amortization of $182.  These write off charges were incurred related to the closure of the Dongguan facility for those items not otherwise transferred to other manufacturing facilities.

Intangible assets:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Customer relationships

 

$

12,350

 

 

$

12,350

 

Order backlog

 

 

6,990

 

 

 

6,990

 

Trade name

 

 

1,300

 

 

 

1,300

 

Non-compete agreements

 

 

360

 

 

 

360

 

 

 

 

21,000

 

 

 

21,000

 

Less accumulated amortization:

 

 

 

 

 

 

 

 

Customer relationships

 

 

(2,031

)

 

 

(1,414

)

Order backlog

 

 

(6,990

)

 

 

(5,333

)

Trade name

 

 

(1,300

)

 

 

(1,300

)

Non-compete agreements

 

 

(296

)

 

 

(206

)

 

 

 

(10,617

)

 

 

(8,253

)

Intangible assets—net

 

$

10,383

 

 

$

12,747

 

 

These intangible assets arose from the acquisition of MC Assembly Holdings Inc. (“MC Assembly”) in November 2018 and were allocated to the following operating segments:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

3,115

 

 

$

3,824

 

Mexico

 

 

7,268

 

 

 

8,923

 

Total

 

$

10,383

 

 

$

12,747

 

 

Amortization expense of $2,364 is recorded in cost of sales in the consolidated statement of income and comprehensive income for the six months ended June 28, 2020, and $3,688 for the six months ended June 30, 2019.  Amortization expense for the next five years and thereafter is as follows:

 

2020

 

$

682

 

2021

 

 

1,235

 

2022

 

 

1,235

 

2023

 

 

1,235

 

2024

 

 

1,235

 

2025 and thereafter

 

 

4,761

 

Total amortization

 

$

10,383

 

 

Goodwill:

The carrying value of goodwill as at June 28, 2020 was $18,165 (December 29, 2019 – $18,165). This goodwill arose from the acquisition of MC Assembly in November 2018 and was allocated to the following operating segments that are expected to benefit from the synergies of this business combination and has not changed since the acquisition:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

5,449

 

 

$

5,449

 

Mexico

 

 

12,716

 

 

 

12,716

 

Total

 

$

18,165

 

 

$

18,165

 

 

11


 

The carrying value of goodwill is assessed annually at year-end and at each reporting period for impairment triggers to determine whether there exists any indicators of impairment.  The assessment is done at the operating segment level as the group of components (production facilities) within each operating segment all have similar economic characteristics. Our business operations have generally performed as expected during the first half of 2020.  While the COVID-19 pandemic creates significant uncertainty, in the near term, the Company did not identify any triggering events as at June 28, 2020.

Accrued liabilities: 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Payroll

 

$

6,029

 

 

$

5,504

 

Customer related

 

 

5,527

 

 

 

2,185

 

Deferred revenue

 

 

3,734

 

 

 

 

Vendor related

 

 

2,941

 

 

 

1,742

 

Professional services

 

 

760

 

 

 

612

 

Interest

 

 

402

 

 

 

860

 

Other

 

 

646

 

 

 

261

 

Total

 

$

20,039

 

 

$

11,164

 

 

Deferred Revenue is recorded when the Company invoices and becomes eligible to receive payment for goods or services prior to the transferring of goods or services to the customer under the terms of the contract (i.e., all revenue recognition criteria are not yet met), which is included within accrued liabilities.  As of June 28, 2020 and December 29, 2019, the balance of deferred revenue was $3,734 and Nil, respectively.  No revenue was recognized during the six months ended June 28, 2020.  The accounts receivable balances associated with the deferred revenue invoicing was $3,734 as at June 28, 2020.  Deferred revenue is recognized into revenue when all revenue recognition criteria are met.  

Consolidated Statements of Operations and Comprehensive Income (Loss)

Interest expense:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Long-term debt

 

$

1,020

 

 

$

1,709

 

 

$

2,068

 

 

$

3,461

 

Revolving credit facility

 

 

482

 

 

 

597

 

 

 

1,034

 

 

 

1,216

 

Amortization of deferred financing fees

 

 

55

 

 

 

38

 

 

 

110

 

 

 

72

 

Amortization of debt issuance costs

 

 

239

 

 

 

236

 

 

 

478

 

 

 

473

 

Obligations under finance leases

 

 

188

 

 

 

220

 

 

 

380

 

 

 

448

 

Other interest

 

 

3

 

 

 

 

 

 

10

 

 

 

 

Total

 

$

1,987

 

 

$

2,800

 

 

$

4,080

 

 

$

5,670

 

 

4.

Debt

(a) Revolving credit and long-term debt facilities 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Revolving credit facility

 

$

33,943

 

 

$

34,701

 

Term loans:

 

 

 

 

 

 

 

 

Term loan A facility

 

$

38,125

 

 

$

38,750

 

Less deferred debt issue costs

 

 

(2,070

)

 

 

(2,286

)

Less unamortized discount on debt

 

 

(1,277

)

 

 

(1,464

)

Total term loans

 

$

34,778

 

 

$

35,000

 

Less current portion

 

 

(1,875

)

 

 

(1,250

)

Long term portion

 

$

32,903

 

 

$

33,750

 

 

12


 

The Company borrows money under an Amended and Restated Revolving Credit and Security Agreement with PNC Bank, National Association (“PNC”) which governs the Company’s revolving credit facility (“PNC Facility”). The PNC Facility has a term ending on November 8, 2023. Advances made under the PNC Facility bear interest at the U.S. base rate plus a grid ranging from 0.50% to 1.00% or 1, 2 or 3-month fully-absorbed PNC LIBOR plus a grid ranging from 1.50% to 2.00%. The base commercial lending rate should approximate U.S. prime rate.  

The Company also borrows money under a Financing Agreement (the “Financing Agreement”), by and among the Company and certain of its subsidiaries, the lenders party to the Financing Agreement from time to time (collectively, the “Lenders”), and TCW Asset Management Company, LLC, as collateral agent for the Lenders (“TCW”).  The Financing Agreement governs a term loan A facility (the “Term A Loan Facility” and together with the PNC Facility, the “Credit Facilities” and previously governed a term loan B facility (the “Term Loan B Facility”) until it was paid in full on July 3, 2019. The Term Loan A Facility matures on November 8, 2023 (the “Maturity Date”). The Term Loan A Facility bears interest LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%. Payments made under the Term Loan A Facility at any time prior to the Maturity Date (other than scheduled amortization payments and mandatory prepayments) are subject to an applicable premium equal to the amount of such payment multiplied by (i) 3.00% in the event that such payment occurs before November 8, 2019, (ii) 2.00% in the event that such payment occurs after November 8, 2019 and on or before November 8, 2020, and (iii) 1.00% in the event that such payment occurs after November 8, 2020 and on or before November 8, 2021. No such applicable premium is payable for any payment of loans made under the Term Loan A Facility occurring after November 8, 2021.

On June 26, 2020, the Company, entered into the Fourth Amendment to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment”) and the Fifth Amendment to the Financing Agreement (“TCW Amendment”).  The PNC and TCW Amendments, among other things, amend the definition of “Consolidated EBITDA” by permitting an addback for (i) non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, not to exceed $1,200, and (ii) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions, in an aggregate amount not to exceed $1,000 with respect to corporate selling, general and administrative employees, in each case, for the period from June 1, 2020, to and including July 31, 2020.  The PNC and TCW Amendments also amends the definition of “Permitted Purchase Money Indebtedness” to (i) allow for Indebtedness (as defined in the PNC Agreement) pursuant to financing provided by a third party lender for any fixed or tangible assets acquired prior to the June 26, 2020, and (ii) increase the aggregate principal amount of all Indebtedness (as defined in the PNC Agreement and Financing Agreement) permitted under the PNC Agreement to $3,750.

As at June 28, 2020, the additional funds available to borrow under the PNC Facility after deducting the current borrowing base conditions were $30,875 (December 29, 2019 - $21,644). The maximum amount of funds that could be available under the PNC Facility is $65,000. However, availability under the PNC Facility is subject to certain conditions, including borrowing base conditions based on eligible inventory and accounts receivable, and certain conditions as determined by PNC. The Company is required to use a “lock-box” arrangement for the PNC Facility, whereby remittances from customers are swept daily to reduce the borrowings under this facility.

At June 28, 2020, $33,943 (December 29, 2019 - $34,701) was outstanding under the PNC Facility and is classified as a current liability based on the requirement to hold a “lock-box” under the terms of the PNC Facility.

At June 28, 2020, $38,125 (December 29, 2019 - $38,750) was outstanding under the TCW Term Loan A Facility. The TCW Facilities are reported on the consolidated balance sheet net of deferred financing fees of $2,070 (December 29, 2019 - $2,286) and a discount on debt of $1,277 (December 29, 2019 - $1,464) related to the outstanding warrants described below.

The Credit Facilities are joint and several obligations of the Company and its subsidiaries that are borrowers under the Credit Facilities and are jointly and severally guaranteed by other subsidiaries of the Company. Repayment under the PNC Facility and Term A Loan Facility are collateralized by the assets of the Company and each of its subsidiaries.

(b) Covenants

The Credit Facilities contain certain financial and non-financial covenants, including restrictions on dividend payments. The financial covenants require the Company to maintain a fixed charge coverage ratio and a total leverage ratio quarterly during the term of the Credit Facilities.

13


 

The Company was in compliance with the covenants included in the Credit Facilities as at June 28, 2020.  The Company’s continued financial covenant compliance will depend on key variables, including the Company’s cash flow from earnings before interest, income taxes and depreciation as well as debt levels.  For context, assuming no change to forecast debt balances, a reduction of approximately 34% and 24% of earnings before interest, income taxes, depreciation and amortization as defined in PNC Agreement and Financing Agreement over the next six month period, could jeopardize covenant compliance at the end of our third and fourth quarters 2020, respectively, which test our ratios against twelve-month trailing results.  The Company attempts to address risks of covenant compliance by taking measures to reduce its inventory, revolving credit facility and term debt balances as necessary.

Market conditions, including the implications of the COVID-19 pandemic, may negatively impact our ability to secure and source alternative methods of financing.  We do not currently foresee a material impact in the short term based on our working capital needs, however if a number of our customers reduce or temporarily cease payments to us, this would present a risk and negatively impact our cash flow and ability to meet our working capital obligations to operate our business, which could require us to secure alternative methods of financing.  

The Company continues to monitor operations and results closely and manage debt levels relative to our operational results to ensure compliance with its lenders covenants.

(c) Warrant liability

On November 8, 2018, 504,735 warrants were issued to TCW in connection with the Financing Agreement and are outstanding as at June 28, 2020. As a result of the anti-dilution provisions contained in the warrants that were triggered in connection with the Rights Offering and the Registered Direct Offering in June 2019, the warrants were exercisable to purchase an additional 7,214 shares of common stock (or a total of 511,949 shares) at June 28, 2020. These warrants are exercisable on a cashless basis, or for an exercise price of $0.01. The Company initially recorded the value of the warrants as a warrant liability with a corresponding discount on the long-term debt in the amount of $1,898. The fair value has been assessed at $3.15 per unit or $1,612 as at June 28, 2020 ($3.38 per unit or $1,730 – December 29, 2019). The fair value of the warrant obligation is presented as a warrant liability on the consolidated balance sheet with changes to the fair value recorded each reporting period as either a gain or a loss in the consolidated statement of operations and comprehensive income (loss). 

5.

Capital stock 

Common shares

Issued and outstanding:

The issued and outstanding number of common shares included in shareholders’ equity consisted of the following:

 

 

 

Number of

shares

 

 

$

 

Balance at December 29, 2019

 

$

28,195,300

 

 

$

508

 

New share issuance-vested stock awards

 

 

19,500

 

 

 

-

 

Balance June 28, 2020

 

$

28,214,800

 

 

$

508

 

 

14


 

Stock Options

For more detailed information regarding the Company’s stock option arrangements, see Note 7 of the consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019. During the six month period ended June 28, 2020, there were no stock options granted, exercised or forfeited. A summary of stock option activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Number

of options

 

 

Weighted

average

exercise

price

 

 

Aggregate

intrinsic

value

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding at December 29, 2019

 

 

2,344,374

 

 

$

2.14

 

 

 

2,016

 

 

 

7.9

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 28, 2020

 

 

2,344,374

 

 

 

2.14

 

 

 

1,757

 

 

 

7.4

 

Exercisable at June 28, 2020

 

 

1,088,140

 

 

 

1.55

 

 

 

1,741

 

 

 

6.7

 

 

During the three-month periods ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to stock options and a corresponding increase in additional paid-in capital of $57 and $41, respectively. During the six month periods ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to stock options and a corresponding increase in additional paid-in capital of $115 and $62, respectively.

Certain stock options outstanding have market conditions such that the awards are vested and exercisable only if the Company’s stock exceeds specified targets during the vesting period. If the market conditions are not met, the stock options will not vest and will expire.

Restricted Stock Units and Restricted Stock Awards

For more detailed information regarding the Company’s Restricted Stock Units (“RSU”) and Restricted Stock Awards (“RSA”) arrangements, see Note 7 of the consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019.  During the six month period ended June 28, 2020, 63,000 RSUs were granted. A summary of the RSU activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Outstanding

RSU

 

 

Weighted

average

stock

price

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding balance at December 29, 2019

 

 

348,000

 

 

$

3.16

 

 

 

2.23

 

RSU granted

 

 

63,000

 

 

 

2.74

 

 

 

 

 

RSU vested and issued in common shares

 

 

(19,500

)

 

 

1.28

 

 

 

 

 

RSU forfeited

 

 

 

 

 

 

 

 

 

 

Outstanding balance at June 28, 2020

 

 

391,500

 

 

 

3.19

 

 

 

2.24

 

 

Certain RSUs outstanding have a market condition such that the awards are vested and issuable only if the market price of the Company’s stock meets or exceeds a specified target during the vesting period. If the market condition is not met, the RSUs will not vest and will be forfeited.

Stock based compensation recognized during the three-month period ended June 28, 2020 and June 30, 2019 related to the restricted stock units was $98 and $56, respectively.  Stock based compensation recognized during the six month period ended June 28, 2020, and June 30, 2019, related to the restricted stock units was $202 and $123, respectively.  

6.

Income taxes

During the six month period ended June 28, 2020 and June 30, 2019, the Company recorded current income tax expense $586 and $695, respectively, in connection with U.S. state taxes and taxes on profits in certain foreign jurisdictions, and deferred income tax expense of $67 and $95, respectively, in connection with temporary differences related to the Mexican operations.

15


 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. Guidance under ASC 740, Income Taxes (“ASC 740”) states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. The U.S., Canadian and Asian jurisdictions continue to have a full valuation allowance recorded against the deferred tax assets.

On March 27, 2020, the U.S. federal government enacted The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides for certain tax relief with favorable implications for the Company. Most significantly, these provisions include a temporary relaxation of limitations on annual interest expense under Internal Revenue Code Section 163(j), and accelerated refund of certain federal tax credits. For the six months ended June 28, 2020, the current income tax benefit of these provisions is estimated to be $45, reflected in current tax expense.

7.

Earnings per common share

The following table details the weighted average number of common shares outstanding for the purposes of computing basic and diluted earnings per common share for the following periods:

 

 

 

Three months ended

 

 

Six months ended

 

(Number of common shares)

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Basic weighted average shares outstanding

 

 

28,213,729

 

 

 

23,557,944

 

 

 

28,204,514

 

 

 

23,403,431

 

Dilutive stock awards (a,b)

 

 

1,279,743

 

 

 

 

 

 

1,279,743

 

 

 

 

Diluted weighted average shares outstanding

 

 

29,493,472

 

 

 

23,557,944

 

 

 

29,484,257

 

 

 

23,403,431

 

 

 

(a)

For the three and six months ended June 28, 2020, as a result of net income for the periods, dilutive earnings per share were calculated using the treasury stock method.  The dilutive stock awards have been calculated as 1,279,743 for the three and six months ended June 28, 2020, respectively, related to the outstanding unvested restricted stock units and incremental in-the-money stock options.

 

(b)

For the three and six months ended June 30, 2019, as a result of net loss for the period, dilutive stock awards are not presented as this would be antidilutive. Had there been net income for the periods, the dilutive stock awards would have been calculated as 1,251,626 for the three and six months ended June 30, 2019, related to outstanding unvested restricted stock units and incremental in-the-money stock options.

 

8.

Segmented information

General description

During the six months ended June 28, 2020, the Company operated and managed by geographic region in the United States, Mexico and China, which are our operating and reportable segments. Commencing in the three months ended June 28, 2020, China is no longer included as a reportable segment.  During the three months ended March 29, 2020, the Company completed final shipments for customers serviced in our Chinese manufacturing facility and the relocation of the equipment to our other North American sites. We utilize each reportable segment’s contribution (revenue minus operating expenses, excluding unrealized foreign exchange gain (loss) on unsettled forward foreign exchange contracts, corporate allocations and restructuring expenses) to monitor reportable segment performance. Contribution by country is utilized by the chief operating decision-maker (defined as the Chief Executive Officer) as the indicator of reportable segment performance, as it reflects costs which our operating segment management are directly responsible for. Intersegment adjustments reflect intersegment sales that are generally recorded at prices that approximate arm’s-length transactions.

16


 

In assessing the performance of the reportable segments, management attributes site revenue to the reportable segment that ships the product to the customer, irrespective of the product’s destination. Information about the reportable segments is as follows: 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,801

 

 

$

59,336

 

 

$

122,165

 

 

$

125,096

 

China

 

 

 

 

 

5,793

 

 

 

4,207

 

 

 

14,449

 

U.S.

 

 

32,136

 

 

 

29,211

 

 

 

65,517

 

 

 

59,022

 

Total

 

$

90,937

 

 

$

94,340

 

 

$

191,889

 

 

$

198,567

 

Intersegment revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

(147

)

 

$

(594

)

 

$

(2,569

)

 

$

(743

)

China

 

 

 

 

 

(2,681

)

 

 

(3,303

)

 

 

(4,107

)

U.S.

 

 

(384

)

 

 

(129

)

 

 

(473

)

 

 

(132

)

Total

 

$

(531

)

 

$

(3,404

)

 

$

(6,345

)

 

$

(4,982

)

Net external revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,654

 

 

$

58,742

 

 

$

119,596

 

 

$

124,353

 

China

 

$

 

 

 

3,112

 

 

$

904

 

 

 

10,342

 

U.S.

 

 

31,752

 

 

 

29,082

 

 

 

65,044

 

 

 

58,890

 

Total segment revenue (which also equals

   consolidated revenue)

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

Segment contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

5,088

 

 

$

5,835

 

 

$

10,963

 

 

$

10,641

 

China

 

$

 

 

 

844

 

 

 

(2

)

 

 

1,699

 

U.S.

 

 

2,270

 

 

 

1,764

 

 

 

5,231

 

 

 

3,187

 

Total

 

$

7,358

 

 

$

8,443

 

 

$

16,192

 

 

$

15,527

 

Corporate expenses

 

 

4,750

 

 

 

6,006

 

 

 

10,652

 

 

 

11,265

 

Restructuring charges (recovery)

 

 

(125

)

 

 

1,546

 

 

 

(346

)

 

 

2,170

 

Change in fair value of warrant liability

 

 

399

 

 

 

40

 

 

 

(118

)

 

 

(61

)

Change in fair value of contingent

   consideration

 

 

 

 

 

 

 

 

 

 

 

(3,050

)

Unrealized foreign exchange loss on unsettled

   forward exchange contracts

 

 

(971

)

 

 

 

 

 

(459

)

 

 

 

Interest expense

 

 

1,987

 

 

 

2,800

 

 

 

4,080

 

 

 

5,670

 

Income(loss) before income taxes

 

$

1,318

 

 

$

(1,949

)

 

$

2,383

 

 

$

(467

)

 

Three months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,220

 

 

$

9,718

 

 

$

 

 

$

13,938

 

Retail and Payment Systems

 

 

6,750

 

 

 

 

 

 

 

 

 

6,750

 

Telecom, Networking and Communications

 

 

1,764

 

 

 

3,223

 

 

 

 

 

 

4,987

 

Medical and Safety

 

 

7,863

 

 

 

2,298

 

 

 

 

 

 

10,161

 

Industrial, Power and Clean Technology

 

 

30,952

 

 

 

7,339

 

 

 

 

 

 

38,291

 

Semiconductors

 

 

7,105

 

 

 

 

 

 

 

 

 

7,105

 

Avionics, Aerospace and Defense

 

 

 

 

 

9,174

 

 

 

 

 

 

9,174

 

Segment Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

551

 

 

$

1,353

 

 

 

 

 

 

1,904

 

Over time

 

 

58,103

 

 

 

30,399

 

 

 

 

 

 

88,502

 

Total Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

17


 

 

Three months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

2,403

 

 

$

9,648

 

 

$

 

 

$

12,051

 

Retail and Payment Systems

 

 

12,149

 

 

 

 

 

 

 

 

 

12,149

 

Telecom, Networking and Communications

 

 

3,503

 

 

 

2,314

 

 

 

2,200

 

 

 

8,017

 

Medical and Safety

 

 

8,093

 

 

 

3,104

 

 

 

47

 

 

 

11,244

 

Industrial, Power and Clean Technology

 

 

26,845

 

 

 

9,178

 

 

 

865

 

 

 

36,888

 

Semiconductors

 

 

5,749

 

 

 

16

 

 

 

 

 

 

5,765

 

Avionics, Aerospace and Defense

 

 

 

 

 

4,822

 

 

 

 

 

 

4,822

 

Segment Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

781

 

 

$

1,386

 

 

$

73

 

 

 

2,240

 

Over time

 

 

57,961

 

 

 

27,696

 

 

 

3,039

 

 

 

88,696

 

Total Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

Six months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

8,404

 

 

$

17,766

 

 

$

 

 

$

26,170

 

Retail and Payment Systems

 

 

19,073

 

 

 

 

 

 

 

 

 

19,073

 

Telecom, Networking and Communications

 

 

4,799

 

 

 

7,014

 

 

 

714

 

 

 

12,527

 

Medical and Safety

 

 

16,426

 

 

 

4,875

 

 

 

130

 

 

 

21,431

 

Industrial, Power and Clean Technology

 

 

58,473

 

 

 

15,830

 

 

 

60

 

 

 

74,363

 

Semiconductors

 

 

12,421

 

 

 

 

 

 

 

 

 

12,421

 

Avionics, Aerospace and Defense

 

 

 

 

 

19,559

 

 

 

 

 

 

19,559

 

Segment Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,050

 

 

$

2,420

 

 

$

452

 

 

 

3,922

 

Over time

 

 

118,546

 

 

 

62,624

 

 

 

452

 

 

 

181,622

 

Total Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

Six months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,434

 

 

$

20,654

 

 

$

 

 

$

25,088

 

Retail and Payment Systems

 

 

25,078

 

 

 

 

 

 

 

 

 

25,078

 

Telecom, Networking and Communications

 

 

7,507

 

 

 

4,391

 

 

 

6,884

 

 

 

18,782

 

Medical and Safety

 

 

16,501

 

 

 

6,756

 

 

 

441

 

 

 

23,698

 

Industrial, Power and Clean Technology

 

 

57,779

 

 

 

15,271

 

 

 

3,017

 

 

 

76,067

 

Semiconductors

 

 

13,054

 

 

 

16

 

 

 

 

 

 

13,070

 

Avionics, Aerospace and Defense

 

 

 

 

 

11,802

 

 

 

 

 

 

11,802

 

Segment Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,216

 

 

$

3,098

 

 

$

76

 

 

 

4,390

 

Over time

 

 

123,137

 

 

 

55,792

 

 

 

10,266

 

 

 

189,195

 

Total Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

 

Certain customers were reclassified from the Test and Measurement sector to the Industrial IoT, Power and Clean Technology sector during the three months ended June 28, 2020.  The comparative periods have been adjusted to conform to this classification.

