Merix announces Q1 - sales up, losses continue

Merix Corporation (Nasdaq:MERX) announced results for the first quarter of fiscal 2005 ended August 28, 2004.

Sales for the first quarter increased 37% to $42.1 million compared to $30.7 million for the first quarter of fiscal 2004. The net loss in the first quarter of fiscal 2005 was $2.0 million or $0.10 per share compared to a net loss of $2.2 million or $0.15 per share in the first quarter of fiscal 2004. The pro-forma loss in the first quarter of fiscal 2005 was $0.07 per share compared to a pro-forma loss of $0.09 per share in the same period of the prior year. Sales for the fourth quarter of fiscal 2004 were $44.5 million with a pro-forma loss of $0.05 per share.

Pro-forma loss per share excludes a valuation allowance against deferred taxes because management believes the valuation allowance is not representative of underlying trends in the Company's performance and excluding it provides investors with additional information to compare the Company's results over multiple periods. See Related Financial Highlights in this earnings release for a reconciliation of GAAP earnings to non-GAAP financial measures.

Gross margin improved to 10.4% in the first quarter of fiscal 2005 from 6.7% in the year ago quarter and from 9.0% in the fourth quarter of fiscal 2004. The improvement in gross margin compared to the year ago quarter was primarily attributable to a more profitable sales mix, partially offset by increased costs associated with the Wood Village capacity expansion and higher material costs. The improvement in gross margin in the first quarter of 2005 compared to the fourth quarter of fiscal 2004 was primarily the result of lower costs.

In line with prior guidance, SG&A expense in the first quarter of fiscal 2005 included a charge of $768 thousand related to the abandonment of a business opportunity in Asia. SG&A in the first quarter also includes about $250 thousand incremental expense for audit and consulting fees related to compliance with the internal control provisions of Sarbanes-Oxley Section 404.

The balance sheet continues to be strong at the end of the first quarter with cash and investments of $117.0 million and debt to total capitalization of 11%. Capital expenditures were $6.6 million during the quarter, consisting largely of milestone payments on manufacturing equipment for the Wood Village Phase I capacity expansion.

Mark Hollinger, Chairman and Chief Executive Officer of Merix, stated, "We believe our results in the first quarter were affected by excess inventory levels at some customers, which contributed to a lower level of demand. In the last half of the quarter, demand accelerated and order levels increased from several customers. We are supporting program ramps at some newer customers and, in addition, we believe that excess inventories have been reduced. Our book-to-bill ratio for the first quarter of fiscal 2005 was 1.13 to 1.0 and our 90-day backlog at the end of the quarter increased to $25.2 million compared to $19.8 million last quarter. As we expected, our quick-turn and premium service orders in the quarter comprised 27% of sales compared to 32% of sales in the fourth quarter of fiscal 2004."

"Looking at the second quarter of fiscal 2005, we expect sales to range between $43.0 and $47.0 million as a result of increases in unit shipments. However, we have seen competitive pricing in the market for both quick-turn and volume orders which we believe will result in lower average pricing in our second quarter. We expect our financial results will range between a loss of $0.06 per share and breakeven. Pro-forma results, which include the impact of income taxes using an estimated effective tax rate of 35%, are expected to range between a loss of $0.04 per share and breakeven," continued Hollinger.

"We have continued to expand our global sales and customer service organization to accelerate the growth of our quick-turn business. Our strategy for gaining market share continues to be to support our customers in their system design and development activities with our engineering and quick-turn service offering and then facilitate their production ramp as their products go to market," concluded Hollinger.

Merix conducted a conference call and live webcast on September 22, 2004 at 2:00 p.m. PT.  To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 5:00 p.m. PT on September 22, 2004.  A phone replay will be available until approximately midnight on September 29, 2004 by calling 719-457-0820, access code 847723.