DDi Corp. reports Q1 2005 results
May 06, 2005
DDi Corp. (Nasdaq: DDIC) announced financial results for the first quarter of 2005.
Summary of First Quarter Results
The Company reported first quarter 2005 net sales of $44.9 million, an increase of 2% sequentially from the $44.0 million in net sales for the fourth quarter 2004. The increase primarily reflects a strengthening of PCB demand in the latter part of the first quarter, in addition to growth in the assembly operation
First quarter 2005 net sales decreased 7% compared to net sales of $48.1 million for the first quarter 2004. The decrease is primarily attributable to a reduction in the number of printed circuit board (PCB) layers shipped, reflecting a softer PCB market in the first quarter 2005 than in the first quarter 2004. Partially offsetting the decline in PCB net sales was an increase of $1.8 million in net sales from the complementary quick-turn assembly operation, resulting from growth in the customer base.
"Although the sequential PCB growth was limited, in general, we were pleased to see demand begin to increase toward the latter part of the first quarter. For the month of March, total PCB bookings were at their highest level since October 2003. The recent increase in demand is reflected in both our quick-turn business and in our longer-lead orders," stated Bruce McMaster, President and Chief Executive Officer of DDi Corp.
Gross profit for the first quarter 2005 was $8.0 million (18% of net sales) as compared to $5.6 million (12% of net sales) for the first quarter 2004. The increase in gross profit was due to a $6.0 million decrease in non-cash compensation charges and amortization of intangibles from the prior year period. Partially offsetting the benefit of these lower charges was the year-over-year decrease in PCB layer shipments, as described above. On a sequential basis, gross profit increased from $5.2 million reported for the fourth quarter 2004. Excluding the non-cash charges in each period, adjusted gross profit increased sequentially during the first quarter 2005 by $0.5 million on the $0.9 million increase in sequential net sales.
Total sales and marketing expenses for the first quarter 2005 were $3.0 million (7% of net sales) as compared to $4.3 million (9% of net sales) for the first quarter 2004. The reduction in expense in the first quarter was primarily due a $1.2 million reduction in non-cash compensation costs. Excluding such costs, adjusted sales and marketing expenses for the first quarter 2005 were $3.5 million (8% of net sales), as compared to $3.6 million (7% of net sales) for the first quarter 2004.
Total general and administrative expenses for the first quarter 2005 were $4.2 million (9% of net sales), as compared to $3.5 million (7% of net sales) for the first quarter 2004. The increase in expense was largely due to a $0.9 million increase in professional fees incurred in connection with the completion of the Company's year-end Sarbanes-Oxley Section 404 compliance effort and with strategic reviews of the Company's capital structure performed in the first quarter of 2005. The Company also incurred a number of other increases in expense, including other professional fees, personnel costs and insurance costs. These were partially offset by a $1.1 million reduction in non-cash compensation charges.
Net interest expense for the first quarter 2005 decreased to $1.2 million, from $4.4 million for the first quarter 2004, as a result of the repayment of the U.S. term loans in the first quarter of 2004.
During the first quarter of 2005, DDi reported net income of $9.7 million from discontinued operations, primarily due to a $11.1 million non-cash gain on the disposition of DDi Europe, partially offset by net losses from those operations through the date of disposition. The comparable loss from discontinued operations for the first quarter of 2004 was $7.8 million. The gain from the disposition of DDi Europe represents DDi Corp.'s net investment in DDi Europe as of the date of disposition, net of foreign currency translation adjustments.
The Company reported net income available to common stockholders of $5.8 million for the first quarter 2005, or $0.23 per diluted share. For the corresponding period in 2004, the Company reported a net loss to common shareholders of $17.4 million, or $(0.70) per share. The primary reasons for the improvement are the 2005 gain on the disposition of DDi Europe and a reduction in non-cash compensation charges.
First quarter 2005 adjusted EBITDA was $2.8 million, as compared to $7.9 million for the first quarter 2004 and $2.0 million for the fourth quarter 2004. The year-over-year decrease is due principally to the reduction in PCB net sales. The sequential improvement is due to the strengthening of demand in the latter part of the first quarter of 2005, mitigated primarily by an increase in general and administration expenses associated with fiscal year 2004 Sarbanes-Oxley compliance, and strategic reviews of the Company's capital structure.
Bruce McMaster, Chief Executive Officer, commented, "We remain committed to improving our customer service and increasing operational efficiency. To that end, we are announcing two changes. First, we will be closing our Arizona plant, which has produced mass lamination cores for four North American PCB plants, and shifting this work back into those facilities. Our Virginia facility will assume the majority of the internal mass lamination work previously manufactured by the Arizona plant. This change will tighten our turn-around time and reduce inter-facility transfer time and costs. Second, we are closing our Corporate Support Center located in Colorado Springs, and moving its primary functions, principally that of corporate Human Resources, back to our corporate headquarters located in Anaheim, California. Both of these changes help streamline operations, improve efficiency and reduce our cost structure."
Mikel Williams, Chief Financial Officer added, "We are still reviewing the full financial impact of closing the Arizona plant, and will announce the impact, both in terms of restructuring costs and annual efficiency improvements, upon completion of this work."
"We are also pleased to announce our initial compliance with Sarbanes- Oxley Section 404, in which no material weaknesses in internal controls were identified. As noted previously, we anticipate that ongoing compliance will place fewer demands on the Company than did the initial effort, both from a financial and personnel perspective," concluded Williams.