 

18


 

Additions to property, plant and equipment

The following table contains additions, including those acquired through capital leases, to property, plant and equipment for the three and six months ended:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

375

 

 

$

256

 

 

$

919

 

 

$

517

 

Mexico

 

 

326

 

 

 

965

 

 

 

486

 

 

 

1,353

 

China

 

 

 

 

 

23

 

 

 

2

 

 

 

54

 

Segment total

 

 

701

 

 

 

1,244

 

 

 

1,407

 

 

 

1,924

 

Corporate and other

 

 

3

 

 

 

24

 

 

 

3

 

 

 

24

 

Total

 

$

704

 

 

$

1,268

 

 

$

1,410

 

 

$

1,948

 

 

Property, plant and operating lease right of use assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

19,570

 

 

$

16,904

 

Mexico

 

 

10,221

 

 

 

10,970

 

China

 

 

 

 

 

670

 

Segment total

 

 

29,791

 

 

 

28,544

 

Corporate and other

 

 

123

 

 

 

96

 

Total

 

$

29,914

 

 

$

28,640

 

 

Other long term segment assets (b)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

8,564

 

 

$

9,273

 

Mexico

 

 

20,457

 

 

 

22,179

 

China

 

 

 

 

 

 

Segment total

 

 

29,021

 

 

 

31,452

 

Corporate and other

 

 

749

 

 

 

859

 

Total

 

$

29,770

 

 

$

32,311

 

 

Total segment assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

125,222

 

 

$

112,789

 

Mexico

 

 

95,153

 

 

 

93,349

 

China

 

 

 

 

 

6,694

 

Segment total

 

 

220,375

 

 

 

212,832

 

Corporate and other

 

 

895

 

 

 

547

 

Total

 

$

221,270

 

 

$

213,379

 

 

(a)

Property, plant and equipment information is based on the principal location of the asset.

(b)

Includes Goodwill, Intangible assets, deferred income taxes and deferred financing costs.

19


 

Geographic revenue

The following table contains geographic revenue based on our customer invoicing location, for the six months ended June 28, 2020 and June 30, 2019.

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

85,413

 

 

$

82,593

 

 

$

174,922

 

 

$

176,934

 

Canada

 

 

4,646

 

 

 

4,860

 

 

 

9,668

 

 

 

9,770

 

China

 

 

347

 

 

 

3,483

 

 

 

954

 

 

 

6,881

 

Total

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

 

Significant customers and concentration of credit risk

Sales of the Company’s products are concentrated in certain cases among specific customers in the same industry. The Company is subject to concentrations of credit risk in trade receivables. The Company considers concentrations of credit risk in establishing the allowance for doubtful accounts and believes the recorded allowances are adequate.

The Company expects to continue to depend upon a relatively small number of customers for a significant percentage of its revenue. In addition to having a limited number of customers, the Company manufactures a limited number of products for each customer. If the Company loses any of its larger customers or any product line manufactured for one of its larger customers, it could experience a significant reduction in revenue. Also, the insolvency of one or more of its larger customers or the inability of one or more of its larger customers to pay for its orders could decrease revenue. As many costs and operating expenses are relatively fixed, a reduction in net revenue can decrease profit margins and adversely affect the business, financial condition and results of operations.

During the six months ended June 28, 2020, one customer exceeded 10% of total revenue, comprising of 14.3% of total revenue across all geographic segments. During the six months ended June 30, 2019, one customer exceeded 10% of total revenue, comprising of 13.1% of total revenue across all geographic segments.

As of June 28, 2020, no customers represented more than 10% of the trade accounts receivable.  At December 29, 2019, one customer comprised 10% of the Company’s trade accounts receivable. No other customers individually represented more than 10% of total revenue or trade accounts receivable.

9.

Derivative financial instruments

During the six months ended June 28, 2020, the Company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Mexican peso expenditures. These contracts were effective as hedges from an economic perspective, but do not meet the requirements for hedge accounting under ASC Topic 815 “Derivatives and Hedging”. Accordingly, changes in the fair value of these contracts were recognized into net income in the consolidated statement of operations and comprehensive income (loss). The Company had no outstanding forward foreign exchange contracts in the first half of 2019.

The following table presents a summary of the outstanding foreign currency forward contracts as at June 28, 2020:

 

Currency

 

Buy/Sell

 

Foreign Currency Amount

 

Notional

Contract

Value

in USD

 

Mexican Peso

 

Buy

 

285,000  MXN

 

$

11,668

 

 

The unrealized gain recognized in earnings as a result of revaluing the instruments to fair value on June 28, 2020 for the six months period ended was $459 (June 30, 2019– $Nil) which was included in cost of sales in the interim consolidated statement of operations and comprehensive income (loss). Fair value is determined using the market approach with valuation based on market observables (Level 2 quantitative inputs in the hierarchy set forth under ASC 820 “Fair Value Measurements”).

The average contract and mark-to-market rates for outstanding forward foreign exchange contracts were as follows:

 

 

 

June 28,

2020

 

 

December 29,

2019

Average USD:PESO contract rate

 

 

24.43

 

 

N/A

Average USD:PESO mark-to-market rate

 

 

23.50

 

 

N/A

 

20


 

The derivative assets were $459 as at June 28, 2020 (June 30, 2019 –Nil) which reflected the fair market value of the unsettled forward foreign exchange contracts.  There was no derivative liability as at June 28, 2020 or June 30, 2019.

10.

Restructuring Charges

Dongguan facility closure

In September 2019, the Company announced it plans to close its Dongguan manufacturing facility in China, concurrent with the expiration of the facility lease in December 2019, which was extended to February 2020. The closure was formally approved by the Board of Directors in September 2019.  A restructuring charge of $5,000 was recorded in the twelve months ended December 29, 2019 relating to the announced planned closure. The closure of the Dongguan facility resulted in a reduced labor force by approximately 137 employees. The employee group was notified of the closure in the last week of September 2019. The closure of the Dongguan facility and majority of the cash outflows associated with the $2,037 included within the restructuring liability was for severance and other exit costs which was substantially completed by the end of the first quarter of 2020. During the six months ended June 28, 2020, restructuring recoveries were recorded of $346 primarily related to shipments and cash payments received on previously provisioned Dongguan inventory Remaining activities include a small number of support staff performing administrative duties, professional services to be rendered with respect to the closure activities, taxes and duties to be settled in addition to severance payments.  Substantially all of the costs are anticipated to be spent by the third quarter of 2020.  Manufacturing by the Company of certain products previously manufactured at the Dongguan facility has been transferred to the Company’s other manufacturing facilities. A restructuring charge of $5,000 was recorded in the twelve months ended December 29, 2019 relating to the announced planned closure.

Restructuring Liability

 

 

 

Termination

benefits and

other exit costs

 

Balance as at December 29, 2019

 

$

1,597

 

Involuntary employee termination benefits

 

 

115

 

Other exit cost payments and provisions reversed unutilized

 

 

(183

)

Payments—Dongguan severance

 

 

(626

)

Payments (U.S., Canada and Mexico)

 

 

(228

)

At June 28, 2020

 

$

675

 

 

11.

Commitments

Purchase obligations not recorded on the balance sheet as at June 28, 2020 consist of open non-cancellable purchase orders (PO) for raw materials for $50,455, which are expected to be paid within 12 months of the PO issue date. Purchase obligations not recorded on the balance sheet as at December 29, 2019, consisted of open non-cancellable purchase orders for raw materials for $27,959 to be paid within 12 months of the PO issue date.

12.

Subsequent Events

Subsequent to June 28, 2020, and in part in response to economic conditions resulting from the COVID-19 pandemic, the Company effected cost-cutting measures including headcount reductions, the majority of which were at our Zacatecas, Mexico facility with a total cost amounting to $1,000.  

 

21


 

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Where we say “we”, “us”, “our”, the “Company” or “SMTC”, we mean SMTC Corporation or SMTC Corporation and its subsidiaries, as the context may require. Where we refer to the “industry”, we mean the electronics manufacturing services industry.

You should read this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in combination with the accompanying unaudited interim consolidated financial statements and related notes as well as the audited consolidated financial statements and the accompanying notes to the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) included within the Company’s Annual Report on Form 10-K filed on March 13, 2020.

The forward-looking statements in this discussion and elsewhere in this quarterly report, including those regarding the electronics manufacturing services industry, market conditions, our expectations regarding our future performance, liquidity and capital resources, the impact of accounting standards not yet adopted, compliance with financial covenants under our Credit Facilities, future response to and effects of the COVID-19 pandemic, including our continued operations, customer demand, supply chain availability and implementation of protective measures, public policy response to the COVID-19 pandemic including legislation or restrictions, our expectations regarding customer concentration, our expectations regarding timing and mitigation of the identified material weakness in internal control over financial reporting, and other non-historical statements include numerous risks and uncertainties, some of which are as described in the “Risk Factors” section in the Annual Report on Form 10-K filed on March 13, 2020, as updated by Item 1A in Part II of this quarterly report. Certain statements in this MD&A contain words such as “could”, “expects”, “may”, “anticipates”, “believes”, “intends”, “estimates”, “plans”, “envisions”, “seeks” and other similar language and are considered forward looking statements or information under applicable securities laws. These statements are based on our current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which we operate. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different. Except as required by applicable law, we do not intend to update these forward-looking statements after the date of this quarterly report, even though our situation may change in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

This MD&A contains discussion in U.S. dollars (US$) unless specifically stated otherwise.

Background

We are a provider of end-to-end electronics manufacturing services (“EMS”), including product design and engineering services, printed circuit board assembly (“PCBA”), production, enclosure, cable assembly, precision metal fabrication, systems integration and comprehensive testing services, configuration to order (“CTO”), build to order (“BTO”) and direct order fulfillment (“DOF”). We operate more than 50 manufacturing and assembly lines in over 555,000 square feet of production space worldwide at strategically located facilities in the United States and Mexico, that provide local support, flexibility, fast turn around and delivery times, and low-cost, volume manufacturing capabilities, as well as new product integration (“NPI”) services, to our global customers. Our services extend over the entire electronic product life cycle from new product development and NPI through to growth, maturity and end of life phases. As of June 28, 2020, we had 3,196 employees of which 2,589 were full time and contract employees.

COVID-19 Update

Our business operations have generally performed as expected during the first half of 2020. However, the fast developing COVID-19 pandemic represents significant uncertainty for the remainder of the year.  So far, while we have experienced some impact to our business from the COVID-19 pandemic, and experienced forecast fluctuations in the second quarter from our end customers, all of our facilities remain in operation and in compliance with applicable COVID-19 health and safety measures.  While demand from our customers has remained relatively stable, the COVID-19 pandemic could impact our customers and may result in unpredictable reductions or increases in demand across the industry sectors we service. We are proactively coordinating with our customers and key suppliers in anticipation of further possible COVID-19-related disruptions, including potential materials constraints for inventory sourced from certain regions, increased shipping costs, delays and lead-times.  As at June 28, 2020, the funds available to borrow under our PNC Facility (as described and defined below) after deducting the current borrowing base conditions and subject to debt covenants were $30.9 million.

22


 

The Company believes that the effects of the COVID-19 pandemic have the potential to negatively impact the results of our operations, cash flows and financial position.  In response, management has implemented actions to mitigate the potential financial impact, to protect the health of our employees and to comply with government regulations at each of our facilities.  We are taking extensive precautions intended to protect the health and safety of our employees and to ensure business continuity. Despite these efforts it is possible that an extended pandemic could disrupt the operation of one or more of our manufacturing facilities or our supply chain. Additionally, one or more of our manufacturing facilities may need to limit operations or temporarily close. Although many of the products we manufacture for our customers are deemed essential, the COVID-19 pandemic may impact demand for our customers’ products, which could impact our production schedules. Our employees may be unable to perform their work due to illness caused by the COVID-19 pandemic or local, state or federal orders and restrictions requiring employees to remain at home.  These possible impacts could result from both the pandemic itself and the extensive public restrictions imposed to limit the spread of COVID-19.  If one or more of our manufacturing facilities were temporarily closed or had its operations limited, or customers pushed out demand due to the pandemic, this would have a material impact on our operations.  

We are actively monitoring the global COVID-19 pandemic and in continuous communication with our employees and union representatives, in addition to government and state representatives where our manufacturing facilities reside. We have instructed those employees at higher risk of COVID-19 to stay home and have directed all non-essential employees to work remotely.  For those employees continuing to work in our facilities, we have instituted programs of temperature metering, intensive cleaning and disinfection, social distancing and are prohibiting visitors to our sites.  We have experienced increased workplace absenteeism as illness, potential COVID-19 exposure or personal commitments restrict the ability of some employees to come to work.  The Company has modified shift schedules and hired temporary labor to help address this situation and meet our customers’ product shipping schedules.  We anticipate incurring higher direct labor charges in the third quarter of 2020 as a result of this.  Decisions on further measures or the continuation of these measures will depend on the impact of the COVID-19 pandemic on our operations and the requirements of each jurisdiction in which we operate.

We incurred an additional $1.2 million in COVID-19 related expenses in the second quarter primarily due to the retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs related to facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources. With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our Company.  This includes putting a pause on all non-essential new hiring and new programs and reducing our capital expenditures.  While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations to comply with required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and stockholders.

Results of Operations

The unaudited interim consolidated financial statements of SMTC are prepared in accordance with U.S. GAAP.

Quarter ended June 28, 2020 compared with the quarter ended June 30, 2019:

The following table sets forth summarized operating results in millions of US$ for the periods indicated:

 

 

 

Three months ended

June 28, 2020

 

 

Three months ended

June 30, 2019

 

 

Change

2019 to 2020

 

 

 

$

 

 

%

 

 

$

 

 

%

 

 

$

 

 

%

 

Revenue

 

 

90.4

 

 

 

100.0

 

 

 

90.9

 

 

 

100.0

 

 

 

(0.5

)

 

 

(0.6

)

Cost of sales

 

 

79.7

 

 

 

88.2

 

 

 

81.9

 

 

 

90.1

 

 

 

(2.2

)

 

 

(2.7

)

Gross profit

 

 

10.7

 

 

 

11.8

 

 

 

9.0

 

 

 

9.9

 

 

 

1.7

 

 

 

18.9

 

Selling, general and administrative expenses

 

 

7.1

 

 

 

7.9

 

 

 

6.7

 

 

 

7.4

 

 

 

0.4

 

 

 

6.0

 

Restructuring charges (recovery)

 

 

(0.1

)

 

 

(0.1

)

 

 

1.5

 

 

 

1.7

 

 

 

(1.6

)

 

 

(106.7

)

Operating income

 

 

3.7

 

 

 

4.1

 

 

 

0.8

 

 

 

0.9

 

 

 

2.9

 

 

 

362.5

 

Fair value measurement loss (gain) on warrant

   liability

 

 

0.4

 

 

 

0.4

 

 

 

 

 

 

0.0

 

 

 

0.4

 

 

100

 

Interest expense

 

 

2.0

 

 

 

2.2

 

 

 

2.8

 

 

 

3.1

 

 

 

(0.8

)

 

 

(28.6

)

Income before income taxes

 

 

1.3

 

 

 

1.4

 

 

 

(2.0

)

 

 

(2.2

)

 

 

3.3

 

 

 

165.0

 

Income tax expense (recovery)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

0.3

 

 

 

0.3

 

 

 

0.4

 

 

 

0.4

 

 

 

(0.1

)

 

 

(25.0

)

Deferred

 

 

0.0

 

 

 

0.0

 

 

 

0.1

 

 

 

0.1

 

 

 

(0.1

)

 

 

(100.0

)

 

 

 

0.3

 

 

 

0.3

 

 

 

0.5

 

 

 

0.6

 

 

 

(0.2

)

 

 

(40.0

)

Net income(loss)

 

 

1.0

 

 

 

1.1

 

 

 

(2.5

)

 

 

(2.8

)

 

 

3.5

 

 

 

140.0

 

23


 

 

Revenue by Industry Sector

 

 

 

Three months ended

June 28, 2020

 

 

Three months ended

June 30, 2019

 

 

Change

 

Industry Sector

 

$

 

 

%

 

 

$

 

 

%

 

 

$

 

 

%

 

Test and Measurement

 

 

13.9

 

 

 

15.4

 

 

 

12.1

 

 

 

13.3

 

 

 

1.8

 

 

 

14.9

 

Retail and Payment Systems

 

 

6.7

 

 

 

7.4

 

 

 

12.1

 

 

 

13.3

 

 

 

(5.4

)

 

 

(44.6

)

Telecom, Networking and Communications

 

 

5.0

 

 

 

5.5

 

 

 

8.0

 

 

 

8.8

 

 

 

(3.0

)

 

 

(37.5

)

Medical and Safety

 

 

10.2

 

 

 

11.3

 

 

 

11.2

 

 

 

12.3

 

 

 

(1.0

)

 

 

(8.9

)

Industrial, Power and Clean Technology

 

 

38.3

 

 

 

42.4

 

 

 

36.9

 

 

 

40.6

 

 

 

1.4

 

 

 

3.8

 

Semiconductors

 

 

7.1

 

 

 

7.9

 

 

 

5.8

 

 

 

6.4

 

 

 

1.3

 

 

 

22.4

 

Avionics, Aerospace and Defense

 

 

9.2

 

 

 

10.2

 

 

 

4.8

 

 

 

5.3

 

 

 

4.4

 

 

 

91.7

 

Total

 

 

90.4

 

 

 

100.0

 

 

 

90.9

 

 

 

100.0

 

 

 

(0.5

)

 

 

(0.6

)

 

Certain customers were reclassified from the test and measurement sector to the industrial IoT, power and clean technology sector during the three months ended June 28, 2020.  The comparative periods have been adjusted to conform to this classification.

Total Revenue decreased $0.5 million to $90.4 million for the second quarter of 2020 from $90.9 million in the same period in the prior year due to some demand reductions from retail payment systems and commercial avionics program, among others, and order rescheduling from other customers in the latter part of the second quarter of 2020.  We believe this resulted in part from the COVID-19 pandemic and our customers modifying their requirements in response to the shifting demand of their respective end customers.  

Revenue increased $4.2 million in the test and measurement sector compared to the second quarter of 2019, primarily due to volume increases for two customers serviced in Mexico.

Revenue decreased $5.4 million in the retail and payment systems sector compared to the second quarter of 2019, primarily due to decreased volume from one long-standing customer serviced in Mexico.

Revenue decreased $3.0 million in the telecom, networking and communications sector compared to the second quarter of 2019, primarily due to decreased volume from two customers serviced in Mexico and one customer disengaging in China due to the Dongguan facility closure.

Revenue decreased $1.0 million in the medical and safety sector compared to the second quarter of 2019, primarily due to one customer serviced in the U.S. experiencing reduced volumes due to the customer’s program transitioning to end-of-life.

Revenue decreased $1.0 million in the industrial IoT, power and clean technology sector compared to the second quarter of 2019, primarily due to decreased volume from two customers serviced in Mexico and two customers serviced in the U.S., partially offset by one customer serviced in Mexico with increased volumes.

Revenue increased $1.3 million in the semiconductors sector compared to the second quarter of 2019, due to increased volume from one customer serviced in Mexico.

Revenue increased $4.4 million in the avionics, aerospace and defense sector compared to the second quarter of 2019, due to the addition of three new customers serviced in the U.S.

Revenue by Geography

During the second quarter of 2020, 64.9% of our revenue was attributable to production from our operations in Mexico and 35.1% of our revenue was attributable to production from our operations in the U.S. During the second quarter of 2019, 64.6% of our revenue was attributable to production from our operations in Mexico, 32.0% of our revenue was attributable to production from our operations in the U.S. and 3.4% of our revenue was attributable to production from our operations in China.  Following the closure of our Dongguan manufacturing facility in China, manufacturing of certain products previously manufactured at that facility has been transferred to the Company’s other manufacturing facilities.

24


 

Additional Revenue Information

We recorded approximately $1.9 million and $2.2 million of revenue from sales of raw materials inventory to customers during the second quarter of 2020 and the second quarter of 2019, respectively. The Company purchases raw materials based on customer purchase orders. When a customer requires an order to be altered or changed, the customer is generally obligated to purchase the original on-order raw material at cost, to the extent the materials are not consumed within a specified period.

The Company’s ten largest customers represented 62.4% of revenue during the second quarter of 2020, compared with 55.9% in the second quarter of 2019. Revenue from the largest customer during the second quarter of 2020 was $14.6 million representing 16.1% of total revenue. This compares with revenue from the largest customer during the second quarter of 2019 of $12.3 million representing 13.5% of total revenue. No other customers represented more than 10% of revenue in either period.

Gross Profit

Gross profit for the second quarter of 2020 increased by $1.7 million to $10.7 million or 11.8% of revenue compared with $9.0 million or 9.9% of revenue for the same period in 2019. When excluding unrealized foreign exchange gain on unsettled forward contracts ,amortization of intangible assets and COVID-19 related expenses, the adjusted gross profit was $11.7 million or 13.0% of revenue for the second quarter of 2020 compared with $10.8 million or 11.9% of revenue for the second quarter of 2019. When excluding unrealized foreign exchange gain on unsettled forward contracts and amortization of intangible assets, gross profit was consistent with the same period in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $7.1 million in the second quarter of 2020 from $6.7 million in the same period in 2019, mainly due to increased professional services rendered primarily related to additional compliance obligations under the Sarbanes-Oxley Act of 2002, increased variable compensation as well as new headcount additions in the second quarter of 2020.

Restructuring Charges

During the second quarter of 2020, restructuring recoveries were recorded of $0.1 million primarily related to the cash collections of previously provisioned inventory included in the Dongguan facility. During the second quarter of 2019, restructuring charges of $1.5 million were incurred related to the reduction of 18 full-time equivalents (“FTEs”) in U.S. and 292 FTEs and contract employees in Mexico.

As at June 28, 2020, the Company had $0.7 million of accrued restructuring charges remaining related to Dongguan to be paid by the end of the third quarter of 2020 mainly related to employee severance, estimated taxes and duties including shipping costs to pay for transfer of inventory and equipment to other facilities.

Interest Expense

Interest expense decreased to $2.0 million in the second quarter of 2020 compared to $2.8 million in the same period in 2019, respectively. The decrease was primarily the result of the pay down of the Term Loan B Facility in addition to lower average debt balance in the second quarter of 2020 compared to the same period in 2019.  The weighted average interest rates with respect to the debt on our PNC and TCW Facilities was 7.3%. The weighted average interest rates for the same period in the prior year was 9.8%.

Income Tax Expense

The Company recorded current income tax expense of $0.3 and $0.4 million for  the second quarters of 2020 and 2019, in connection with U.S. state taxes and taxes on profits in certain foreign jurisdictions, and deferred income tax benefit of $Nil and $0.1 million in the second quarter of 2020 and 2019, in connection with temporary differences related to the Mexican operations.   

The US Congress passing of The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, 2020, provides for certain tax relief with favorable implications for the Company. Most significantly, these provisions include a temporary relaxation of limitations on annual interest expense under Internal Revenue Code Section 163(j), and accelerated refund of certain federal tax credits. For the six months ended June 28, 2020, the current income tax benefit of these provisions is estimated to be $0.1 million, reflected in current tax expense.  

25


 

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures: Adjusted Gross Profit, EBITDA, Adjusted EBITDA and Adjusted Net Income (collectively the “Non-GAAP Financial Measures”). We believe that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics we use in our financial and operational decision making, as they exclude the effects of items that may not be indicative of, or are unrelated to, our underlying operating results, such as expenses related to the COVID-19 pandemic. The Company’s management believes that adjusting for the additional temporary costs attributable to the COVID-19 pandemic allows for a better comparison of the Company’s performance to prior periods, which is consistent with our recent amendments to the financial covenants in our financing agreements. These non-GAAP measures are used by the Company’s management to manage and monitor the Company’s performance, and also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP, and they should not be construed as an inference that our future results will be unaffected by any items adjusted for in these non-GAAP measures. In evaluating these non-GAAP measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of those adjusted in this presentation. The Non-GAAP Financial Measures that we use are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

Net Income and Adjusted Net Income Reconciliation

Adjusted Net Income, a non-GAAP financial measure, is defined as Net Income before amortization of intangible assets, restructuring charges, stock-based compensation, fair value adjustment of warrant liability, merger and acquisition related expenses and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts and COVID-19 related expenses. Management presents Adjusted Net Income, as it is believed the information is useful to investors in understanding and evaluating our operating results as it aligns the net income (loss) with those adjustments made to EBITDA and gross profit.

Below is the reconciliation of Net Income to Adjusted Net Income (in thousands):

 

 

 

June 28,

2020

 

 

June 30,

2019

 

Net Income(loss)

 

$

955

 

 

$

(2,468

)

Add:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

846

 

 

 

1,844

 

Restructuring charges (recovery)

 

 

(125

)

 

 

1,546

 

Stock based compensation

 

 

155

 

 

 

97

 

Fair value adjustment of warrant liability

 

 

399

 

 

 

40

 

Merger and acquisitions related expenses

 

 

 

 

 

73

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Unrealized foreign exchange gain on unsettled forward

   foreign exchange contracts

 

 

(971

)

 

 

 

Adjusted Net Income

 

$

2,444

 

 

$

1,132

 

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

 

Net income increased to $1.0 million from $2.5 million loss in the second quarter of 2020 and 2019, respectively. This was due to increased gross profit, driven by a gain on unrealized foreign exchange gain on unsettled forward contracts and a reduction in amortization of intangible assets.  Also contributing was a decrease in interest expense and decreased restructuring cost recorded in the second quarter of 2020 over the same period in the prior year.  The net income in the second quarter of 2020 was partially offset with costs incurred of $1.2 million related to COVID-19 not incurred for the same period in the prior year.  When excluding the items in the reconciliation above, Adjusted Net Income increased $1.3 million in the second quarter of 2020 over the same period in the prior year.

26


 

Gross Profit and Adjusted Gross Profit Reconciliation

Adjusted Gross Profit, a non-GAAP financial measure, is defined as gross profit exclusive of unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts and the amortization of intangible assets.  The Company calculates an adjusted gross profit amount as we consider gross profit exclusive of such unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts to be a meaningful measure as it is non-cash and management does not consider the mark-to-market valuation reflective of operating performance in the current period. Management also excludes the impact of intangible assets amortization as these charges are non-cash in nature and are not believed to be reflective of operating performance.  We also believe adjusted gross profit provides useful information to investors in understanding and evaluating our operating results in the same manner as management.  

Below is the reconciliation from the financial statement presentation of gross profit to the non-GAAP measure of adjusted gross profit (in thousands):

 

 

 

Three

months

ended

June 28,

2020

 

 

Three

months

ended

June 30,

2019

 

Gross profit

 

$

10,686

 

 

$

8,997

 

Add:

 

 

 

 

 

 

 

 

Unrealized foreign exchange gain on unsettled

   forward exchange contracts

 

 

(971

)

 

 

 

Amortization of intangible assets

 

 

846

 

 

 

1,844

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Adjusted gross profit

 

$

11,746

 

 

$

10,841

 

Adjusted gross profit percentage

 

 

13.0

%

 

 

11.9

%

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

EBITDA and Adjusted EBITDA Reconciliation

EBITDA and Adjusted EBITDA, non-GAAP financial measures, are defined as earnings before interest, taxes, depreciation and amortization, with Adjusted EBITDA also excluding restructuring charges, stock-based compensation, unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts, fair value adjustment of warrant liability and merger and acquisition related expenses and COVID-19 related expenses. Management presents EBITDA and Adjusted EBITDA, as they are utilized by management to monitor performance against budget as well as compliance with bank covenants. We also believe EBITDA and Adjusted EBITDA provide useful information to investors in understanding and evaluating our operating results in the same manner as management.

27


 

Below is the reconciliation of net income (loss), the closest GAAP measure, to EBITDA and Adjusted EBITDA (in thousands).

 

 

 

Three

months

ended

June 28,

2020

 

 

Three

months

ended

June 30,

2019

 

Net income(loss)

 

$

955

 

 

$

(2,468

)

Add:

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

1,619

 

 

 

1,626

 

Amortization of intangible assets

 

 

846

 

 

 

1,844

 

Interest

 

 

1,987

 

 

 

2,800

 

Income taxes

 

 

363

 

 

 

519

 

EBITDA

 

$

5,770

 

 

$

4,321

 

Add:

 

 

 

 

 

 

 

 

Restructuring charges (recovery)

 

 

(125

)

 

 

1,546

 

Stock based compensation

 

 

155

 

 

 

97

 

Fair value adjustment of warrant liability

 

 

399

 

 

 

40

 

Fair value adjustment to contingent consideration

 

 

 

 

 

 

Merger and acquisition related expenses

 

 

 

 

 

73

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Unrealized foreign exchange gain on unsettled

   forward exchange contracts

 

 

(971

)

 

 

 

Adjusted EBITDA

 

$

6,413

 

 

$

6,077

 

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

 

Adjusted EBITDA for three months ended June 28, 2020 increased by $0.3 million to $6.4 million compared with $6.1 million for the same period in 2019 due to the increase in gross profit, partially offset by increased selling, general and administrative expenses.  

 

 

Six months ended June 28, 2020, compared with the six months ended June 30, 2019:

The following table sets forth summarized operating results in millions of US$ for the periods indicated:

 

 

 

Six months ended

June 28, 2020

 

 

Six months ended

June 30, 2019

 

 

Change

2019 to 2020

 

 

 

$

 

 

%

 

 

$

 

 

%

 

 

$

 

 

%

 

Revenue

 

 

185.5

 

 

 

100.0

 

 

 

193.6

 

 

 

100.0

 

 

 

(8.1

)

 

 

(4.2

)

Cost of sales

 

 

165.2

 

 

 

89.1

 

 

 

176.0

 

 

 

90.9

 

 

 

(10.8

)

 

 

(6.1

)

Gross profit

 

 

20.3

 

 

 

10.9

 

 

 

17.6

 

 

 

9.1

 

 

 

2.7

 

 

 

15.3

 

Selling, general and administrative expenses

 

 

14.3

 

 

 

7.7

 

 

 

13.3

 

 

 

6.9

 

 

 

1.0

 

 

 

7.5

 

Change in fair value of contingent consideration

 

 

 

 

 

 

 

 

(3.1

)

 

 

(1.6

)

 

 

3.1

 

 

 

100.0

 

Restructuring charges (recovery)

 

 

(0.3

)

 

 

(0.2

)

 

 

2.2

 

 

 

1.1

 

 

 

(2.5

)

 

 

(113.6

)

Operating income

 

 

6.3

 

 

 

3.4

 

 

 

5.2

 

 

 

2.7

 

 

 

1.1

 

 

 

21.2

 

Fair value measurement loss (gain) on warrant

   liability

 

 

(0.1

)

 

 

(0.1

)

 

 

 

 

 

0.0

 

 

 

(0.1

)

 

100

 

Interest expense

 

 

4.1

 

 

 

2.2

 

 

 

5.7

 

 

 

2.9

 

 

 

(1.6

)

 

 

(28.1

)

Income before income taxes

 

 

2.3

 

 

 

1.2

 

 

 

(0.5

)

 

 

(0.3

)

 

 

2.8

 

 

 

560.0

 

Income tax expense (recovery)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

0.6

 

 

 

0.3

 

 

 

0.7

 

 

 

0.4

 

 

 

(0.1

)

 

 

(14.3

)

Deferred

 

 

0.0

 

 

 

0.0

 

 

 

0.1

 

 

 

0.1

 

 

 

(0.1

)

 

 

(100.0

)

 

 

 

0.6

 

 

 

0.3

 

 

 

0.8

 

 

 

0.4

 

 

 

(0.2

)

 

 

(25.0

)

Net income(loss)

 

 

1.7

 

 

 

0.9

 

 

 

(1.3

)

 

 

(0.7

)

 

 

3.0

 

 

 

230.8

 

 

 

 

28


 

Revenue by Industry Sector

 

 

 

Six months ended

June 28, 2020

 

 

Six months ended

June 30, 2019

 

 

Change

 

Industry Sector

 

$

 

 

%

 

 

$

 

 

%

 

 

$

 

 

%

 

Test and Measurement

 

 

26.1

 

 

 

14.1

 

 

 

25.3

 

 

 

13.1

 

 

 

0.8

 

 

 

3.2

 

Retail and Payment Systems

 

 

19.0

 

 

 

10.2

 

 

 

25.0

 

 

 

12.9

 

 

 

(6.0

)

 

 

(24.0

)

Telecom, Networking and Communications

 

 

12.5

 

 

 

6.7

 

 

 

18.8

 

 

 

9.7

 

 

 

(6.3

)

 

 

(33.5

)

Medical and Safety

 

 

21.5

 

 

 

11.6

 

 

 

23.7

 

 

 

12.2

 

 

 

(2.2

)

 

 

(9.3

)

Industrial, Power and Clean Technology

 

 

74.4

 

 

 

40.1

 

 

 

75.9

 

 

 

39.2

 

 

 

(1.5

)

 

 

(2.0

)

Semiconductors

 

 

12.4

 

 

 

6.7

 

 

 

13.1

 

 

 

6.8

 

 

 

(0.7

)

 

 

(5.3

)

Avionics, Aerospace and Defense

 

 

19.6

 

 

 

10.6

 

 

 

11.8

 

 

 

6.1

 

 

 

7.8

 

 

 

66.1

 

Total

 

 

185.5

 

 

 

100.0

 

 

 

193.6

 

 

 

100.0

 

 

 

(8.1

)

 

 

(4.2

)

Certain customers were reclassified from the test and measurement sector to the industrial IoT, power and clean technology sector during the three months ended June 28, 2020.  The comparative periods have been adjusted to conform to this classification.

Total revenue decreased $8.1 million to $185.5 million for the first half of 2020 from $193.6 million in the same period in the prior year primarily due to backlog fulfillment in the first half of 2019 associated with the acquisition of MC Assembly in November 2018, customer disengagement in China due to the Dongguan facility closure in the first quarter of 2020, along with some demand reductions from retail payment systems and commercial avionics programs, among others, and order rescheduling from other North America customers in the latter part of the second quarter of 2020.  We believe this resulted in part from the COVID-19 pandemic and our customers modifying their requirements in response to shifting demand of their respective end customers.

Revenue increased $1.1 million in the test and measurement sector compared to the first half of 2019, primarily due to volume increases for three customers (two serviced in Mexico; one serviced in the U.S.), partially offset by volume decreases for one customer serviced in the U.S.

Revenue decreased $6.0 million in the retail and payment systems sector compared to the first half of 2019, primarily due to decreased volume from two customers serviced in Mexico.

Revenue decreased $6.3 million in the telecom, networking and communications sector compared to the first half of 2019, primarily due to decreased volume from one customer serviced in Mexico and two customers disengaging in China due to the Dongguan facility closure, partially offset by one customer serviced in the U.S. with increased volumes.

Revenue decreased $2.2 million in the medical and safety sector compared to the first half of 2019, primarily due to one customer serviced in the U.S. experiencing reduced volumes due to the customer’s program transitioning to end-of-life and decreased volume from one other customer serviced in Mexico, partially offset by one customer serviced in Mexico with increased volumes.

Revenue decreased $1.8 million in the industrial IoT, power and clean technology sector compared to the first half of 2019, primarily due to decreased volume from three customers (two serviced in Mexico; one serviced in the U.S.), partially offset by three customers (two serviced in Mexico; one serviced in the U.S.) with increased volumes.

Revenue decreased $0.7 million in the semiconductors sector compared to the first half of 2019, due to decreased volume from one customer serviced in Mexico, offset by one customer serviced in Mexico with increased volumes.

Revenue increased $7.8 million in the avionics, aerospace and defense sector compared to the first half of 2019, due to volumes increases with two customers serviced in the U.S., as well as the addition of three new customers serviced in the U.S.

Revenue by Geography

During the first half of 2020, 64.4% of our revenue was attributable to production from our operations in Mexico, 35.0% of our revenue was attributable to production from our operations in the U.S. and 0.6% of our revenue was attributable to production from our operations in China. During the first half of 2019, 64.2% of our revenue was attributable to production from our operations in Mexico, 30.4% of our revenue was attributable to production from our operations in the U.S. and 5.3% of our revenue was attributable to production from our operations in China.  Following the closure of our Dongguan manufacturing facility in China, manufacturing of certain products previously manufactured at that facility has been transferred to the Company’s other manufacturing facilities.

29


 

Additional Revenue Information

We recorded approximately $3.9 million and $4.4 million of revenue from sales of raw materials inventory to customers during the first half of 2020 and the first half of 2019. The Company purchases raw materials based on customer purchase orders. When a customer requires an order to be altered or changed, the customer is generally obligated to purchase the original on-order raw material at cost, to the extent the materials are not consumed within a specified period.

The Company’s ten largest customers represented 55.7% of revenue during the first half of 2020, compared with 53.6% in the first half of 2019. Revenue from the largest customer during the first half of 2020 was $26.6 million representing 14.3% of total revenue. This compares with revenue from the largest customer during the first half of 2019 of $25.8 million representing 13.3% of total revenue. No other customers represented more than 10% of revenue in either period.

Gross Profit

Gross profit for the first half of 2020 increased by $2.7 million to $20.3 million or 10.9% of revenue compared with $17.6 million or 9.1% of revenue for the same period in 2019. When excluding unrealized foreign exchange gain on unsettled forward contracts, amortization of intangible assets and COVID-19 related expenses, the adjusted gross profit was $23.4 million or 12.6% of revenue for the first half of 2020 compared with $21.3 million or 11.0% of revenue for the first half of 2019. This was due primarily to higher gross profit due to product mix and lower variable manufacturing expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $14.3 million in the first half of 2020 from $13.3 million in the same period in 2019, mainly due to increased professional services rendered related to additional compliance obligations under the Sarbanes-Oxley Act of 2002, as well as new headcount hired in the first half of 2020.

Change in fair value of contingent consideration

During the first half of 2019, it was determined that there was no fair value of the contingent consideration liability, and that no obligation existed resulting in a recognized gain of $3.1 million.  The contingent consideration liability was initially recognized at fair value in the fourth quarter of 2018 and relates to a contingent earn-out payment associated with the acquisition of MC Assembly.  The fair value estimate under purchase accounting of $3.1 million was derived from a multiple of earnings based on MC Assembly’s forecasted twelve-month earnings for the period ended June 30, 2019.  Based on actual earnings, the contingent consideration liability was considered resolved and no longer payable as at June 30, 2019.  No contingent consideration existed as at June 28, 2020.

Restructuring Charges

During the first half of 2020, restructuring recoveries were $0.3 million primarily related to the cash collections of previously provisioned inventory included in the Dongguan facility.  During the first half of 2019, restructuring charges of $2.2 million were incurred related to the reduction of 28 full-time equivalents (“FTEs”) in the U.S. and 4 FTEs in Canada and 459 FTEs and contract employees in Mexico. As at June 28, 2020, the Company had $675 of accrued restructuring charges remaining to be paid by the end of the third quarter of 2020.

Interest Expense

Interest expense decreased to $4.1 million in the first half of 2020 compared to $5.7 million in the same period in 2019. The decrease was primarily the result of the pay down of the Term Loan B Facility in addition to lower average debt balance in the first half of 2020 compared to the same period in 2019.  The weighted average interest rates with respect to the debt on our PNC and TCW Facilities was 7.5%. The weighted average interest rates for the same period in the prior year was 9.6%.

Income Tax Expense

The Company recorded current income tax expense of $0.6 million and $0.7 million for the first half of 2020 and 2019, in connection with U.S. state taxes and taxes on profits in certain foreign jurisdictions, and deferred income tax benefit of $Nil and $0.1 million in the first half of 2020 and 2019, in connection with temporary differences related to the Mexican operations.   

The US Congress passing of The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, 2020, provides for certain tax relief with favorable implications for the Company. Most significantly, these provisions include a temporary relaxation of limitations on annual interest expense under Internal Revenue Code Section 163(j), and accelerated refund of certain federal tax credits. For the six months ended June 28, 2020, the current income tax benefit of these provisions is estimated to be $0.1 million, reflected in current tax expense.  

30


 

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use the following non-GAAP financial measures: Adjusted Gross Profit, EBITDA, Adjusted EBITDA and Adjusted Net Income (collectively the “Non-GAAP Financial Measures”). We believe that these Non-GAAP Financial Measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics we use in our financial and operational decision making, as they exclude the effects of items that may not be indicative of, or are unrelated to, our underlying operating results, such as expenses related to the COVID-19 pandemic. The Company’s management believes that adjusting for the additional temporary costs attributable to the COVID-19 pandemic allows for a better comparison of the Company’s performance to prior periods, which is consistent with our recent amendments to the financial covenants in our financing agreements. These non-GAAP measures are used by the Company’s management to manage and monitor the Company’s performance, and also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP, and they should not be construed as an inference that our future results will be unaffected by any items adjusted for in these non-GAAP measures. In evaluating these non-GAAP measures, you should be aware that in the future we may incur expenses that are the same as or similar to some of those adjusted in this presentation. The Non-GAAP Financial Measures that we use are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

Net Income and Adjusted Net Income Reconciliation

Adjusted Net Income, a non-GAAP financial measure, is defined as Net Income before amortization of intangible assets, restructuring charges, stock-based compensation, fair value adjustment of warrant liability, fair value adjustment to contingent consideration, merger and acquisition related expenses and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts and COVID-19 related expenses. Management presents Adjusted Net Income, as it is believed the information is useful to investors in understanding and evaluating our operating results as it aligns the net income (loss) with those adjustments made to EBITDA and gross profit.

Below is the reconciliation of Net Income to Adjusted Net Income (in thousands):

 

 

 

Six

months

ended

June 28,

2020

 

 

Six

months

ended

June 30,

2019

 

Net Income(loss)

 

$

1,730

 

 

$

(1,257

)

Add:

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

2,364

 

 

 

3,688

 

Restructuring charges (recovery)

 

 

(346

)

 

$

2,170

 

Stock based compensation

 

 

317

 

 

 

185

 

Fair value adjustment of warrant liability

 

 

(118

)

 

 

(61

)

Fair value adjustment of contingent consideration

 

 

 

 

 

 

(3,050

)

Merger and acquisitions related expenses

 

 

 

 

 

164

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Unrealized foreign exchange gain on unsettled forward foreign exchange contracts

 

 

(459

)

 

 

 

Adjusted Net Income

 

$

4,673

 

 

$

1,839

 

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

 

Net income increased to $1.7 million from a $1.3 million loss in the first half of 2020 and 2019.  In addition, the increase in net income was due to increased gross profit, unrealized foreign exchange gain on unsettled forward contracts, reduction in restructuring costs recorded in the second quarter of 2020 over the same period in the prior year. When excluding the items noted in the above reconciliation, Adjusted Net Income increased $2.8 million in the first quarter half of 2020 over the same period in the prior year, which is mainly due to increased gross profit, reduced interest expense due to reduction in debt and partially offset by increased selling, general and administrative expense.

31


 

Gross Profit and Adjusted Gross Profit Reconciliation

Adjusted Gross Profit, a non-GAAP financial measure, is defined as gross profit exclusive of unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts and the amortization of intangible assets.  The Company calculates an adjusted gross profit amount as we consider gross profit exclusive of such unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts to be a meaningful measure as it is non-cash and management does not consider the mark-to-market valuation reflective of operating performance in the current period. Management also excludes the impact of intangible assets amortization as these charges are non-cash in nature and are not believed to be reflective of operating performance.  We also believe adjusted gross profit provides useful information to investors in understanding and evaluating our operating results in the same manner as management.  

Below is the reconciliation from the financial statement presentation of gross profit to the non-GAAP measure of adjusted gross profit (in thousands):

 

 

 

Six

months

ended

June 28,

2020

 

 

Six

months

ended

June 30,

2019

 

Gross profit

 

$

20,325

 

 

$

17,621

 

Add:

 

 

 

 

 

 

 

 

Unrealized foreign exchange gain on unsettled forward exchange contracts

 

 

(459

)

 

 

 

Amortization of intangible assets

 

 

2,364

 

 

 

3,688

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Adjusted gross profit

 

$

23,415

 

 

$

21,309

 

Adjusted gross profit percentage

 

 

12.6

%

 

 

11.0

%

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

EBITDA and Adjusted EBITDA Reconciliation

EBITDA and Adjusted EBITDA, non-GAAP financial measures, are defined as earnings before interest, taxes, depreciation and amortization, with Adjusted EBITDA also excluding restructuring charges, stock-based compensation, unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts, fair value adjustment of warrant liability, fair value adjustment to contingent consideration and merger and acquisition related expenses and COVID-19 related expenses. Management presents EBITDA and Adjusted EBITDA, as they are utilized by management to monitor performance against budget as well as compliance with bank covenants. We also believe EBITDA and Adjusted EBITDA provide useful information to investors in understanding and evaluating our operating results in the same manner as management.

32


 

Below is the reconciliation of net income (loss), the closest GAAP measure, to EBITDA and Adjusted EBITDA (in thousands).

 

 

 

Six

months

ended

June 28,

2020

 

 

Six

months

ended

June 30,

2019

 

Net income(loss)

 

$

1,730

 

 

$

(1,257

)

Add:

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

3,222

 

 

 

3,253

 

Amortization of intangible assets

 

 

2,364

 

 

 

3,688

 

Interest

 

 

4,080

 

 

 

5,670

 

Income taxes

 

 

653

 

 

 

790

 

EBITDA

 

$

12,049

 

 

$

12,144

 

Add:

 

 

 

 

 

 

 

 

Restructuring charges (recovery)

 

 

(346

)

 

 

2,170

 

Stock based compensation

 

 

317

 

 

 

185

 

Fair value adjustment of warrant liability

 

 

(118

)

 

 

(61

)

Fair value adjustment to contingent consideration

 

 

 

 

 

(3,050

)

Merger and acquisition related expenses

 

 

 

 

 

164

 

COVID-19 related expenses (1)

 

 

1,185

 

 

 

 

Unrealized foreign exchange gain on unsettled forward exchange contracts

 

 

(459

)

 

 

 

Adjusted EBITDA

 

$

12,628

 

 

$

11,552

 

 

(1)

Includes costs attributable to the COVID-19 pandemic, including retention of temporary replacement labor, additional sanitation, cleaning and disinfection of facilities, personal protective equipment and related supplies, costs associated with facilitating social distancing and logistics costs associated with expediting inventory purchases from existing and new sources.

Liquidity

As at June 28, 2020, the Company’s liquidity was comprised of $0.3 million in cash on hand and $30.9 million of funds available to borrow under the PNC Facility, which matures on November 8, 2023. The Company funds its operations by regularly utilizing its PNC Facility (refer to Note 4). The Company manages it capital requirements through budgeting and forecasting processes while monitoring for compliance with bank covenants. Funds available under the PNC Facility are managed on a weekly basis, based on the cash flow requirements of the various operating segments. Cash flows generated from operations are immediately applied towards paying down the PNC Facility.

Market conditions, including the implications of the COVID-19 pandemic, may negatively impact our ability to secure and source alternative methods of financing.  We do not currently foresee a material impact in the short term based on our working capital needs, however if a number of our customers reduce or temporarily cease payments to us, this would present a risk and negatively impact our cash flow and ability to meet our working capital obligations to operate our business, which could require us to seek alternative methods of financing.  

Net cash generated in operating activities during the three six months ended June 28, 2020, was $2.6 million compared to $0.2 million used for the same period in the prior year.  Working capital changes related to $4.8 million accounts receivable reduction were offset by the $12.4 million increase in the unbilled contract asset. Accounts receivable days sales outstanding increased to 62 days in the first half quarter of 2020 from 61 days for the first half of 2019. In addition, accrued liabilities increased $8.8 million due to deferred revenue for the first half of 2020, partially offset by reduction in Accounts Payable of $3.4 million due to timing of payments.  Accounts payable days outstanding decreased to 70 days for the first half of 2020 compared to 72 days for the first half of 2019.  Inventory turnover, on an annualized basis, decreased to 4.3 times for the first half of 2020 compared to 4.5 times for the first half of 2019.

Net cash used in financing activities during the first half of 2020 was $2.1 million compared to net cash generated by $1.3 million for the first half of 2019.  During the first half of 2020 and 2019, the Company made net repayments to the revolving debt of $0.8 million and $11.3 million, respectively. The Company also paid down its long-term debt in the amount of $0.6 million in the first quarters of 2020 and 2019.  Principal repayments on capital lease obligations were $0.4 million in the first half of 2020 compared to $0.8 million in the same period in the prior year.

Net cash used in investing activities during the first half of 2020 was $1.6 million compared to $2.1 million in the first half of 2019, related to capital asset purchases.

33


 

Capital Resources

The Company borrows money under the PNC Facility, which has a term ending on November 8, 2023. Advances made under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from 0.75% to 1.25%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%. The base commercial lending rate should approximate U.S. prime rate.

The Company also borrows money under the Financing Agreement which governs the Term A Loan Facility that matures on the Maturity Date. The Term Loan A Facility bears interest at LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%. Payments made under the Term Loan A Facility at any time prior to the Maturity Date (other than scheduled amortization payments and mandatory prepayments) are subject to an applicable premium equal to the amount of such payment multiplied by (i) 3.00% in the event that such payment occurs before November 8, 2019, (ii) 2.00% in the event that such payment occurs after November 8, 2019, and on or before November 8, 2020, and (iii) 1.00% in the event that such payment occurs after November 8, 2020, and on or before November 8, 2021. No such applicable premium is payable for any payment of loans made under the Term Loan A Facility occurring after November 8, 2021.  

The Credit Facilities are joint and several obligations of the Company and its subsidiaries that are borrowers under the facilities and are jointly and severally guaranteed by other subsidiaries of the Company. Repayment under the PNC Facility and Term A Loan Facility are collateralized by the assets of the Company and each of its subsidiaries. The Credit Facilities contain certain financial and non-financial covenants, including restrictions on dividend payments. The financial covenants under each Credit Facility require the Company to maintain a fixed charge coverage ratio and a total leverage ratio quarterly during the term of the Credit Facilities. The Company was in compliance with the financial covenants included in the Credit Facilities as at June 28, 2020.

We believe that our sources of liquidity and capital, including cash we expect to generate from operations, available cash and amounts available under our Credit Facilities, will be adequate to meet our debt service requirements, capital expenditures and working capital needs at our current level of operations for the next twelve months. However, we make no assurance that these sources of liquidity and capital, particularly with respect to amounts available from lenders, will be sufficient to meet our future needs. We have agreed to a borrowing base formula under which the amount we are permitted to borrow under the PNC Facility is based on our accounts receivable and inventory. Further, we make no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to enable us to service our indebtedness. Our future operating performance and ability to service indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond our control.

Market conditions, including the implications of the COVID-19 pandemic, may negatively impact our ability to secure and source alternative methods of financing.  We do not currently foresee a material impact in the short term based on our working capital needs, however if a number of our customers reduce or temporarily cease payments to us, this would present a risk and negatively impact our cash flow and ability to meet our working capital obligations to operate our business, which could require us to secure alternative methods of financing.  In order to meet our customers’ delivery requirements, we have incurred and may continue to incur COVID-19 related expenses.  These are primarily due to incremental logistics costs associated with expediting inventory purchases from existing and new sources, and labor and production inefficiencies and retention of temporary replacement labor to address workplace absenteeism due to illness, potential COVID-19 exposure or personal commitments. We are currently taking steps to limit our expenses, including putting a pause on all non-essential new hiring and new programs, and reducing our third quarter capital expenditures.

 

34


 

Item 3 Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The Company borrows money under the PNC Facility, which has a term ending on November 8, 2023. Advances made under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from 0.75% to 1.25%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%. The base commercial lending rate should approximate U.S. prime rate.

The Company also borrows money pursuant to the Financing Agreement. The Term A Loan Facility matures on its Maturity Date. The Term Loan A Facility bears interest at LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%. Payments made under the Term Loan A Facility at any time prior to the Maturity Date (other than scheduled amortization payments and mandatory prepayments) are subject to an applicable premium equal to the amount of such payment multiplied by (i) 3.00% in the event that such payment occurs before November 8, 2019, (ii) 2.00% in the event that such payment occurs after November 8, 2019, and on or before November 8, 2020, and (iii) 1.00% in the event that such payment occurs after November 8, 2020, and on or before November 8, 2021. No such applicable premium is payable for any payment of loans made under the Term Loan A Facility occurring after November 8, 2021.

The impact of a 10% change in interest rates would be estimated to have the following impact on our reported earnings.

 

10% increase in interest rate (million)

 

$

0.5

 

10% decrease in interest rate (million)

 

$

(0.5

)

 

Foreign Currency Exchange Risk

Given our global business operations, we are exposed to exchange rate fluctuations on expenditures denominated in foreign currencies. However, most of our sales and component purchases are denominated in U.S. dollars, which limits our foreign currency risk. Our foreign exchange risk relates primarily to our Canadian, Mexican and Asian payroll, Euro-based component purchases and other operating expenses denominated in local currencies in our geographic locations. To mitigate this risk, the Company enters into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Mexican peso expenditures. The strengthening of the Mexican peso would result in an increase in costs to the organization and may lead to a reduction in reported earnings.

The impact of a 10% change in exchange rates would be estimated to have the following impact on cost of sales for the Company:

 

10% increase in both the CAD and PESO

   foreign exchange rates (million)

 

$

1.4

 

10% decrease in both the CAD and PESO

   foreign exchange rates (million)

 

$

(1.7

)

 

Credit Risk

In the normal course of operations, there is a risk that a counterparty may default on its contractual obligations to us which would result in a financial loss that could impact our reported earnings. In order to mitigate this risk, we complete credit approval procedures for new and existing customers and obtain credit insurance where it is financially viable to do so given anticipated revenue volumes, in addition to monitoring our customers’ financial performance. We believe our procedures in place to mitigate customer credit risk and the respective allowance for doubtful accounts are adequate. Although the Company takes measures to reduce credit risk, these charges can have a material impact on our financial performance.

While we continue to communicate with our customers and monitor cash collections, market conditions, including as a result of the COVID-19 pandemic, may negatively impact our customers’ ability to pay.  We do not currently foresee a material impact in the short term based on our customers’ payment patterns, however if a number of our customers reduce or temporarily cease payments to us, this would present a risk and any charges could have a material impact on our financial performance.

There is limited risk of financial loss of defaults on our outstanding forward currency contracts as the counterparty to the transactions had a Standard and Poor’s rating of A- or above as at June 28, 2020.

35


 

Liquidity Risk

There is a risk that we may not have sufficient cash available to satisfy our financial obligations as they come due. The financial liabilities we have recorded in the form of accounts payable, accrued liabilities and other current liabilities are primarily due within 90 days with the exception of the current portion of capital lease obligations which could exceed 90 days and our PNC Facility which utilizes a lock-box to pay down the obligation effectively daily. As at June 28, 2020, the Company’s liquidity is comprised of $0.3 million in cash on hand and $30.9 million of funds available to borrow under the PNC Facility. We believe that cash flow from operations, together with cash on hand and our PNC Facility, which has a maximum credit limit of $65.0 million of which $30.9 million of funds were available as at June 28, 2020 is sufficient to fund our financial obligations. However, availability under the PNC Facility is subject to certain conditions, including borrowing base conditions based on eligible inventory and accounts receivable, as determined by the lender in addition to being subject to certain debt covenants.

Market conditions, including as a result of the COVID-19 pandemic, may negatively impact our ability to secure and source alternative methods of financing.  We do not currently foresee a material impact in the short term based on our working capital needs, however, if a number of our customers reduce or temporarily cease payments to us, this would present a risk and negatively impact our cash flow and ability to meet our working capital obligations to operate our business, which could require us to seek alternative methods of financing, which may only be available to use on unfavorable terms, if at all.  

Fair Value Measurement

The carrying values of the Company’s cash, accounts receivable, accounts payable and accrued liabilities due within one-year approximate fair values due to the short-term maturity of these instruments. The Company’s financial instruments at June 28, 2020, are comprised of the following:

 

 

 

As at June 28, 2020

 

 

As at December 29, 2019

 

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

 

Carrying

Amount

 

 

Estimated

Fair Value

 

Level 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

311

 

 

$

311

 

 

$

1,368

 

 

$

1,368

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

33,943

 

 

 

33,943

 

 

 

34,701

 

 

 

34,701

 

Current and long term debt

 

 

34,778

 

 

 

38,125

 

 

 

35,000

 

 

 

38,750

 

Warrant liability

 

 

1,612

 

 

 

1,612

 

 

 

1,730

 

 

 

1,730

 

 

Item 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this quarterly report, the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer) have conducted an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective during and as at June 28, 2020 due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019 (the “2019 Form 10-K”).  As previously described in Part II, Item 9A of our 2019 Form 10-K, we implemented a remediation plan to address the material weakness.  The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.  We expect that the remediation of this material weakness will be completed by the end of 2020.

Changes in Internal Control over Financial Reporting

Except for the material weakness identified during the fiscal quarter ended December 29, 2019, as of June 28, 2020, there were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended June 28, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

36


 

Part II OTHER INFORMATION

Item 1 Legal Proceedings

None.

Item 1A Risk Factors

The following additional risk factor should be read in conjunction with the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our Form 10-K for the fiscal year ended December 29, 2019 (“Annual Report”) and our other reports and registration statements filed with the SEC. The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of our Annual Report, and such risk factors are further qualified by the information relating to the COVID-19 pandemic that is described in this Quarterly Report on Form 10-Q, including in the additional risk factor below. Except as described herein, there have been no material changes in our risk factors disclosed in our Annual Report.

The effect of COVID-19 on our operations and the operations of our customers, suppliers and logistics providers may have a material, adverse impact on our financial condition and results of operations.

Our global operations expose us to risk arising from the global COVID-19 pandemic, which may impact our employees, operations, supply chain and distribution system. Indirect results of the COVID-19 pandemic, including public and private sector policies intended to reduce the transmission of COVID-19, could affect our employees, reduce capacity utilization levels, require the closure of facilities, or interrupt our supply chain.  Factory closures or reductions in capacity utilization levels could cause us to incur direct costs and lose revenue. Closures or reductions in the capacity utilization of our suppliers could reduce our ability to source materials and meet production requirements. The COVID-19 pandemic may also impact our customers and create unpredictable changes in demand for our manufacturing services. The duration and extent of these impacts, most of which are beyond our control, continue to evolve and remain uncertain.  Due to these possible impacts of the COVID-19 pandemic and as generally described in this quarterly report, the Company’s consolidated financial position, results of operations and cash flows for the first half of 2020 are not necessarily indicative of future performance.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 Defaults Upon Senior Securities

None.

Item 4 Mine Safety Disclosures

Not applicable.

Item 5 Other Information

None.

37


 

Item 6 Exhibits

EXHIBIT INDEX

 

10.1

Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement, by and among SMTC Corporation, SMTC Manufacturing Corporation of California, SMTC Mex Holdings, Inc., HTM Holdings, Inc., MC Test Service, Inc., MC Assembly International LLC, MC Assembly LLC, the financial institutions party thereto and PNC Bank, National Association, as agent for the lenders, dated June 26, 2020 (1).

 

 

10.2

Amendment No. 5 to Financing Agreement, by and among SMTC Corporation, the borrowers party thereto, each other loan party thereto, the lenders party thereto, TCW Asset Management Company LLC, as administrative agent for the lenders, and TCW Asset Management Company LLC, as collateral agent for the lenders, dated June 26, 2020 (2).

 

 

31.1*

Certification of Edward Smith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 6, 2020.

 

 

31.2*

Certification of Steve Waszak pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 6, 2020.

 

 

32.1*

Certification of Edward Smith, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 6, 2020.

 

 

32.2*

Certification of Steve Waszak, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 6, 2020.

 

 

101.INS*

Inline XBRL Instance Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

 

 

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

101.LAB*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*

Filed herewith

(1)

Filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on June 29, 2020 (File No. 000-31051) and incorporated by reference herein.

(2)

Filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on June 29, 2020 (File No. 000-31051) and incorporated by reference herein.

 

 

38


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, SMTC Corporation has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

 

 

SMTC CORPORATION

 

  

  

 

By:

/s/ Edward Smith

 

Name:

Edward Smith

 

Title:

President and Chief Executive Officer

 

  

  

 

By:

/s/ Steve Waszak

 

Name:

Steve Waszak

 

Title:

Chief Financial Officer (Principal Accounting Officer)

Date: August 6, 2020

 

 

 

 

 

 

39

smtx-ex311_9.htm

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

CERTIFICATION

 

I, Edward Smith, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of SMTC Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles of the United States of America;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2020

 

 

 

By:

/s/ Edward Smith

 

 

Edward Smith

 

 

President and Chief Executive Officer

 

smtx-ex312_8.htm

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

CERTIFICATION

 

I, Steve Waszak, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of SMTC Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles of the United States of America;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2020

 

 

 

By:

/s/ Steve Waszak

 

 

Steve Waszak

 

 

Chief Financial Officer

 

smtx-ex321_6.htm

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Executive Officer of SMTC Corporation (the “Company”), does hereby certify that to the undersigned’s knowledge:

 

 

1)

the Company’s quarterly report on Form 10-Q for the quarter ended June 28, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2)

the information contained in the Company’s quarterly report on Form 10-Q for the quarter ended June 28, 2020 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Edward Smith

 

 

Edward Smith

 

 

President and Chief Executive Officer

Date: August 6, 2020

 

 

 

A signed original of this written statement required by Section 906 has been provided to SMTC Corporation and will be retained by SMTC Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

smtx-ex322_7.htm

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer of SMTC Corporation (the “Company”), does hereby certify that to the undersigned’s knowledge:

 

 

1)

the Company’s quarterly report on Form 10-Q for the quarter ended June 28, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2)

the information contained in the Company’s quarterly report on Form 10-Q for the quarter ended June 28, 2020 fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Steve Waszak

 

 

Steve Waszak

 

 

Chief Financial Officer

Date: August 6, 2020

 

 

 

A signed original of this written statement required by Section 906 has been provided to SMTC Corporation and will be retained by SMTC Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

v3.20.2
Document And Entity Information - shares
6 Months Ended
Jun. 28, 2020
Aug. 06, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Central Index Key 0001108320  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 28, 2020  
Document Fiscal Year Focus 2020  
Current Fiscal Year End Date --12-27  
Entity File Number 000-31051  
Entity Registrant Name SMTC CORPORATION  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 98-0197680  
Entity Address, Address Line One 7050 WOODBINE AVENUE  
Entity Address, State or Province ON  
Entity Address, City or Town MARKHAM  
Entity Address, Country CA  
Entity Address, Postal Zip Code L3R 4G8  
City Area Code 905  
Local Phone Number 479-1810  
Title of 12(b) Security Common Stock  
Trading Symbol SMTX  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding (in shares)   28,214,800
v3.20.2
Interim Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Jun. 28, 2020
Dec. 29, 2019
Current assets:    
Cash $ 311 $ 1,368
Accounts receivable — net (note 3) 65,071 69,919
Unbilled contract assets (note 3) 38,647 26,271
Inventories (note 3) 50,125 47,826
Prepaid expenses and other assets 6,813 7,044
Derivative assets (note 9) 459  
Income taxes receivable 160  
Total current assets 161,586 152,428
Property, plant and equipment — net (note 3) 23,495 25,310
Operating lease right of use assets — net 6,419 3,330
Goodwill (note 3) 18,165 18,165
Intangible assets — net (note 3) 10,383 12,747
Deferred income taxes — net 473 540
Deferred financing costs — net 749 859
Total assets 221,270 213,379
Current liabilities:    
Revolving credit facility (note 4) 33,943 34,701
Accounts payable 70,591 74,126
Accrued liabilities (note 3) 20,039 11,164
Warrant liability (note 4) 1,612 1,730
Restructuring liability (note 10) 675 1,597
Income taxes payable 267 157
Current portion of long-term debt (note 4) 1,875 1,250
Current portion of operating lease obligations 1,494 1,128
Current portion of finance lease obligations 1,110 1,226
Total current liabilities 131,606 127,079
Long-term debt (note 4) 32,903 33,750
Operating lease obligations 5,339 2,615
Finance lease obligations 8,278 8,838
Total liabilities 178,126 172,282
Shareholders’ equity:    
Capital stock (note 5) 508 508
Additional paid-in capital 293,706 293,389
Deficit (251,070) (252,800)
Stockholders' Equity Attributable to Parent, Ending Balance 43,144 41,097
Total liabilities and shareholders’ equity $ 221,270 $ 213,379
v3.20.2
Interim Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue (note 3) $ 90,406 $ 90,936 $ 185,544 $ 193,585
Cost of sales (note 9) 79,720 81,939 165,219 175,964
Gross profit 10,686 8,997 20,325 17,621
Selling, general and administrative expenses 7,107 6,560 14,326 13,359
Change in fair value of contingent consideration       (3,050)
Restructuring charges (reversal) (notes 3 and 10) (125) 1,546 (346) 2,170
Operating income 3,704 891 6,345 5,142
Fair value measurement loss (gain) on warrant liability (note 4) 399 40 (118) (61)
Interest expense (note 3) 1,987 2,800 4,080 5,670
Net income (loss) before income taxes 1,318 (1,949) 2,383 (467)
Income tax expense (note 6):        
Current 311 416 586 695
Deferred 52 103 67 95
Total income tax expense 363 519 653 790
Net income (loss) and comprehensive income (loss) $ 955 $ (2,468) $ 1,730 $ (1,257)
Net income per share:        
Basic $ 0.03 $ (0.10) $ 0.06 $ (0.05)
Diluted $ 0.03 $ (0.10) $ 0.06 $ (0.05)
Weighted average number of shares outstanding (note 7):        
Basic 28,213,729 23,557,944 28,204,514 23,403,431
Diluted 29,493,472 23,557,944 29,484,257 23,403,431
v3.20.2
Interim Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Deficit [Member]
Balance at Dec. 30, 2018 $ 32,301 $ 458 $ 278,648 $ (246,805)
Balance (in shares) at Dec. 30, 2018   23,189,381    
RSU vested and issued in common shares   $ 2 (2)  
RSU vested and issued in common shares (in shares)   179,677    
Issuance of common shares from rights offering 14,044 $ 46 13,998  
Issuance of common shares from rights offering (in shares)   4,642,030    
Stock-based compensation 185   185  
Net income (loss) (1,257)     (1,257)
Balance at Jun. 30, 2019 45,273 $ 506 292,829 (248,062)
Balance (in shares) at Jun. 30, 2019   28,011,088    
Balance at Mar. 31, 2019 33,600 $ 460 278,734 (245,594)
Balance (in shares) at Mar. 31, 2019   23,350,558    
RSU vested and issued in common shares (in shares)   18,500    
Issuance of common shares from rights offering 14,044 $ 46 13,998  
Issuance of common shares from rights offering (in shares)   4,642,030    
Stock-based compensation 97   97  
Net income (loss) (2,468)     (2,468)
Balance at Jun. 30, 2019 45,273 $ 506 292,829 (248,062)
Balance (in shares) at Jun. 30, 2019   28,011,088    
Balance at Dec. 29, 2019 41,097 $ 508 293,389 (252,800)
Balance (in shares) at Dec. 29, 2019   28,195,300    
RSU vested and stock options exercised (in shares)   19,500    
Stock-based compensation 317   317  
Net income (loss) 1,730     1,730
Balance at Jun. 28, 2020 43,144 $ 508 293,706 (251,070)
Balance (in shares) at Jun. 28, 2020   28,214,800    
Balance at Mar. 29, 2020 42,034 $ 508 293,551 (252,025)
Balance (in shares) at Mar. 29, 2020   28,195,300    
RSU vested and stock options exercised (in shares)   19,500    
Stock-based compensation 155   155  
Net income (loss) 955     955
Balance at Jun. 28, 2020 $ 43,144 $ 508 $ 293,706 $ (251,070)
Balance (in shares) at Jun. 28, 2020   28,214,800    
v3.20.2
Interim Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Operations:    
Net income (loss) $ 1,730 $ (1,257)
Items not involving cash:    
Depreciation of property, plant and equipment 3,222 3,253
Amortization of intangible assets 2,364 3,688
Unrealized foreign exchange gain on unsettled forward exchange contracts (459)  
Deferred income taxes 67 95
Amortization of deferred financing fees and debt insurance costs 588 545
Stock-based compensation 317 185
Change in fair value of warrant liability (118) (61)
Change in fair value of contingent consideration   (3,050)
Change in non-cash operating working capital:    
Accounts receivable 4,848 8,035
Unbilled contract assets (12,376) (7,214)
Inventories (2,299) 7,054
Prepaid expenses and other assets 231 (1,128)
Income taxes receivable/payable (50) 203
Accounts payable (3,377) (10,130)
Accrued liabilities 8,875 (9)
Restructuring liability (919) (857)
Net change in operating lease right of use asset and liability 1 465
Net cash provided by (used in) in operating activities 2,645 (183)
Financing:    
Repayments of revolving credit facility (758) (11,272)
Repayment of long-term debt (625) (625)
Deferred financing fees (75) (50)
Principal repayments of finance lease obligations (676) (809)
Proceeds from issuance of common stock through rights offerings   14,044
Net cash provided by (used in) financing activities (2,134) 1,288
Investing:    
Purchase of property, plant and equipment (1,568) (2,072)
Net cash provided by (used in) investing activities (1,568) (2,072)
Decrease in cash (1,057) (967)
Cash, beginning of period 1,368 1,601
Cash, end of the period 311 634
Supplemental Information    
Cash interest paid 3,946 2,363
Increase in operating right of use assets 3,840 5,559
Property, plant and equipment acquired that was unpaid in cash and included in accounts payable and accrued liabilities $ 71 $ 260
v3.20.2
Business and Nature of Presentation
6 Months Ended
Jun. 28, 2020
Accounting Policies [Abstract]  
Business and Nature of Presentation

1.

Business and Nature of Presentation

Background

SMTC Corporation (the “Company,” “we,” “our,” or “SMTC”) is a provider of end-to-end electronics manufacturing services (“EMS”), including product design and engineering services, printed circuit board assembly (“PCBA”), production, enclosure, cable assembly, precision metal fabrication, systems integration and comprehensive testing services, configuration to order (“CTO”), build to order (“BTO”) and direct order fulfillment (“DOF”). SMTC has more than 50 manufacturing and assembly lines at strategically located facilities in the United States, Canada and Mexico that provide local support and manufacturing capabilities to our global customers. SMTC’s services extend over the entire electronic product life cycle from new product development and new product introduction (“NPI”) through to growth, maturity and end of life phases.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with the accounting principles and methods of application disclosed in the audited consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019, (“Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020.  The accompanying unaudited interim consolidated financial statements include adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of the consolidated financial statements under generally accepted accounting principles in the United States (“U.S. GAAP”). These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Form 10-K. The consolidated balance sheet at December 29, 2019 was derived from the audited annual consolidated financial statements, but does not contain all of the footnote disclosures from the annual consolidated financial statements.

Unless otherwise specified or the context requires otherwise, all statements in these notes to the interim consolidated financial statements regarding financial figures are expressed in thousands of U.S. dollars.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains, created significant volatility and disruption in financial markets and has resulted in an economic slowdown. In response to the impact of the COVID-19 pandemic, and given the uncertainty of its duration, the Company has initiated measures designed to protect our employees and will continue to adapt in order to maintain operations while providing a safe environment.

The Company is actively monitoring the global COVID-19 pandemic and continuously communicating with our customers, key suppliers, employees and union representatives, in addition to government and state representatives where our manufacturing facilities reside. We have experienced increased workplace absenteeism as illness, potential COVID-19 exposure for higher risk employees or personal commitments that restrict the ability of some employees to come to work.  The Company has modified shift schedules and hired temporary labor to help address this situation and meet our customers’ product shipping schedules.  During the three months ended June 28, 2020, the Company incurred additional costs of $1,185 that we have attributed to the COVID-19 pandemic, including additional temporary headcount as at risk employees are mandated to stay home in our Mexico locations as well as the purchase of personal protective equipment and costs to sanitize and clean facilities.

As at June 28, 2020, the additional funds available to borrow under our PNC Facility (as described and defined in note 4 below) after deducting the current borrowing base conditions and subject to debt covenants, should the Company require additional funding during the COVID-19 pandemic, was $30,875 (March 29, 2020 - $31,185).  In addition, during the quarter ended June 28, 2020, the Company entered into amendments to its lending agreements with PNC and TCW, as disclosed in note 4, that would allow for the addback of certain costs attributable to the COVID-19 pandemic.

Transition of China Manufacturing

During the fourth quarter of 2019, we ceased manufacturing in China and began to relocate the equipment used at our Chinese manufacturing facility to our other North American sites. During the first quarter of 2020, the Company completed final shipments for customers serviced at our Chinese manufacturing facility and completed the relocation of the equipment to our other North American sites. Customer concerns about uncertainties relating to the prolonged impact of tariffs and macro-economic factors caused a number of our customers to begin to re-evaluate demand for some of their products and reconsider where they outsource their manufacturing. Revenues attributable to production from SMTC’s manufacturing operations in China declined in 2019 as compared to 2018, but more significant declines were anticipated in 2020 which would have resulted in negative operating margins from our China site. This ultimately resulted in the decision to close the manufacturing facility.

 

 

v3.20.2
Accounting Pronouncements
6 Months Ended
Jun. 28, 2020
New Accounting Pronouncements And Changes In Accounting Principles [Abstract]  
Accounting Pronouncements

2.

Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In August 2018, the FASB published ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendment includes the removal, modification and addition of disclosure requirements under Topic 820. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The impact of the adoption of the standard expands the disclosure of certain assets and liabilities recorded at fair value.

In March 2020, the FASB published ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update are elective and provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The amendments in this Update are effective for all entities as of March 12, 2020, through December 31, 2022.  An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The impact of the adoption of the standard is not material to the Company, as alternative reference rates are available under the agreements governing the financial instruments.

Recent Accounting Pronouncements Not Yet Adopted

In May 2016, the FASB published ASU 2016-13: Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of Topic 326 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In April 2019, the FASB published ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which made certain amendments and corrections to the original codification. In May 2019, the FASB published ASU 2019-05 Financial Instruments – Credit losses (Topic 326) which made transitional relief available, specifically allowing the option to elect a fair value option for financial instruments measured at amortized cost. In November 2019, the FASB published ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments – Credit losses, which made certain amendments and corrections to the original codification.  In November 2019, the FASB published ASU 2019-10 Financial Instruments – Credit losses (Topic 326), which made certain amendments to the effective dates of the new standard.  The amendment is effective for the Company for years beginning after December 15, 2022 including interim periods with those years. The Company is currently evaluating the impact of this accounting standard, but it is expected that the new standard may result in additional credit losses being recorded.

In January 2017, the FASB published ASU 2017-04: Intangibles – Goodwill and Other (Topic 350): Topic 350 seeks to simplify goodwill impairment testing requirements for public entities. Under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently evaluating the impact of this accounting standard.  However, it is expected that this may reduce the complexity of evaluating goodwill for impairment.

In December 2019, the FASB published ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for income taxes. The purpose of this codification is to simplify the accounting for income taxes, which addresses a number of topics including but not limited to the removal of certain exceptions currently included in the standard related to intraperiod allocation when there are losses, in addition to calculation of income taxes when current year-to-date losses exceed anticipated loss for the year. The amendment also simplifies accounting for certain franchise taxes and disclosure of the effect of enacted change in tax laws or rates. Topic 740 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The impact of the adoption of the standard has not yet been determined and is being evaluated.

v3.20.2
Interim Consolidated Financial Statement Details
6 Months Ended
Jun. 28, 2020
Condensed Financial Information Of Parent Company Only Disclosure [Abstract]  
Interim Consolidated Financial Statement Details

3.

Interim Consolidated financial statement details

The following consolidated financial statement details are presented as of the period ended for the consolidated balance sheets and for the periods ended for each of the consolidated statements of operations and comprehensive income (loss).

Consolidated Balance Sheets

Accounts receivable – net:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Trade accounts receivable

 

$

67,192

 

 

$

71,113

 

Other receivables

 

 

188

 

 

 

1,098

 

Allowance for doubtful accounts

 

 

(2,309

)

 

 

(2,292

)

Total

 

$

65,071

 

 

$

69,919

 

 

The allowance for doubtful accounts pertains primarily to one customer previously serviced out of Dongguan China. This was provisioned and included with the restructuring charges for the closure of the facility in 2019. Refer to note 10 for further details. To date, there has been no material impact of the COVID-19 pandemic on the allowance for doubtful accounts.

Unbilled contract assets

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Opening

 

$

26,271

 

 

$

20,405

 

Contract assets additions

 

 

172,217

 

 

 

350,709

 

Contract assets invoiced

 

 

(159,841

)

 

 

(344,843

)

Ending

 

$

38,647

 

 

$

26,271

 

 

Inventories:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Raw materials

 

$

50,251

 

 

$

48,067

 

Parts and other

 

 

383

 

 

 

586

 

Provision for obsolescence

 

 

(509

)

 

 

(827

)

Total

 

$

50,125

 

 

$

47,826

 

 

The provision for obsolescence primarily pertains to customers previously serviced out of the Dongguan facility. These have been provisioned and included with the restructuring charges for the closure of the facility in 2019. Refer to note 10 for further details.

Property, plant and equipment – net:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Land

 

$

1,648

 

 

$

1,648

 

Buildings (b)

 

 

18,985

 

 

 

18,985

 

Machinery and equipment (a) (e)

 

 

43,192

 

 

 

42,732

 

Office furniture and equipment (c) (e)

 

 

836

 

 

 

1,005

 

Computer hardware and software (d) (e)

 

 

3,679

 

 

 

3,979

 

Leasehold improvements (e)

 

 

4,240

 

 

 

4,265

 

 

 

 

72,580

 

 

 

72,614

 

Less accumulated depreciation:

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

Buildings (b)

 

 

(10,944

)

 

 

(10,392

)

Machinery and equipment (a) (e)

 

 

(32,700

)

 

 

(31,192

)

Office furniture and equipment (c) (e)

 

 

(393

)

 

 

(546

)

Computer hardware and software (d) (e)

 

 

(3,082

)

 

 

(3,289

)

Leasehold improvements (e)

 

 

(1,966

)

 

 

(1,885

)

 

 

 

(49,085

)

 

 

(47,304

)

Property, plant and equipment—net

 

$

23,495

 

 

$

25,310

 

 

(a)

Included within machinery and equipment were assets under finance leases with costs of $2,275 and $2,275 and associated accumulated depreciation of $1,196 and $974 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $109 and $142, respectively. The related depreciation expense for the six months ended March 29, 2020 and June 30, 2019 was $222 and $284, respectively.

 

(b)

Included within buildings are costs associated with Melbourne facility under finance leases of $9,082 and associated accumulated depreciation of $1,303 and $900 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $201 and $201, respectively. The related depreciation expense for six months ended June 28, 2020 and June 30 29, 2019 was $403 and $402, respectively.  

 

(c)

Included within office furniture and equipment were assets under finance leases with costs of $307 and associated accumulated depreciation of $85 and $52 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $16 and $10, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30 29, 2019 was $33 and $20, respectively.

 

(d)

Included within computer hardware and software were assets under finance leases with costs of $91 and associated accumulated depreciation of $66 and $51 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $8 and $8, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30, 2019 was $15 and $15, respectively.

 

(e)

Fully depreciated machinery and equipment with cost of $636 and accumulated amortization of $636 was written off in the six months ended June 28, 2020. Fully depreciated office furniture and fixtures with cost of $209 and accumulated amortization of $209 was written off. Fully depreciated computer hardware and software with cost of $414 and accumulated amortization of $414 was written off. Write off charges of $3 were incurred on leasehold improvements with cost of $185 and accumulated amortization of $182.  These write off charges were incurred related to the closure of the Dongguan facility for those items not otherwise transferred to other manufacturing facilities.

Intangible assets:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Customer relationships

 

$

12,350

 

 

$

12,350

 

Order backlog

 

 

6,990

 

 

 

6,990

 

Trade name

 

 

1,300

 

 

 

1,300

 

Non-compete agreements

 

 

360

 

 

 

360

 

 

 

 

21,000

 

 

 

21,000

 

Less accumulated amortization:

 

 

 

 

 

 

 

 

Customer relationships

 

 

(2,031

)

 

 

(1,414

)

Order backlog

 

 

(6,990

)

 

 

(5,333

)

Trade name

 

 

(1,300

)

 

 

(1,300

)

Non-compete agreements

 

 

(296

)

 

 

(206

)

 

 

 

(10,617

)

 

 

(8,253

)

Intangible assets—net

 

$

10,383

 

 

$

12,747

 

 

These intangible assets arose from the acquisition of MC Assembly Holdings Inc. (“MC Assembly”) in November 2018 and were allocated to the following operating segments:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

3,115

 

 

$

3,824

 

Mexico

 

 

7,268

 

 

 

8,923

 

Total

 

$

10,383

 

 

$

12,747

 

 

Amortization expense of $2,364 is recorded in cost of sales in the consolidated statement of income and comprehensive income for the six months ended June 28, 2020, and $3,688 for the six months ended June 30, 2019.  Amortization expense for the next five years and thereafter is as follows:

 

2020

 

$

682

 

2021

 

 

1,235

 

2022

 

 

1,235

 

2023

 

 

1,235

 

2024

 

 

1,235

 

2025 and thereafter

 

 

4,761

 

Total amortization

 

$

10,383

 

 

Goodwill:

The carrying value of goodwill as at June 28, 2020 was $18,165 (December 29, 2019 – $18,165). This goodwill arose from the acquisition of MC Assembly in November 2018 and was allocated to the following operating segments that are expected to benefit from the synergies of this business combination and has not changed since the acquisition:

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

5,449

 

 

$

5,449

 

Mexico

 

 

12,716

 

 

 

12,716

 

Total

 

$

18,165

 

 

$

18,165

 

 

The carrying value of goodwill is assessed annually at year-end and at each reporting period for impairment triggers to determine whether there exists any indicators of impairment.  The assessment is done at the operating segment level as the group of components (production facilities) within each operating segment all have similar economic characteristics. Our business operations have generally performed as expected during the first half of 2020.  While the COVID-19 pandemic creates significant uncertainty, in the near term, the Company did not identify any triggering events as at June 28, 2020.

Accrued liabilities: 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Payroll

 

$

6,029

 

 

$

5,504

 

Customer related

 

 

5,527

 

 

 

2,185

 

Deferred revenue

 

 

3,734

 

 

 

 

Vendor related

 

 

2,941

 

 

 

1,742

 

Professional services

 

 

760

 

 

 

612

 

Interest

 

 

402

 

 

 

860

 

Other

 

 

646

 

 

 

261

 

Total

 

$

20,039

 

 

$

11,164

 

 

Deferred Revenue is recorded when the Company invoices and becomes eligible to receive payment for goods or services prior to the transferring of goods or services to the customer under the terms of the contract (i.e., all revenue recognition criteria are not yet met), which is included within accrued liabilities.  As of June 28, 2020 and December 29, 2019, the balance of deferred revenue was $3,734 and Nil, respectively.  No revenue was recognized during the six months ended June 28, 2020.  The accounts receivable balances associated with the deferred revenue invoicing was $3,734 as at June 28, 2020.  Deferred revenue is recognized into revenue when all revenue recognition criteria are met.  

Consolidated Statements of Operations and Comprehensive Income (Loss)

Interest expense:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Long-term debt

 

$

1,020

 

 

$

1,709

 

 

$

2,068

 

 

$

3,461

 

Revolving credit facility

 

 

482

 

 

 

597

 

 

 

1,034

 

 

 

1,216

 

Amortization of deferred financing fees

 

 

55

 

 

 

38

 

 

 

110

 

 

 

72

 

Amortization of debt issuance costs

 

 

239

 

 

 

236

 

 

 

478

 

 

 

473

 

Obligations under finance leases

 

 

188

 

 

 

220

 

 

 

380

 

 

 

448

 

Other interest

 

 

3

 

 

 

 

 

 

10

 

 

 

 

Total

 

$

1,987

 

 

$

2,800

 

 

$

4,080

 

 

$

5,670

 

v3.20.2
Debt
6 Months Ended
Jun. 28, 2020
Debt Disclosure [Abstract]  
Debt

4.

Debt

(a) Revolving credit and long-term debt facilities 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Revolving credit facility

 

$

33,943

 

 

$

34,701

 

Term loans:

 

 

 

 

 

 

 

 

Term loan A facility

 

$

38,125

 

 

$

38,750

 

Less deferred debt issue costs

 

 

(2,070

)

 

 

(2,286

)

Less unamortized discount on debt

 

 

(1,277

)

 

 

(1,464

)

Total term loans

 

$

34,778

 

 

$

35,000

 

Less current portion

 

 

(1,875

)

 

 

(1,250

)

Long term portion

 

$

32,903

 

 

$

33,750

 

 

The Company borrows money under an Amended and Restated Revolving Credit and Security Agreement with PNC Bank, National Association (“PNC”) which governs the Company’s revolving credit facility (“PNC Facility”). The PNC Facility has a term ending on November 8, 2023. Advances made under the PNC Facility bear interest at the U.S. base rate plus a grid ranging from 0.50% to 1.00% or 1, 2 or 3-month fully-absorbed PNC LIBOR plus a grid ranging from 1.50% to 2.00%. The base commercial lending rate should approximate U.S. prime rate.  

The Company also borrows money under a Financing Agreement (the “Financing Agreement”), by and among the Company and certain of its subsidiaries, the lenders party to the Financing Agreement from time to time (collectively, the “Lenders”), and TCW Asset Management Company, LLC, as collateral agent for the Lenders (“TCW”).  The Financing Agreement governs a term loan A facility (the “Term A Loan Facility” and together with the PNC Facility, the “Credit Facilities” and previously governed a term loan B facility (the “Term Loan B Facility”) until it was paid in full on July 3, 2019. The Term Loan A Facility matures on November 8, 2023 (the “Maturity Date”). The Term Loan A Facility bears interest LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%. Payments made under the Term Loan A Facility at any time prior to the Maturity Date (other than scheduled amortization payments and mandatory prepayments) are subject to an applicable premium equal to the amount of such payment multiplied by (i) 3.00% in the event that such payment occurs before November 8, 2019, (ii) 2.00% in the event that such payment occurs after November 8, 2019 and on or before November 8, 2020, and (iii) 1.00% in the event that such payment occurs after November 8, 2020 and on or before November 8, 2021. No such applicable premium is payable for any payment of loans made under the Term Loan A Facility occurring after November 8, 2021.

On June 26, 2020, the Company, entered into the Fourth Amendment to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment”) and the Fifth Amendment to the Financing Agreement (“TCW Amendment”).  The PNC and TCW Amendments, among other things, amend the definition of “Consolidated EBITDA” by permitting an addback for (i) non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, not to exceed $1,200, and (ii) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions, in an aggregate amount not to exceed $1,000 with respect to corporate selling, general and administrative employees, in each case, for the period from June 1, 2020, to and including July 31, 2020.  The PNC and TCW Amendments also amends the definition of “Permitted Purchase Money Indebtedness” to (i) allow for Indebtedness (as defined in the PNC Agreement) pursuant to financing provided by a third party lender for any fixed or tangible assets acquired prior to the June 26, 2020, and (ii) increase the aggregate principal amount of all Indebtedness (as defined in the PNC Agreement and Financing Agreement) permitted under the PNC Agreement to $3,750.

As at June 28, 2020, the additional funds available to borrow under the PNC Facility after deducting the current borrowing base conditions were $30,875 (December 29, 2019 - $21,644). The maximum amount of funds that could be available under the PNC Facility is $65,000. However, availability under the PNC Facility is subject to certain conditions, including borrowing base conditions based on eligible inventory and accounts receivable, and certain conditions as determined by PNC. The Company is required to use a “lock-box” arrangement for the PNC Facility, whereby remittances from customers are swept daily to reduce the borrowings under this facility.

At June 28, 2020, $33,943 (December 29, 2019 - $34,701) was outstanding under the PNC Facility and is classified as a current liability based on the requirement to hold a “lock-box” under the terms of the PNC Facility.

At June 28, 2020, $38,125 (December 29, 2019 - $38,750) was outstanding under the TCW Term Loan A Facility. The TCW Facilities are reported on the consolidated balance sheet net of deferred financing fees of $2,070 (December 29, 2019 - $2,286) and a discount on debt of $1,277 (December 29, 2019 - $1,464) related to the outstanding warrants described below.

The Credit Facilities are joint and several obligations of the Company and its subsidiaries that are borrowers under the Credit Facilities and are jointly and severally guaranteed by other subsidiaries of the Company. Repayment under the PNC Facility and Term A Loan Facility are collateralized by the assets of the Company and each of its subsidiaries.

(b) Covenants

The Credit Facilities contain certain financial and non-financial covenants, including restrictions on dividend payments. The financial covenants require the Company to maintain a fixed charge coverage ratio and a total leverage ratio quarterly during the term of the Credit Facilities.

The Company was in compliance with the covenants included in the Credit Facilities as at June 28, 2020.  The Company’s continued financial covenant compliance will depend on key variables, including the Company’s cash flow from earnings before interest, income taxes and depreciation as well as debt levels.  For context, assuming no change to forecast debt balances, a reduction of approximately 34% and 24% of earnings before interest, income taxes, depreciation and amortization as defined in PNC Agreement and Financing Agreement over the next six month period, could jeopardize covenant compliance at the end of our third and fourth quarters 2020, respectively, which test our ratios against twelve-month trailing results.  The Company attempts to address risks of covenant compliance by taking measures to reduce its inventory, revolving credit facility and term debt balances as necessary.

Market conditions, including the implications of the COVID-19 pandemic, may negatively impact our ability to secure and source alternative methods of financing.  We do not currently foresee a material impact in the short term based on our working capital needs, however if a number of our customers reduce or temporarily cease payments to us, this would present a risk and negatively impact our cash flow and ability to meet our working capital obligations to operate our business, which could require us to secure alternative methods of financing.  

The Company continues to monitor operations and results closely and manage debt levels relative to our operational results to ensure compliance with its lenders covenants.

(c) Warrant liability

On November 8, 2018, 504,735 warrants were issued to TCW in connection with the Financing Agreement and are outstanding as at June 28, 2020. As a result of the anti-dilution provisions contained in the warrants that were triggered in connection with the Rights Offering and the Registered Direct Offering in June 2019, the warrants were exercisable to purchase an additional 7,214 shares of common stock (or a total of 511,949 shares) at June 28, 2020. These warrants are exercisable on a cashless basis, or for an exercise price of $0.01. The Company initially recorded the value of the warrants as a warrant liability with a corresponding discount on the long-term debt in the amount of $1,898. The fair value has been assessed at $3.15 per unit or $1,612 as at June 28, 2020 ($3.38 per unit or $1,730 – December 29, 2019). The fair value of the warrant obligation is presented as a warrant liability on the consolidated balance sheet with changes to the fair value recorded each reporting period as either a gain or a loss in the consolidated statement of operations and comprehensive income (loss). 

v3.20.2
Capital Stock
6 Months Ended
Jun. 28, 2020
Equity [Abstract]  
Capital Stock

5.

Capital stock 

Common shares

Issued and outstanding:

The issued and outstanding number of common shares included in shareholders’ equity consisted of the following:

 

 

 

Number of

shares

 

 

$

 

Balance at December 29, 2019

 

$

28,195,300

 

 

$

508

 

New share issuance-vested stock awards

 

 

19,500

 

 

 

-

 

Balance June 28, 2020

 

$

28,214,800

 

 

$

508

 

 

Stock Options

For more detailed information regarding the Company’s stock option arrangements, see Note 7 of the consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019. During the six month period ended June 28, 2020, there were no stock options granted, exercised or forfeited. A summary of stock option activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Number

of options

 

 

Weighted

average

exercise

price

 

 

Aggregate

intrinsic

value

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding at December 29, 2019

 

 

2,344,374

 

 

$

2.14

 

 

 

2,016

 

 

 

7.9

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 28, 2020

 

 

2,344,374

 

 

 

2.14

 

 

 

1,757

 

 

 

7.4

 

Exercisable at June 28, 2020

 

 

1,088,140

 

 

 

1.55

 

 

 

1,741

 

 

 

6.7

 

 

During the three-month periods ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to stock options and a corresponding increase in additional paid-in capital of $57 and $41, respectively. During the six month periods ended June 28, 2020 and June 30, 2019, the Company recorded stock-based compensation expense related to stock options and a corresponding increase in additional paid-in capital of $115 and $62, respectively.

Certain stock options outstanding have market conditions such that the awards are vested and exercisable only if the Company’s stock exceeds specified targets during the vesting period. If the market conditions are not met, the stock options will not vest and will expire.

Restricted Stock Units and Restricted Stock Awards

For more detailed information regarding the Company’s Restricted Stock Units (“RSU”) and Restricted Stock Awards (“RSA”) arrangements, see Note 7 of the consolidated financial statements within the Company’s Form 10-K for the fiscal period ended December 29, 2019.  During the six month period ended June 28, 2020, 63,000 RSUs were granted. A summary of the RSU activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Outstanding

RSU

 

 

Weighted

average

stock

price

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding balance at December 29, 2019

 

 

348,000

 

 

$

3.16

 

 

 

2.23

 

RSU granted

 

 

63,000

 

 

 

2.74

 

 

 

 

 

RSU vested and issued in common shares

 

 

(19,500

)

 

 

1.28

 

 

 

 

 

RSU forfeited

 

 

 

 

 

 

 

 

 

 

Outstanding balance at June 28, 2020

 

 

391,500

 

 

 

3.19

 

 

 

2.24

 

 

Certain RSUs outstanding have a market condition such that the awards are vested and issuable only if the market price of the Company’s stock meets or exceeds a specified target during the vesting period. If the market condition is not met, the RSUs will not vest and will be forfeited.

Stock based compensation recognized during the three-month period ended June 28, 2020 and June 30, 2019 related to the restricted stock units was $98 and $56, respectively.  Stock based compensation recognized during the six month period ended June 28, 2020, and June 30, 2019, related to the restricted stock units was $202 and $123, respectively.  

v3.20.2
Income Taxes
6 Months Ended
Jun. 28, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

6.

Income taxes

During the six month period ended June 28, 2020 and June 30, 2019, the Company recorded current income tax expense $586 and $695, respectively, in connection with U.S. state taxes and taxes on profits in certain foreign jurisdictions, and deferred income tax expense of $67 and $95, respectively, in connection with temporary differences related to the Mexican operations.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, change of control limitations, projected future taxable income and tax planning strategies in making this assessment. Guidance under ASC 740, Income Taxes (“ASC 740”) states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. The U.S., Canadian and Asian jurisdictions continue to have a full valuation allowance recorded against the deferred tax assets.

On March 27, 2020, the U.S. federal government enacted The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides for certain tax relief with favorable implications for the Company. Most significantly, these provisions include a temporary relaxation of limitations on annual interest expense under Internal Revenue Code Section 163(j), and accelerated refund of certain federal tax credits. For the six months ended June 28, 2020, the current income tax benefit of these provisions is estimated to be $45, reflected in current tax expense.

v3.20.2
Earnings Per Common Share
6 Months Ended
Jun. 28, 2020
Earnings Per Share [Abstract]  
Earnings per Common Share

7.

Earnings per common share

The following table details the weighted average number of common shares outstanding for the purposes of computing basic and diluted earnings per common share for the following periods:

 

 

 

Three months ended

 

 

Six months ended

 

(Number of common shares)

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Basic weighted average shares outstanding

 

 

28,213,729

 

 

 

23,557,944

 

 

 

28,204,514

 

 

 

23,403,431

 

Dilutive stock awards (a,b)

 

 

1,279,743

 

 

 

 

 

 

1,279,743

 

 

 

 

Diluted weighted average shares outstanding

 

 

29,493,472

 

 

 

23,557,944

 

 

 

29,484,257

 

 

 

23,403,431

 

 

 

(a)

For the three and six months ended June 28, 2020, as a result of net income for the periods, dilutive earnings per share were calculated using the treasury stock method.  The dilutive stock awards have been calculated as 1,279,743 for the three and six months ended June 28, 2020, respectively, related to the outstanding unvested restricted stock units and incremental in-the-money stock options.

 

(b)

For the three and six months ended June 30, 2019, as a result of net loss for the period, dilutive stock awards are not presented as this would be antidilutive. Had there been net income for the periods, the dilutive stock awards would have been calculated as 1,251,626 for the three and six months ended June 30, 2019, related to outstanding unvested restricted stock units and incremental in-the-money stock options.

v3.20.2
Segment Information
6 Months Ended
Jun. 28, 2020
Segment Reporting [Abstract]  
Segmented Information

8.

Segmented information

General description

During the six months ended June 28, 2020, the Company operated and managed by geographic region in the United States, Mexico and China, which are our operating and reportable segments. Commencing in the three months ended June 28, 2020, China is no longer included as a reportable segment.  During the three months ended March 29, 2020, the Company completed final shipments for customers serviced in our Chinese manufacturing facility and the relocation of the equipment to our other North American sites. We utilize each reportable segment’s contribution (revenue minus operating expenses, excluding unrealized foreign exchange gain (loss) on unsettled forward foreign exchange contracts, corporate allocations and restructuring expenses) to monitor reportable segment performance. Contribution by country is utilized by the chief operating decision-maker (defined as the Chief Executive Officer) as the indicator of reportable segment performance, as it reflects costs which our operating segment management are directly responsible for. Intersegment adjustments reflect intersegment sales that are generally recorded at prices that approximate arm’s-length transactions.

In assessing the performance of the reportable segments, management attributes site revenue to the reportable segment that ships the product to the customer, irrespective of the product’s destination. Information about the reportable segments is as follows: 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,801

 

 

$

59,336

 

 

$

122,165

 

 

$

125,096

 

China

 

 

 

 

 

5,793

 

 

 

4,207

 

 

 

14,449

 

U.S.

 

 

32,136

 

 

 

29,211

 

 

 

65,517

 

 

 

59,022

 

Total

 

$

90,937

 

 

$

94,340

 

 

$

191,889

 

 

$

198,567

 

Intersegment revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

(147

)

 

$

(594

)

 

$

(2,569

)

 

$

(743

)

China

 

 

 

 

 

(2,681

)

 

 

(3,303

)

 

 

(4,107

)

U.S.

 

 

(384

)

 

 

(129

)

 

 

(473

)

 

 

(132

)

Total

 

$

(531

)

 

$

(3,404

)

 

$

(6,345

)

 

$

(4,982

)

Net external revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,654

 

 

$

58,742

 

 

$

119,596

 

 

$

124,353

 

China

 

$

 

 

 

3,112

 

 

$

904

 

 

 

10,342

 

U.S.

 

 

31,752

 

 

 

29,082

 

 

 

65,044

 

 

 

58,890

 

Total segment revenue (which also equals

   consolidated revenue)

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

Segment contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

5,088

 

 

$

5,835

 

 

$

10,963

 

 

$

10,641

 

China

 

$

 

 

 

844

 

 

 

(2

)

 

 

1,699

 

U.S.

 

 

2,270

 

 

 

1,764

 

 

 

5,231

 

 

 

3,187

 

Total

 

$

7,358

 

 

$

8,443

 

 

$

16,192

 

 

$

15,527

 

Corporate expenses

 

 

4,750

 

 

 

6,006

 

 

 

10,652

 

 

 

11,265

 

Restructuring charges (recovery)

 

 

(125

)

 

 

1,546

 

 

 

(346

)

 

 

2,170

 

Change in fair value of warrant liability

 

 

399

 

 

 

40

 

 

 

(118

)

 

 

(61

)

Change in fair value of contingent

   consideration

 

 

 

 

 

 

 

 

 

 

 

(3,050

)

Unrealized foreign exchange loss on unsettled

   forward exchange contracts

 

 

(971

)

 

 

 

 

 

(459

)

 

 

 

Interest expense

 

 

1,987

 

 

 

2,800

 

 

 

4,080

 

 

 

5,670

 

Income(loss) before income taxes

 

$

1,318

 

 

$

(1,949

)

 

$

2,383

 

 

$

(467

)

 

Three months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,220

 

 

$

9,718

 

 

$

 

 

$

13,938

 

Retail and Payment Systems

 

 

6,750

 

 

 

 

 

 

 

 

 

6,750

 

Telecom, Networking and Communications

 

 

1,764

 

 

 

3,223

 

 

 

 

 

 

4,987

 

Medical and Safety

 

 

7,863

 

 

 

2,298

 

 

 

 

 

 

10,161

 

Industrial, Power and Clean Technology

 

 

30,952

 

 

 

7,339

 

 

 

 

 

 

38,291

 

Semiconductors

 

 

7,105

 

 

 

 

 

 

 

 

 

7,105

 

Avionics, Aerospace and Defense

 

 

 

 

 

9,174

 

 

 

 

 

 

9,174

 

Segment Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

551

 

 

$

1,353

 

 

 

 

 

 

1,904

 

Over time

 

 

58,103

 

 

 

30,399

 

 

 

 

 

 

88,502

 

Total Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

 

Three months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

2,403

 

 

$

9,648

 

 

$

 

 

$

12,051

 

Retail and Payment Systems

 

 

12,149

 

 

 

 

 

 

 

 

 

12,149

 

Telecom, Networking and Communications

 

 

3,503

 

 

 

2,314

 

 

 

2,200

 

 

 

8,017

 

Medical and Safety

 

 

8,093

 

 

 

3,104

 

 

 

47

 

 

 

11,244

 

Industrial, Power and Clean Technology

 

 

26,845

 

 

 

9,178

 

 

 

865

 

 

 

36,888

 

Semiconductors

 

 

5,749

 

 

 

16

 

 

 

 

 

 

5,765

 

Avionics, Aerospace and Defense

 

 

 

 

 

4,822

 

 

 

 

 

 

4,822

 

Segment Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

781

 

 

$

1,386

 

 

$

73

 

 

 

2,240

 

Over time

 

 

57,961

 

 

 

27,696

 

 

 

3,039

 

 

 

88,696

 

Total Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

Six months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

8,404

 

 

$

17,766

 

 

$

 

 

$

26,170

 

Retail and Payment Systems

 

 

19,073

 

 

 

 

 

 

 

 

 

19,073

 

Telecom, Networking and Communications

 

 

4,799

 

 

 

7,014

 

 

 

714

 

 

 

12,527

 

Medical and Safety

 

 

16,426

 

 

 

4,875

 

 

 

130

 

 

 

21,431

 

Industrial, Power and Clean Technology

 

 

58,473

 

 

 

15,830

 

 

 

60

 

 

 

74,363

 

Semiconductors

 

 

12,421

 

 

 

 

 

 

 

 

 

12,421

 

Avionics, Aerospace and Defense

 

 

 

 

 

19,559

 

 

 

 

 

 

19,559

 

Segment Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,050

 

 

$

2,420

 

 

$

452

 

 

 

3,922

 

Over time

 

 

118,546

 

 

 

62,624

 

 

 

452

 

 

 

181,622

 

Total Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

Six months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,434

 

 

$

20,654

 

 

$

 

 

$

25,088

 

Retail and Payment Systems

 

 

25,078

 

 

 

 

 

 

 

 

 

25,078

 

Telecom, Networking and Communications

 

 

7,507

 

 

 

4,391

 

 

 

6,884

 

 

 

18,782

 

Medical and Safety

 

 

16,501

 

 

 

6,756

 

 

 

441

 

 

 

23,698

 

Industrial, Power and Clean Technology

 

 

57,779

 

 

 

15,271

 

 

 

3,017

 

 

 

76,067

 

Semiconductors

 

 

13,054

 

 

 

16

 

 

 

 

 

 

13,070

 

Avionics, Aerospace and Defense

 

 

 

 

 

11,802

 

 

 

 

 

 

11,802

 

Segment Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,216

 

 

$

3,098

 

 

$

76

 

 

 

4,390

 

Over time

 

 

123,137

 

 

 

55,792

 

 

 

10,266

 

 

 

189,195

 

Total Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

 

Certain customers were reclassified from the Test and Measurement sector to the Industrial IoT, Power and Clean Technology sector during the three months ended June 28, 2020.  The comparative periods have been adjusted to conform to this classification.

 

Additions to property, plant and equipment

The following table contains additions, including those acquired through capital leases, to property, plant and equipment for the three and six months ended:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

375

 

 

$

256

 

 

$

919

 

 

$

517

 

Mexico

 

 

326

 

 

 

965

 

 

 

486

 

 

 

1,353

 

China

 

 

 

 

 

23

 

 

 

2

 

 

 

54

 

Segment total

 

 

701

 

 

 

1,244

 

 

 

1,407

 

 

 

1,924

 

Corporate and other

 

 

3

 

 

 

24

 

 

 

3

 

 

 

24

 

Total

 

$

704

 

 

$

1,268

 

 

$

1,410

 

 

$

1,948

 

 

Property, plant and operating lease right of use assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

19,570

 

 

$

16,904

 

Mexico

 

 

10,221

 

 

 

10,970

 

China

 

 

 

 

 

670

 

Segment total

 

 

29,791

 

 

 

28,544

 

Corporate and other

 

 

123

 

 

 

96

 

Total

 

$

29,914

 

 

$

28,640

 

 

Other long term segment assets (b)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

8,564

 

 

$

9,273

 

Mexico

 

 

20,457

 

 

 

22,179

 

China

 

 

 

 

 

 

Segment total

 

 

29,021

 

 

 

31,452

 

Corporate and other

 

 

749

 

 

 

859

 

Total

 

$

29,770

 

 

$

32,311

 

 

Total segment assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

125,222

 

 

$

112,789

 

Mexico

 

 

95,153

 

 

 

93,349

 

China

 

 

 

 

 

6,694

 

Segment total

 

 

220,375

 

 

 

212,832

 

Corporate and other

 

 

895

 

 

 

547

 

Total

 

$

221,270

 

 

$

213,379

 

 

(a)

Property, plant and equipment information is based on the principal location of the asset.

(b)

Includes Goodwill, Intangible assets, deferred income taxes and deferred financing costs.

Geographic revenue

The following table contains geographic revenue based on our customer invoicing location, for the six months ended June 28, 2020 and June 30, 2019.

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

85,413

 

 

$

82,593

 

 

$

174,922

 

 

$

176,934

 

Canada

 

 

4,646

 

 

 

4,860

 

 

 

9,668

 

 

 

9,770

 

China

 

 

347

 

 

 

3,483

 

 

 

954

 

 

 

6,881

 

Total

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

 

Significant customers and concentration of credit risk

Sales of the Company’s products are concentrated in certain cases among specific customers in the same industry. The Company is subject to concentrations of credit risk in trade receivables. The Company considers concentrations of credit risk in establishing the allowance for doubtful accounts and believes the recorded allowances are adequate.

The Company expects to continue to depend upon a relatively small number of customers for a significant percentage of its revenue. In addition to having a limited number of customers, the Company manufactures a limited number of products for each customer. If the Company loses any of its larger customers or any product line manufactured for one of its larger customers, it could experience a significant reduction in revenue. Also, the insolvency of one or more of its larger customers or the inability of one or more of its larger customers to pay for its orders could decrease revenue. As many costs and operating expenses are relatively fixed, a reduction in net revenue can decrease profit margins and adversely affect the business, financial condition and results of operations.

During the six months ended June 28, 2020, one customer exceeded 10% of total revenue, comprising of 14.3% of total revenue across all geographic segments. During the six months ended June 30, 2019, one customer exceeded 10% of total revenue, comprising of 13.1% of total revenue across all geographic segments.

As of June 28, 2020, no customers represented more than 10% of the trade accounts receivable.  At December 29, 2019, one customer comprised 10% of the Company’s trade accounts receivable. No other customers individually represented more than 10% of total revenue or trade accounts receivable.

v3.20.2
Derivative Financial Instruments
6 Months Ended
Jun. 28, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative financial instruments

9.

Derivative financial instruments

During the six months ended June 28, 2020, the Company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted Mexican peso expenditures. These contracts were effective as hedges from an economic perspective, but do not meet the requirements for hedge accounting under ASC Topic 815 “Derivatives and Hedging”. Accordingly, changes in the fair value of these contracts were recognized into net income in the consolidated statement of operations and comprehensive income (loss). The Company had no outstanding forward foreign exchange contracts in the first half of 2019.

The following table presents a summary of the outstanding foreign currency forward contracts as at June 28, 2020:

 

Currency

 

Buy/Sell

 

Foreign Currency Amount

 

Notional

Contract

Value

in USD

 

Mexican Peso

 

Buy

 

285,000  MXN

 

$

11,668

 

 

The unrealized gain recognized in earnings as a result of revaluing the instruments to fair value on June 28, 2020 for the six months period ended was $459 (June 30, 2019– $Nil) which was included in cost of sales in the interim consolidated statement of operations and comprehensive income (loss). Fair value is determined using the market approach with valuation based on market observables (Level 2 quantitative inputs in the hierarchy set forth under ASC 820 “Fair Value Measurements”).

The average contract and mark-to-market rates for outstanding forward foreign exchange contracts were as follows:

 

 

 

June 28,

2020

 

 

December 29,

2019

Average USD:PESO contract rate

 

 

24.43

 

 

N/A

Average USD:PESO mark-to-market rate

 

 

23.50

 

 

N/A

 

The derivative assets were $459 as at June 28, 2020 (June 30, 2019 –Nil) which reflected the fair market value of the unsettled forward foreign exchange contracts.  There was no derivative liability as at June 28, 2020 or June 30, 2019.

v3.20.2
Restructuring Charges
6 Months Ended
Jun. 28, 2020
Restructuring And Related Activities [Abstract]  
Restructuring Charges

10.

Restructuring Charges

Dongguan facility closure

In September 2019, the Company announced it plans to close its Dongguan manufacturing facility in China, concurrent with the expiration of the facility lease in December 2019, which was extended to February 2020. The closure was formally approved by the Board of Directors in September 2019.  A restructuring charge of $5,000 was recorded in the twelve months ended December 29, 2019 relating to the announced planned closure. The closure of the Dongguan facility resulted in a reduced labor force by approximately 137 employees. The employee group was notified of the closure in the last week of September 2019. The closure of the Dongguan facility and majority of the cash outflows associated with the $2,037 included within the restructuring liability was for severance and other exit costs which was substantially completed by the end of the first quarter of 2020. During the six months ended June 28, 2020, restructuring recoveries were recorded of $346 primarily related to shipments and cash payments received on previously provisioned Dongguan inventory Remaining activities include a small number of support staff performing administrative duties, professional services to be rendered with respect to the closure activities, taxes and duties to be settled in addition to severance payments.  Substantially all of the costs are anticipated to be spent by the third quarter of 2020.  Manufacturing by the Company of certain products previously manufactured at the Dongguan facility has been transferred to the Company’s other manufacturing facilities. A restructuring charge of $5,000 was recorded in the twelve months ended December 29, 2019 relating to the announced planned closure.

Restructuring Liability

 

 

 

Termination

benefits and

other exit costs

 

Balance as at December 29, 2019

 

$

1,597

 

Involuntary employee termination benefits

 

 

115

 

Other exit cost payments and provisions reversed unutilized

 

 

(183

)

Payments—Dongguan severance

 

 

(626

)

Payments (U.S., Canada and Mexico)

 

 

(228

)

At June 28, 2020

 

$

675

 

 

v3.20.2
Commitments
6 Months Ended
Jun. 28, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments

11.

Commitments

Purchase obligations not recorded on the balance sheet as at June 28, 2020 consist of open non-cancellable purchase orders (PO) for raw materials for $50,455, which are expected to be paid within 12 months of the PO issue date. Purchase obligations not recorded on the balance sheet as at December 29, 2019, consisted of open non-cancellable purchase orders for raw materials for $27,959 to be paid within 12 months of the PO issue date.

v3.20.2
Subsequent Events
6 Months Ended
Jun. 28, 2020
Subsequent Events [Abstract]  
Subsequent Events

12.

Subsequent Events

Subsequent to June 28, 2020, and in part in response to economic conditions resulting from the COVID-19 pandemic, the Company effected cost-cutting measures including headcount reductions, the majority of which were at our Zacatecas, Mexico facility with a total cost amounting to $1,000.  

v3.20.2
Interim Consolidated Financial Statement Details (Tables)
6 Months Ended
Jun. 28, 2020
Condensed Financial Information Of Parent Company Only Disclosure [Abstract]  
Consolidated Balance Sheets

 

 

June 28,

2020

 

 

December 29,

2019

 

Trade accounts receivable

 

$

67,192

 

 

$

71,113

 

Other receivables

 

 

188

 

 

 

1,098

 

Allowance for doubtful accounts

 

 

(2,309

)

 

 

(2,292

)

Total

 

$

65,071

 

 

$

69,919

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Opening

 

$

26,271

 

 

$

20,405

 

Contract assets additions

 

 

172,217

 

 

 

350,709

 

Contract assets invoiced

 

 

(159,841

)

 

 

(344,843

)

Ending

 

$

38,647

 

 

$

26,271

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Raw materials

 

$

50,251

 

 

$

48,067

 

Parts and other

 

 

383

 

 

 

586

 

Provision for obsolescence

 

 

(509

)

 

 

(827

)

Total

 

$

50,125

 

 

$

47,826

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Land

 

$

1,648

 

 

$

1,648

 

Buildings (b)

 

 

18,985

 

 

 

18,985

 

Machinery and equipment (a) (e)

 

 

43,192

 

 

 

42,732

 

Office furniture and equipment (c) (e)

 

 

836

 

 

 

1,005

 

Computer hardware and software (d) (e)

 

 

3,679

 

 

 

3,979

 

Leasehold improvements (e)

 

 

4,240

 

 

 

4,265

 

 

 

 

72,580

 

 

 

72,614

 

Less accumulated depreciation:

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

Buildings (b)

 

 

(10,944

)

 

 

(10,392

)

Machinery and equipment (a) (e)

 

 

(32,700

)

 

 

(31,192

)

Office furniture and equipment (c) (e)

 

 

(393

)

 

 

(546

)

Computer hardware and software (d) (e)

 

 

(3,082

)

 

 

(3,289

)

Leasehold improvements (e)

 

 

(1,966

)

 

 

(1,885

)

 

 

 

(49,085

)

 

 

(47,304

)

Property, plant and equipment—net

 

$

23,495

 

 

$

25,310

 

 

(a)

Included within machinery and equipment were assets under finance leases with costs of $2,275 and $2,275 and associated accumulated depreciation of $1,196 and $974 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $109 and $142, respectively. The related depreciation expense for the six months ended March 29, 2020 and June 30, 2019 was $222 and $284, respectively.

 

(b)

Included within buildings are costs associated with Melbourne facility under finance leases of $9,082 and associated accumulated depreciation of $1,303 and $900 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $201 and $201, respectively. The related depreciation expense for six months ended June 28, 2020 and June 30 29, 2019 was $403 and $402, respectively.  

 

(c)

Included within office furniture and equipment were assets under finance leases with costs of $307 and associated accumulated depreciation of $85 and $52 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $16 and $10, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30 29, 2019 was $33 and $20, respectively.

 

(d)

Included within computer hardware and software were assets under finance leases with costs of $91 and associated accumulated depreciation of $66 and $51 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $8 and $8, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30, 2019 was $15 and $15, respectively.

 

(e)

Fully depreciated machinery and equipment with cost of $636 and accumulated amortization of $636 was written off in the six months ended June 28, 2020. Fully depreciated office furniture and fixtures with cost of $209 and accumulated amortization of $209 was written off. Fully depreciated computer hardware and software with cost of $414 and accumulated amortization of $414 was written off. Write off charges of $3 were incurred on leasehold improvements with cost of $185 and accumulated amortization of $182.  These write off charges were incurred related to the closure of the Dongguan facility for those items not otherwise transferred to other manufacturing facilities.

 

 

June 28,

2020

 

 

December 29,

2019

 

Cost:

 

 

 

 

 

 

 

 

Customer relationships

 

$

12,350

 

 

$

12,350

 

Order backlog

 

 

6,990

 

 

 

6,990

 

Trade name

 

 

1,300

 

 

 

1,300

 

Non-compete agreements

 

 

360

 

 

 

360

 

 

 

 

21,000

 

 

 

21,000

 

Less accumulated amortization:

 

 

 

 

 

 

 

 

Customer relationships

 

 

(2,031

)

 

 

(1,414

)

Order backlog

 

 

(6,990

)

 

 

(5,333

)

Trade name

 

 

(1,300

)

 

 

(1,300

)

Non-compete agreements

 

 

(296

)

 

 

(206

)

 

 

 

(10,617

)

 

 

(8,253

)

Intangible assets—net

 

$

10,383

 

 

$

12,747

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

3,115

 

 

$

3,824

 

Mexico

 

 

7,268

 

 

 

8,923

 

Total

 

$

10,383

 

 

$

12,747

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

5,449

 

 

$

5,449

 

Mexico

 

 

12,716

 

 

 

12,716

 

Total

 

$

18,165

 

 

$

18,165

 

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Payroll

 

$

6,029

 

 

$

5,504

 

Customer related

 

 

5,527

 

 

 

2,185

 

Deferred revenue

 

 

3,734

 

 

 

 

Vendor related

 

 

2,941

 

 

 

1,742

 

Professional services

 

 

760

 

 

 

612

 

Interest

 

 

402

 

 

 

860

 

Other

 

 

646

 

 

 

261

 

Total

 

$

20,039

 

 

$

11,164

 

 

Finite-lived Intangible Assets Amortization Expense

2020

 

$

682

 

2021

 

 

1,235

 

2022

 

 

1,235

 

2023

 

 

1,235

 

2024

 

 

1,235

 

2025 and thereafter

 

 

4,761

 

Total amortization

 

$

10,383

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Long-term debt

 

$

1,020

 

 

$

1,709

 

 

$

2,068

 

 

$

3,461

 

Revolving credit facility

 

 

482

 

 

 

597

 

 

 

1,034

 

 

 

1,216

 

Amortization of deferred financing fees

 

 

55

 

 

 

38

 

 

 

110

 

 

 

72

 

Amortization of debt issuance costs

 

 

239

 

 

 

236

 

 

 

478

 

 

 

473

 

Obligations under finance leases

 

 

188

 

 

 

220

 

 

 

380

 

 

 

448

 

Other interest

 

 

3

 

 

 

 

 

 

10

 

 

 

 

Total

 

$

1,987

 

 

$

2,800

 

 

$

4,080

 

 

$

5,670

 

v3.20.2
Debt (Tables)
6 Months Ended
Jun. 28, 2020
Debt Disclosure [Abstract]  
Summary of Revolving Credit and Long Term Debt Facilities

 

 

 

June 28,

2020

 

 

December 29,

2019

 

Revolving credit facility

 

$

33,943

 

 

$

34,701

 

Term loans:

 

 

 

 

 

 

 

 

Term loan A facility

 

$

38,125

 

 

$

38,750

 

Less deferred debt issue costs

 

 

(2,070

)

 

 

(2,286

)

Less unamortized discount on debt

 

 

(1,277

)

 

 

(1,464

)

Total term loans

 

$

34,778

 

 

$

35,000

 

Less current portion

 

 

(1,875

)

 

 

(1,250

)

Long term portion

 

$

32,903

 

 

$

33,750

 

 

v3.20.2
Capital Stock (Tables)
6 Months Ended
Jun. 28, 2020
Equity [Abstract]  
Common Shares Issued and Outstanding

The issued and outstanding number of common shares included in shareholders’ equity consisted of the following:

 

 

 

Number of

shares

 

 

$

 

Balance at December 29, 2019

 

$

28,195,300

 

 

$

508

 

New share issuance-vested stock awards

 

 

19,500

 

 

 

-

 

Balance June 28, 2020

 

$

28,214,800

 

 

$

508

 

 

Summary of Stock Option Activity A summary of stock option activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Number

of options

 

 

Weighted

average

exercise

price

 

 

Aggregate

intrinsic

value

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding at December 29, 2019

 

 

2,344,374

 

 

$

2.14

 

 

 

2,016

 

 

 

7.9

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 28, 2020

 

 

2,344,374

 

 

 

2.14

 

 

 

1,757

 

 

 

7.4

 

Exercisable at June 28, 2020

 

 

1,088,140

 

 

 

1.55

 

 

 

1,741

 

 

 

6.7

 

 

Summary of Restricted Stock Units Activity A summary of the RSU activity for the six month period ended June 28, 2020 is as follows:

 

 

 

Outstanding

RSU

 

 

Weighted

average

stock

price

 

 

Weighted

average

remaining

contractual

term (years)

 

Outstanding balance at December 29, 2019

 

 

348,000

 

 

$

3.16

 

 

 

2.23

 

RSU granted

 

 

63,000

 

 

 

2.74

 

 

 

 

 

RSU vested and issued in common shares

 

 

(19,500

)

 

 

1.28

 

 

 

 

 

RSU forfeited

 

 

 

 

 

 

 

 

 

 

Outstanding balance at June 28, 2020

 

 

391,500

 

 

 

3.19

 

 

 

2.24

 

 

v3.20.2
Earnings Per Common Share (Tables)
6 Months Ended
Jun. 28, 2020
Earnings Per Share [Abstract]  
Schedule of Computation of Basic and Diluted Earnings Per Common Share

The following table details the weighted average number of common shares outstanding for the purposes of computing basic and diluted earnings per common share for the following periods:

 

 

 

Three months ended

 

 

Six months ended

 

(Number of common shares)

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Basic weighted average shares outstanding

 

 

28,213,729

 

 

 

23,557,944

 

 

 

28,204,514

 

 

 

23,403,431

 

Dilutive stock awards (a,b)

 

 

1,279,743

 

 

 

 

 

 

1,279,743

 

 

 

 

Diluted weighted average shares outstanding

 

 

29,493,472

 

 

 

23,557,944

 

 

 

29,484,257

 

 

 

23,403,431

 

 

 

(a)

For the three and six months ended June 28, 2020, as a result of net income for the periods, dilutive earnings per share were calculated using the treasury stock method.  The dilutive stock awards have been calculated as 1,279,743 for the three and six months ended June 28, 2020, respectively, related to the outstanding unvested restricted stock units and incremental in-the-money stock options.

 

(b)

For the three and six months ended June 30, 2019, as a result of net loss for the period, dilutive stock awards are not presented as this would be antidilutive. Had there been net income for the periods, the dilutive stock awards would have been calculated as 1,251,626 for the three and six months ended June 30, 2019, related to outstanding unvested restricted stock units and incremental in-the-money stock options.

v3.20.2
Segment Information (Tables)
6 Months Ended
Jun. 28, 2020
Segment Reporting [Abstract]  
Segment Reporting Information, by Segment

In assessing the performance of the reportable segments, management attributes site revenue to the reportable segment that ships the product to the customer, irrespective of the product’s destination. Information about the reportable segments is as follows: 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,801

 

 

$

59,336

 

 

$

122,165

 

 

$

125,096

 

China

 

 

 

 

 

5,793

 

 

 

4,207

 

 

 

14,449

 

U.S.

 

 

32,136

 

 

 

29,211

 

 

 

65,517

 

 

 

59,022

 

Total

 

$

90,937

 

 

$

94,340

 

 

$

191,889

 

 

$

198,567

 

Intersegment revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

(147

)

 

$

(594

)

 

$

(2,569

)

 

$

(743

)

China

 

 

 

 

 

(2,681

)

 

 

(3,303

)

 

 

(4,107

)

U.S.

 

 

(384

)

 

 

(129

)

 

 

(473

)

 

 

(132

)

Total

 

$

(531

)

 

$

(3,404

)

 

$

(6,345

)

 

$

(4,982

)

Net external revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

58,654

 

 

$

58,742

 

 

$

119,596

 

 

$

124,353

 

China

 

$

 

 

 

3,112

 

 

$

904

 

 

 

10,342

 

U.S.

 

 

31,752

 

 

 

29,082

 

 

 

65,044

 

 

 

58,890

 

Total segment revenue (which also equals

   consolidated revenue)

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

Segment contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

 

$

5,088

 

 

$

5,835

 

 

$

10,963

 

 

$

10,641

 

China

 

$

 

 

 

844

 

 

 

(2

)

 

 

1,699

 

U.S.

 

 

2,270

 

 

 

1,764

 

 

 

5,231

 

 

 

3,187

 

Total

 

$

7,358

 

 

$

8,443

 

 

$

16,192

 

 

$

15,527

 

Corporate expenses

 

 

4,750

 

 

 

6,006

 

 

 

10,652

 

 

 

11,265

 

Restructuring charges (recovery)

 

 

(125

)

 

 

1,546

 

 

 

(346

)

 

 

2,170

 

Change in fair value of warrant liability

 

 

399

 

 

 

40

 

 

 

(118

)

 

 

(61

)

Change in fair value of contingent

   consideration

 

 

 

 

 

 

 

 

 

 

 

(3,050

)

Unrealized foreign exchange loss on unsettled

   forward exchange contracts

 

 

(971

)

 

 

 

 

 

(459

)

 

 

 

Interest expense

 

 

1,987

 

 

 

2,800

 

 

 

4,080

 

 

 

5,670

 

Income(loss) before income taxes

 

$

1,318

 

 

$

(1,949

)

 

$

2,383

 

 

$

(467

)

 

Three months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,220

 

 

$

9,718

 

 

$

 

 

$

13,938

 

Retail and Payment Systems

 

 

6,750

 

 

 

 

 

 

 

 

 

6,750

 

Telecom, Networking and Communications

 

 

1,764

 

 

 

3,223

 

 

 

 

 

 

4,987

 

Medical and Safety

 

 

7,863

 

 

 

2,298

 

 

 

 

 

 

10,161

 

Industrial, Power and Clean Technology

 

 

30,952

 

 

 

7,339

 

 

 

 

 

 

38,291

 

Semiconductors

 

 

7,105

 

 

 

 

 

 

 

 

 

7,105

 

Avionics, Aerospace and Defense

 

 

 

 

 

9,174

 

 

 

 

 

 

9,174

 

Segment Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

551

 

 

$

1,353

 

 

 

 

 

 

1,904

 

Over time

 

 

58,103

 

 

 

30,399

 

 

 

 

 

 

88,502

 

Total Revenue

 

 

58,654

 

 

 

31,752

 

 

 

 

 

 

90,406

 

 

 

Three months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

2,403

 

 

$

9,648

 

 

$

 

 

$

12,051

 

Retail and Payment Systems

 

 

12,149

 

 

 

 

 

 

 

 

 

12,149

 

Telecom, Networking and Communications

 

 

3,503

 

 

 

2,314

 

 

 

2,200

 

 

 

8,017

 

Medical and Safety

 

 

8,093

 

 

 

3,104

 

 

 

47

 

 

 

11,244

 

Industrial, Power and Clean Technology

 

 

26,845

 

 

 

9,178

 

 

 

865

 

 

 

36,888

 

Semiconductors

 

 

5,749

 

 

 

16

 

 

 

 

 

 

5,765

 

Avionics, Aerospace and Defense

 

 

 

 

 

4,822

 

 

 

 

 

 

4,822

 

Segment Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

781

 

 

$

1,386

 

 

$

73

 

 

 

2,240

 

Over time

 

 

57,961

 

 

 

27,696

 

 

 

3,039

 

 

 

88,696

 

Total Revenue

 

 

58,742

 

 

 

29,082

 

 

 

3,112

 

 

 

90,936

 

 

 

Six months ended June 28, 2020

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

8,404

 

 

$

17,766

 

 

$

 

 

$

26,170

 

Retail and Payment Systems

 

 

19,073

 

 

 

 

 

 

 

 

 

19,073

 

Telecom, Networking and Communications

 

 

4,799

 

 

 

7,014

 

 

 

714

 

 

 

12,527

 

Medical and Safety

 

 

16,426

 

 

 

4,875

 

 

 

130

 

 

 

21,431

 

Industrial, Power and Clean Technology

 

 

58,473

 

 

 

15,830

 

 

 

60

 

 

 

74,363

 

Semiconductors

 

 

12,421

 

 

 

 

 

 

 

 

 

12,421

 

Avionics, Aerospace and Defense

 

 

 

 

 

19,559

 

 

 

 

 

 

19,559

 

Segment Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,050

 

 

$

2,420

 

 

$

452

 

 

 

3,922

 

Over time

 

 

118,546

 

 

 

62,624

 

 

 

452

 

 

 

181,622

 

Total Revenue

 

 

119,596

 

 

 

65,044

 

 

 

904

 

 

 

185,544

 

 

 

Six months ended June 30, 2019

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Market Sector:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Test and Measurement

 

$

4,434

 

 

$

20,654

 

 

$

 

 

$

25,088

 

Retail and Payment Systems

 

 

25,078

 

 

 

 

 

 

 

 

 

25,078

 

Telecom, Networking and Communications

 

 

7,507

 

 

 

4,391

 

 

 

6,884

 

 

 

18,782

 

Medical and Safety

 

 

16,501

 

 

 

6,756

 

 

 

441

 

 

 

23,698

 

Industrial, Power and Clean Technology

 

 

57,779

 

 

 

15,271

 

 

 

3,017

 

 

 

76,067

 

Semiconductors

 

 

13,054

 

 

 

16

 

 

 

 

 

 

13,070

 

Avionics, Aerospace and Defense

 

 

 

 

 

11,802

 

 

 

 

 

 

11,802

 

Segment Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue by category

 

Mexico

 

 

U.S.

 

 

China

 

 

Total

 

Point in time

 

$

1,216

 

 

$

3,098

 

 

$

76

 

 

 

4,390

 

Over time

 

 

123,137

 

 

 

55,792

 

 

 

10,266

 

 

 

189,195

 

Total Revenue

 

 

124,353

 

 

 

58,890

 

 

 

10,342

 

 

 

193,585

 

 

The following table contains geographic revenue based on our customer invoicing location, for the six months ended June 28, 2020 and June 30, 2019.

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

85,413

 

 

$

82,593

 

 

$

174,922

 

 

$

176,934

 

Canada

 

 

4,646

 

 

 

4,860

 

 

 

9,668

 

 

 

9,770

 

China

 

 

347

 

 

 

3,483

 

 

 

954

 

 

 

6,881

 

Total

 

$

90,406

 

 

$

90,936

 

 

$

185,544

 

 

$

193,585

 

 

Schedule of Additions Including Acquired Through Capital Leases To Property, Plant and Equipment

The following table contains additions, including those acquired through capital leases, to property, plant and equipment for the three and six months ended:

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 28,

2020

 

 

June 30,

2019

 

 

June 28,

2020

 

 

June 30,

2019

 

U.S.

 

$

375

 

 

$

256

 

 

$

919

 

 

$

517

 

Mexico

 

 

326

 

 

 

965

 

 

 

486

 

 

 

1,353

 

China

 

 

 

 

 

23

 

 

 

2

 

 

 

54

 

Segment total

 

 

701

 

 

 

1,244

 

 

 

1,407

 

 

 

1,924

 

Corporate and other

 

 

3

 

 

 

24

 

 

 

3

 

 

 

24

 

Total

 

$

704

 

 

$

1,268

 

 

$

1,410

 

 

$

1,948

 

 

Property, plant and operating lease right of use assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

19,570

 

 

$

16,904

 

Mexico

 

 

10,221

 

 

 

10,970

 

China

 

 

 

 

 

670

 

Segment total

 

 

29,791

 

 

 

28,544

 

Corporate and other

 

 

123

 

 

 

96

 

Total

 

$

29,914

 

 

$

28,640

 

 

Other long term segment assets (b)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

8,564

 

 

$

9,273

 

Mexico

 

 

20,457

 

 

 

22,179

 

China

 

 

 

 

 

 

Segment total

 

 

29,021

 

 

 

31,452

 

Corporate and other

 

 

749

 

 

 

859

 

Total

 

$

29,770

 

 

$

32,311

 

 

Total segment assets (a)

 

 

 

June 28,

2020

 

 

December 29,

2019

 

U.S.

 

$

125,222

 

 

$

112,789

 

Mexico

 

 

95,153

 

 

 

93,349

 

China

 

 

 

 

 

6,694

 

Segment total

 

 

220,375

 

 

 

212,832

 

Corporate and other

 

 

895

 

 

 

547

 

Total

 

$

221,270

 

 

$

213,379

 

 

(a)

Property, plant and equipment information is based on the principal location of the asset.

(b)

Includes Goodwill, Intangible assets, deferred income taxes and deferred financing costs.

v3.20.2
Derivative Financial Instruments (Tables)
6 Months Ended
Jun. 28, 2020
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Instruments

 

Currency

 

Buy/Sell

 

Foreign Currency Amount

 

Notional

Contract

Value

in USD

 

Mexican Peso

 

Buy

 

285,000  MXN

 

$

11,668

 

 

Schedule of Derivative Rates at Fair Value

 

 

 

June 28,

2020

 

 

December 29,

2019

Average USD:PESO contract rate

 

 

24.43

 

 

N/A

Average USD:PESO mark-to-market rate

 

 

23.50

 

 

N/A

 

v3.20.2
Restructuring Charges (Tables)
6 Months Ended
Jun. 28, 2020
Restructuring And Related Activities [Abstract]  
Schedule of Restructuring Liability

 

 

Termination

benefits and

other exit costs

 

Balance as at December 29, 2019

 

$

1,597

 

Involuntary employee termination benefits

 

 

115

 

Other exit cost payments and provisions reversed unutilized

 

 

(183

)

Payments—Dongguan severance

 

 

(626

)

Payments (U.S., Canada and Mexico)

 

 

(228

)

At June 28, 2020

 

$

675

 

 

v3.20.2
Business and Nature of Presentation - Additional Information (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
USD ($)
Jun. 28, 2020
USD ($)
Line
Mar. 29, 2020
USD ($)
Dec. 29, 2019
USD ($)
PNC Bank [Member] | Revolving Credit Facility [Member]        
Business And Nature Of Presentation [Line Items]        
Line of Credit Facility, Remaining Borrowing Capacity $ 30,875 $ 30,875 $ 31,185 $ 21,644
COVID-19 Pandemic [Member]        
Business And Nature Of Presentation [Line Items]        
Additional cost incurred $ 1,185      
Minimum [Member]        
Business And Nature Of Presentation [Line Items]        
Number of manufacturing and assembly lines | Line   50    
v3.20.2
Interim Consolidated Financial Statement Details - Consolidated Balance Sheets (Details) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 28, 2020
Dec. 29, 2019
Condensed Balance Sheet Statements Captions [Line Items]    
Trade accounts receivable $ 67,192 $ 71,113
Other receivables 188 1,098
Allowance for doubtful accounts (2,309) (2,292)
Total 65,071 69,919
Opening 26,271 20,405
Contract assets additions 172,217 350,709
Contract assets invoiced (159,841) (344,843)
Ending 38,647 26,271
Raw materials 50,251 48,067
Parts and other 383 586
Provision for obsolescence (509) (827)
Total 50,125 47,826
Property, plant and equipment 72,580 72,614
Accumulated depreciation, property, plant and equipment (49,085) (47,304)
Property, plant and equipment—net 23,495 25,310
Intangible assets 21,000 21,000
Intangible assets, accumulated amortization (10,617) (8,253)
Total amortization 10,383 12,747
Goodwill 18,165 18,165
Payroll 6,029 5,504
Deferred revenue 3,734 0
Professional services 760 612
Interest 402 860
Total 20,039 11,164
Customer Related [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Other accrued liabilities 5,527 2,185
Vendor Related [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Other accrued liabilities 2,941 1,742
Other Accrued Liabilities [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Other accrued liabilities 646 261
US [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Total amortization 3,115 3,824
Goodwill 5,449 5,449
Mexico [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Total amortization 7,268 8,923
Goodwill 12,716 12,716
Customer Relationships [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Intangible assets 12,350 12,350
Intangible assets, accumulated amortization (2,031) (1,414)
Order or Production Backlog [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Intangible assets 6,990 6,990
Intangible assets, accumulated amortization (6,990) (5,333)
Trade Names [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Intangible assets 1,300 1,300
Intangible assets, accumulated amortization (1,300) (1,300)
Noncompete Agreements [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Intangible assets 360 360
Intangible assets, accumulated amortization (296) (206)
Land [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment 1,648 1,648
Building [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment [1] 18,985 18,985
Accumulated depreciation, property, plant and equipment [1] (10,944) (10,392)
Machinery and Equipment [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment [2],[3] 43,192 42,732
Accumulated depreciation, property, plant and equipment [2],[3] (32,700) (31,192)
Furniture and Fixtures [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment [2],[4] 836 1,005
Accumulated depreciation, property, plant and equipment [2],[4] (393) (546)
Computer Equipment [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment [2],[5] 3,679 3,979
Accumulated depreciation, property, plant and equipment [2],[5] (3,082) (3,289)
Leasehold Improvements [Member]    
Condensed Balance Sheet Statements Captions [Line Items]    
Property, plant and equipment [2] 4,240 4,265
Accumulated depreciation, property, plant and equipment [2] $ (1,966) $ (1,885)
[1] Included within buildings are costs associated with Melbourne facility under finance leases of $9,082 and associated accumulated depreciation of $1,303 and $900 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $201 and $201, respectively. The related depreciation expense for six months ended June 28, 2020 and June 30 29, 2019 was $403 and $402, respectively.
[2] Fully depreciated machinery and equipment with cost of $636 and accumulated amortization of $636 was written off in the six months ended June 28, 2020. Fully depreciated office furniture and fixtures with cost of $209 and accumulated amortization of $209 was written off. Fully depreciated computer hardware and software with cost of $414 and accumulated amortization of $414 was written off. Write off charges of $3 were incurred on leasehold improvements with cost of $185 and accumulated amortization of $182.  These write off charges were incurred related to the closure of the Dongguan facility for those items not otherwise transferred to other manufacturing facilities.
[3] Included within machinery and equipment were assets under finance leases with costs of $2,275 and $2,275 and associated accumulated depreciation of $1,196 and $974 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $109 and $142, respectively. The related depreciation expense for the six months ended March 29, 2020 and June 30, 2019 was $222 and $284, respectively.
[4] Included within office furniture and equipment were assets under finance leases with costs of $307 and associated accumulated depreciation of $85 and $52 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $16 and $10, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30 29, 2019 was $33 and $20, respectively.
[5] Included within computer hardware and software were assets under finance leases with costs of $91 and associated accumulated depreciation of $66 and $51 as of June 28, 2020 and December 29, 2019, respectively. The related depreciation expense for the three months ended June 28, 2020 and June 30, 2019 was $8 and $8, respectively. The related depreciation expense for the six months ended June 28, 2020 and June 30, 2019 was $15 and $15, respectively.
v3.20.2
Interim Consolidated Financial Statement Details - Consolidated Balance Sheets (Parenthetical) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Mar. 29, 2020
Jun. 30, 2019
Dec. 29, 2019
Condensed Balance Sheet Statements Captions [Line Items]            
Depreciation of property, plant and equipment     $ 3,222   $ 3,253  
Dongguan Facility Closure [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Restructuring Charges, Total           $ 5,000
Machinery and Equipment [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Capital Leased Assets, Gross, Total $ 2,275   2,275     2,275
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation 1,196   1,196     974
Machinery and Equipment [Member] | Dongguan Facility Closure [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Property, Plant and Equipment, Transfers and Changes     636      
Accumulated Depreciation, Depletion and Amortization, Write Down     636      
Machinery and Equipment [Member] | Assets Under Finance Lease [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Depreciation of property, plant and equipment 109 $ 142   $ 222 284  
Building and Building Improvements [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Capital Leased Assets, Gross, Total 9,082   9,082     9,082
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation 1,303   1,303     900
Building and Building Improvements [Member] | Assets Under Finance Lease [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Depreciation of property, plant and equipment 201 201 403   402  
Furniture and Fixtures [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Capital Leased Assets, Gross, Total 307   307     307
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation 85   85     52
Furniture and Fixtures [Member] | Dongguan Facility Closure [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Property, Plant and Equipment, Transfers and Changes     209      
Accumulated Depreciation, Depletion and Amortization, Write Down     209      
Furniture and Fixtures [Member] | Assets Under Finance Lease [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Depreciation of property, plant and equipment 16 10 33   20  
Computer Equipment [Member] | Dongguan Facility Closure [Member] | Restructuring Charges Related to Write Down of Property, Plant and Equipment [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Property, Plant and Equipment, Transfers and Changes     414      
Accumulated Depreciation, Depletion and Amortization, Write Down     414      
Computer Equipment [Member] | Assets Under Finance Lease [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Capital Leased Assets, Gross, Total 91   91     91
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation 66   66     $ 51
Depreciation of property, plant and equipment $ 8 $ 8 15   $ 15  
Leasehold Improvements [Member] | Dongguan Facility Closure [Member]            
Condensed Balance Sheet Statements Captions [Line Items]            
Property, Plant and Equipment, Transfers and Changes     185      
Accumulated Depreciation, Depletion and Amortization, Write Down     182      
Restructuring Charges, Total     $ 3      
v3.20.2
Interim Consolidated Financial Statement Details - Additional Information (Details) - USD ($)
6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Dec. 29, 2019
Condensed Financial Information Of Parent Company Only Disclosure [Abstract]      
Amortization of intangible assets $ 2,364,000 $ 3,688,000  
Goodwill 18,165,000   $ 18,165,000
Deferred revenue 3,734,000   $ 0
Deferred revenue, revenue recognized 0    
Accounts receivable balances associated with the deferred revenue $ 3,734,000    
v3.20.2
Interim Consolidated Financial Statement Details - Finite-lived Intangible Assets Amortization Expense (Details) - USD ($)
$ in Thousands
Jun. 28, 2020
Dec. 29, 2019
Finite Lived Intangible Assets Future Amortization Expense [Abstract]    
2020 $ 682  
2021 1,235  
2022 1,235  
2023 1,235  
2024 1,235  
2025 and thereafter 4,761  
Total amortization $ 10,383 $ 12,747
v3.20.2
Interim Consolidated Financial Statement Details - Consolidated Statements of Operations and Comprehensive Income (Loss) (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Condensed Income Statements Captions [Line Items]        
Long-term debt $ 1,020 $ 1,709 $ 2,068 $ 3,461
Amortization of deferred financing fees 55 38 110 72
Amortization of debt issuance costs 239 236 478 473
Obligations under finance leases 188 220 380 448
Other interest 3   10  
Total 1,987 2,800 4,080 5,670
Revolving Credit Facility [Member]        
Condensed Income Statements Captions [Line Items]        
Line of credit facility, periodic payment, interest $ 482 $ 597 $ 1,034 $ 1,216
v3.20.2
Debt - Summary of Revolving Credit and Long Term Debt Facilities (Details) - USD ($)
$ in Thousands
Jun. 28, 2020
Dec. 29, 2019
Debt Disclosure [Abstract]    
Revolving credit facility $ 33,943 $ 34,701
Term loans:    
Term loan A facility 38,125 38,750
Less deferred debt issue costs (2,070) (2,286)
Less unamortized discount on debt (1,277) (1,464)
Total term loans 34,778 35,000
Less current portion (1,875) (1,250)
Long term portion $ 32,903 $ 33,750
v3.20.2
Debt - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 26, 2020
Aug. 08, 2019
Dec. 27, 2020
Sep. 27, 2020
Jun. 28, 2020
Mar. 29, 2020
Dec. 29, 2019
Nov. 08, 2018
Debt Disclosure [Line Items]                
Line of credit         $ 33,943   $ 34,701  
Debt Instrument, Unamortized Discount, Total         $ 1,277   1,464  
PNC and TCW Amendment [Member]                
Debt Disclosure [Line Items]                
Non-recurring labor costs and temporary employee bonuses $ 1,200              
Restructuring and severance charges, accruals and reserves 1,000              
Increase in aggregate principal amount of indebtedness $ 3,750              
PNC Agreement and Financing Agreement [Member] | Scenario Forecast [Member]                
Debt Disclosure [Line Items]                
Percentage of reduction in earnings before interest, income taxes, depreciation and amortization     24.00% 34.00%        
PNC Bank [Member] | Foreign Line of Credit [Member]                
Debt Disclosure [Line Items]                
Maturity date         Nov. 08, 2023      
PNC Bank [Member] | Foreign Line of Credit [Member] | Base Rate [Member] | Minimum [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate         0.50%      
PNC Bank [Member] | Foreign Line of Credit [Member] | Base Rate [Member] | Maximum [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate         1.00%      
PNC Bank [Member] | Foreign Line of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate         1.50%      
PNC Bank [Member] | Foreign Line of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate         2.00%      
PNC Bank [Member] | Revolving Credit Facility [Member]                
Debt Disclosure [Line Items]                
Line of Credit Facility, Remaining Borrowing Capacity         $ 30,875 $ 31,185 21,644  
Line of Credit Facility, Maximum Borrowing Capacity             65,000  
Line of credit         33,943   34,701  
TCW Asset Management Company, LLC [Member]                
Debt Disclosure [Line Items]                
Debt Issuance Cost, Gross, Noncurrent         2,070   2,286  
Debt Instrument, Unamortized Discount, Total         $ 1,277   1,464  
Class of Warrant or Right, Outstanding (in shares)               504,735
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)         511,949      
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share)               $ 0.01
Warrants and Rights Outstanding         $ 1,612   $ 1,730 $ 1,898
Share Price (in dollars per share)         $ 3.15   $ 3.38  
TCW Asset Management Company, LLC [Member] | Rights Offering and the Registered Direct Offering in June 2019 [Member]                
Debt Disclosure [Line Items]                
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares)         7,214      
TCW Asset Management Company, LLC [Member] | Term Loan [Member]                
Debt Disclosure [Line Items]                
Additional Prepayment Fee After Closing Date, Percent, First Twelve Months         3.00%      
Additional Prepayment Fee After Closing Date, Percent, Year Two         2.00%      
Additional Prepayment Fee After Closing Date, Percent, Year Three         1.00%      
TCW Asset Management Company, LLC [Member] | Term Loan A [Member]                
Debt Disclosure [Line Items]                
Maturity date         Nov. 08, 2023      
Line of credit         $ 38,125   $ 38,750  
TCW Asset Management Company, LLC [Member] | London Interbank Offered Rate (LIBOR) [Member] | Financing Agreement Through June 30, 2020 [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate   8.75%            
TCW Asset Management Company, LLC [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member] | Financing Agreement Through June 30, 2020 [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate   7.25%            
TCW Asset Management Company, LLC [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | Financing Agreement Through June 30, 2020 [Member]                
Debt Disclosure [Line Items]                
Debt Instrument, Basis Spread on Variable Rate   8.75%            
v3.20.2
Capital Stock - Common Shares Issued and Outstanding (Details)
$ in Thousands
6 Months Ended
Jun. 28, 2020
USD ($)
shares
Equity [Abstract]  
Balance, Number of shares 28,195,300
New share issuance-vested stock awards 19,500
Balance, Number of shares 28,214,800
Balance | $ $ 508
Balance | $ $ 508
v3.20.2
Capital Stock - Summary of Stock Option Activity (Details) - USD ($)
$ / shares in Units, $ in Thousands
6 Months Ended 12 Months Ended
Jun. 28, 2020
Dec. 29, 2019
Equity [Abstract]    
Number of options, Outstanding 2,344,374  
Number of options, Outstanding 2,344,374 2,344,374
Number of options, Exercisable 1,088,140  
Outstanding, Weighted average exercise price $ 2.14  
Outstanding, Weighted average exercise price 2.14 $ 2.14
Exercisable, Weighted average exercise price $ 1.55  
Balance, Aggregate intrinsic value $ 1,757 $ 2,016
Exercisable, Aggregate intrinsic value $ 1,741  
Outstanding, Weighted average remaining contractual term (Year) 7 years 4 months 24 days 7 years 10 months 24 days
Exercisable, Weighted average remaining contractual term (Year) 6 years 8 months 12 days  
v3.20.2
Capital Stock - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Stock Option [Member]        
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Share-based Payment Arrangement, Expense $ 57 $ 41 $ 115 $ 62
Restricted Stock Units (RSUs) [Member]        
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Share-based Payment Arrangement, Expense $ 98 $ 56 $ 202 $ 123
RSU granted     63,000  
v3.20.2
Capital Stock - Summary of Restricted Stock Units Activity (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares
6 Months Ended 12 Months Ended
Jun. 28, 2020
Dec. 29, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Outstanding balance, Outstanding RSU 348,000  
RSU granted, Outstanding RSU 63,000  
RSU vested and issued in common shares, Outstanding RSU (19,500)  
Outstanding balance, Outstanding RSU 391,500 348,000
Outstanding balance, Weighted average stock price $ 3.16  
RSU granted, Weighted average stock price 2.74  
RSU vested and issued in common shares, Weighted average stock price 1.28  
Outstanding balance, Weighted average stock price $ 3.19 $ 3.16
Outstanding balance, Weighted average remaining contractual term (years) 2 years 2 months 26 days 2 years 2 months 23 days
v3.20.2
Income Taxes - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Income Tax Disclosure [Abstract]        
Current income tax expense $ 311 $ 416 $ 586 $ 695
Deferred income tax expense $ 52 $ 103 67 $ 95
Current Income Tax Benefit from Provisions under CARES Act     $ 45  
v3.20.2
Earnings Per Common Share - Schedule of Computation of Basic and Diluted Earnings Per Common Share (Details) - shares
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Earnings Per Share [Abstract]        
Basic weighted average shares outstanding 28,213,729 23,557,944 28,204,514 23,403,431
Dilutive stock awards [1],[2] 1,279,743   1,279,743  
Diluted weighted average shares outstanding 29,493,472 23,557,944 29,484,257 23,403,431
[1]

For the three and six months ended June 28, 2020, as a result of net income for the periods, dilutive earnings per share were calculated using the treasury stock method.  The dilutive stock awards have been calculated as 1,279,743 for the three and six months ended June 28, 2020, respectively, related to the outstanding unvested restricted stock units and incremental in-the-money stock options.

[2]

For the three and six months ended June 30, 2019, as a result of net loss for the period, dilutive stock awards are not presented as this would be antidilutive. Had there been net income for the periods, the dilutive stock awards would have been calculated as 1,251,626 for the three and six months ended June 30, 2019, related to outstanding unvested restricted stock units and incremental in-the-money stock options.

v3.20.2
Earnings Per Common Share - Schedule of Computation of Basic and Diluted Earnings Per Common Share (Parenthetical) (Details) - shares
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Earnings Per Share [Abstract]        
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 1,279,743 1,251,626 1,279,743 1,251,626
v3.20.2
Segmented Information - Segment Reporting Information, by Segment (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Segment Reporting Information [Line Items]        
Revenue $ 90,406 $ 90,936 $ 185,544 $ 193,585
Segment contribution 10,686 8,997 20,325 17,621
Corporate expenses 4,750 6,006 10,652 11,265
Restructuring charges (recovery) (125) 1,546 (346) 2,170
Change in fair value of warrant liability 399 40 (118) (61)
Change in fair value of contingent consideration       (3,050)
Unrealized foreign exchange loss on unsettled forward exchange contracts (971)   (459)  
Interest expense (note 3) 1,987 2,800 4,080 5,670
Income(loss) before income taxes 1,318 (1,949) 2,383 (467)
Customers by Invoice Location [Member]        
Segment Reporting Information [Line Items]        
Revenue 90,406 90,936 185,544 193,585
Point in Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 1,904 2,240 3,922 4,390
Over Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 88,502 88,696 181,622 189,195
Test and Measurement [Member]        
Segment Reporting Information [Line Items]        
Revenue 13,938 12,051 26,170 25,088
Retail and Payment Systems [Member]        
Segment Reporting Information [Line Items]        
Revenue 6,750 12,149 19,073 25,078
Telecom, Networking, and Communications [Member]        
Segment Reporting Information [Line Items]        
Revenue 4,987 8,017 12,527 18,782
Medical and Safety [Member]        
Segment Reporting Information [Line Items]        
Revenue 10,161 11,244 21,431 23,698
Industrial, Power and Clean Technology [Member]        
Segment Reporting Information [Line Items]        
Revenue 38,291 36,888 74,363 76,067
Semiconductor [Member]        
Segment Reporting Information [Line Items]        
Revenue 7,105 5,765 12,421 13,070
Avionics, Aerospace and Defense [Member]        
Segment Reporting Information [Line Items]        
Revenue 9,174 4,822 19,559 11,802
Mexico [Member]        
Segment Reporting Information [Line Items]        
Revenue 58,654 58,742 119,596 124,353
Mexico [Member] | Point in Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 551 781 1,050 1,216
Mexico [Member] | Over Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 58,103 57,961 118,546 123,137
Mexico [Member] | Test and Measurement [Member]        
Segment Reporting Information [Line Items]        
Revenue 4,220 2,403 8,404 4,434
Mexico [Member] | Retail and Payment Systems [Member]        
Segment Reporting Information [Line Items]        
Revenue 6,750 12,149 19,073 25,078
Mexico [Member] | Telecom, Networking, and Communications [Member]        
Segment Reporting Information [Line Items]        
Revenue 1,764 3,503 4,799 7,507
Mexico [Member] | Medical and Safety [Member]        
Segment Reporting Information [Line Items]        
Revenue 7,863 8,093 16,426 16,501
Mexico [Member] | Industrial, Power and Clean Technology [Member]        
Segment Reporting Information [Line Items]        
Revenue 30,952 26,845 58,473 57,779
Mexico [Member] | Semiconductor [Member]        
Segment Reporting Information [Line Items]        
Revenue 7,105 5,749 12,421 13,054
China [Member]        
Segment Reporting Information [Line Items]        
Revenue   3,112 904 10,342
China [Member] | Customers by Invoice Location [Member]        
Segment Reporting Information [Line Items]        
Revenue 347 3,483 954 6,881
China [Member] | Point in Time [Member]        
Segment Reporting Information [Line Items]        
Revenue   73 452 76
China [Member] | Over Time [Member]        
Segment Reporting Information [Line Items]        
Revenue   3,039 452 10,266
China [Member] | Telecom, Networking, and Communications [Member]        
Segment Reporting Information [Line Items]        
Revenue   2,200 714 6,884
China [Member] | Medical and Safety [Member]        
Segment Reporting Information [Line Items]        
Revenue   47 130 441
China [Member] | Industrial, Power and Clean Technology [Member]        
Segment Reporting Information [Line Items]        
Revenue   865 60 3,017
US [Member]        
Segment Reporting Information [Line Items]        
Revenue 31,752 29,082 65,044 58,890
US [Member] | Customers by Invoice Location [Member]        
Segment Reporting Information [Line Items]        
Revenue 85,413 82,593 174,922 176,934
US [Member] | Point in Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 1,353 1,386 2,420 3,098
US [Member] | Over Time [Member]        
Segment Reporting Information [Line Items]        
Revenue 30,399 27,696 62,624 55,792
US [Member] | Test and Measurement [Member]        
Segment Reporting Information [Line Items]        
Revenue 9,718 9,648 17,766 20,654
US [Member] | Telecom, Networking, and Communications [Member]        
Segment Reporting Information [Line Items]        
Revenue 3,223 2,314 7,014 4,391
US [Member] | Medical and Safety [Member]        
Segment Reporting Information [Line Items]        
Revenue 2,298 3,104 4,875 6,756
US [Member] | Industrial, Power and Clean Technology [Member]        
Segment Reporting Information [Line Items]        
Revenue 7,339 9,178 15,830 15,271
US [Member] | Semiconductor [Member]        
Segment Reporting Information [Line Items]        
Revenue   16   16
US [Member] | Avionics, Aerospace and Defense [Member]        
Segment Reporting Information [Line Items]        
Revenue 9,174 4,822 19,559 11,802
CANADA | Customers by Invoice Location [Member]        
Segment Reporting Information [Line Items]        
Revenue 4,646 4,860 9,668 9,770
Reportable Geographical Components [Member]        
Segment Reporting Information [Line Items]        
Revenue 90,937 94,340 191,889 198,567
Segment contribution 7,358 8,443 16,192 15,527
Reportable Geographical Components [Member] | Mexico [Member]        
Segment Reporting Information [Line Items]        
Revenue 58,801 59,336 122,165 125,096
Segment contribution 5,088 5,835 10,963 10,641
Reportable Geographical Components [Member] | China [Member]        
Segment Reporting Information [Line Items]        
Revenue   5,793 4,207 14,449
Segment contribution   844 (2) 1,699
Reportable Geographical Components [Member] | US [Member]        
Segment Reporting Information [Line Items]        
Revenue 32,136 29,211 65,517 59,022
Segment contribution 2,270 1,764 5,231 3,187
Intersegment Revenue [Member]        
Segment Reporting Information [Line Items]        
Revenue (531) (3,404) (6,345) (4,982)
Intersegment Revenue [Member] | Mexico [Member]        
Segment Reporting Information [Line Items]        
Revenue (147) (594) (2,569) (743)
Intersegment Revenue [Member] | China [Member]        
Segment Reporting Information [Line Items]        
Revenue   (2,681) (3,303) (4,107)
Intersegment Revenue [Member] | US [Member]        
Segment Reporting Information [Line Items]        
Revenue $ (384) $ (129) $ (473) $ (132)
v3.20.2
Segmented Information - Schedule of Additions Including Acquired Through Capital Leases To Property, Plant and Equipment (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Dec. 29, 2019
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment $ 704 $ 1,268 $ 1,410 $ 1,948  
Property, plant and operating lease right of use assets 29,914   29,914   $ 28,640
Other long term segment assets 29,770   29,770   32,311
Total segment assets 221,270   221,270   213,379
Reportable Geographical Components [Member]          
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment 701 1,244 1,407 1,924  
Property, plant and operating lease right of use assets 29,791   29,791   28,544
Other long term segment assets 29,021   29,021   31,452
Total segment assets 220,375   220,375   212,832
Corporate, Non-Segment [Member]          
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment 3 24 3 24  
Property, plant and operating lease right of use assets 123   123   96
Other long term segment assets 749   749   859
Total segment assets 895   895   547
US [Member] | Reportable Geographical Components [Member]          
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment 375 256 919 517  
Property, plant and operating lease right of use assets 19,570   19,570   16,904
Other long term segment assets 8,564   8,564   9,273
Total segment assets 125,222   125,222   112,789
Mexico [Member] | Reportable Geographical Components [Member]          
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment 326 965 486 1,353  
Property, plant and operating lease right of use assets 10,221   10,221   10,970
Other long term segment assets 20,457   20,457   22,179
Total segment assets $ 95,153   95,153   93,349
China [Member] | Reportable Geographical Components [Member]          
Segment Reporting Information [Line Items]          
Additions to property, plant and equipment   $ 23 $ 2 $ 54  
Property, plant and operating lease right of use assets         670
Total segment assets         $ 6,694
v3.20.2
Segmented Information - Additional Information (Details) - Customer Concentration Risk [Member] - Customer
6 Months Ended 12 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Dec. 29, 2019
Revenue Benchmark [Member]      
Segment Reporting Information [Line Items]      
Number of Major Customers 1 1  
Concentration Risk, Percentage 14.30% 13.10%  
Accounts Receivable [Member]      
Segment Reporting Information [Line Items]      
Number of Major Customers 0   1
v3.20.2
Derivative Financial Instruments - Additional Information (Details)
$ in Thousands
6 Months Ended
Jun. 28, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 28, 2020
MXN ($)
Jun. 30, 2019
MXN ($)
Forward foreign exchange contracts outstanding amount     $ 285,000 $ 0
Derivative asset, current $ 459 $ 0    
Derivative liability, current 0 0    
Cost of Sales [Member]        
Unrealized Gain (Loss) on Derivatives $ 459 $ 0    
v3.20.2
Derivative Financial Instruments - Foreign Currency Forward Contracts (Details)
$ in Thousands
6 Months Ended
Jun. 28, 2020
USD ($)
Jun. 28, 2020
MXN ($)
Jun. 30, 2019
MXN ($)
Derivative Instruments And Hedging Activities Disclosure [Abstract]      
Buy/Sell Buy    
Foreign Currency Amount   $ 285,000 $ 0
Notional Contract Value in USD $ 11,668    
v3.20.2
Derivative Financial Instruments - Average USD Fair Value Measurements for Contracts Rates (Details)
Jun. 28, 2020
USD:PESO Contract Rate [Member]  
Contract rate 24.43%
USD:PESO Mark-to-market Rate [Member]  
Mark-to-market rate 23.50%
v3.20.2
Restructuring Charges - Additional Information (Details)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Sep. 30, 2019
USD ($)
Employee
Jun. 28, 2020
USD ($)
Jun. 30, 2019
USD ($)
Jun. 28, 2020
USD ($)
Jun. 30, 2019
USD ($)
Dec. 29, 2019
USD ($)
Restructuring Cost And Reserve [Line Items]            
Restructuring Charges (Recoveries)   $ (125) $ 1,546 $ (346) $ 2,170  
Dongguan Facility Closure [Member]            
Restructuring Cost And Reserve [Line Items]            
Restructuring and Related Cost, Number of Positions Eliminated | Employee 137          
Restructuring and Related Cost, Expected Cost, Total $ 2,037          
Restructuring Charges, Total           $ 5,000
v3.20.2
Restructuring Charges - Schedule of Restructuring Liability (Details)
$ in Thousands
6 Months Ended
Jun. 28, 2020
USD ($)
Restructuring Cost And Reserve [Line Items]  
Balance $ 1,597
Balance 675
One-time Termination Benefits [Member]  
Restructuring Cost And Reserve [Line Items]  
Restructuring Charges, Total 115
Facility Exit Costs [Member]  
Restructuring Cost And Reserve [Line Items]  
Restructuring Charges, Total (183)
Dongguan Severance [Member]  
Restructuring Cost And Reserve [Line Items]  
Payments (626)
U.S., Canada and Mexico [Member]  
Restructuring Cost And Reserve [Line Items]  
Payments $ (228)
v3.20.2
Commitments - Additional Information (Details) - USD ($)
Jun. 28, 2020
Dec. 29, 2019
Open Non-cancellable Purchase Orders for Raw Materials [Member]    
Loss Contingencies [Line Items]    
Purchase Obligation, to be Paid, Year One $ 50,455,000 $ 27,959,000
Indemnification Agreement [Member]    
Loss Contingencies [Line Items]    
Loss contingency accrual $ 0 $ 0
v3.20.2
Subsequent Events - Additional Information (Details)
$ in Thousands
Jun. 29, 2020
USD ($)
COVID-19 Pandemic [Member] | Mexico [Member] | Subsequent Event [Member]  
Subsequent Event [Line Items]  
Restructuring charges $ 1,000