Pemstar reports Q4 and FY - sales down, further losses
May 25, 2005
Announces initiatives to improve future operations and financial performance
Pemstar Inc. (Nasdaq: PMTR) announced financial results for its fiscal 2005 fourth quarter and full year ended March 31, 2005.
Revenue for the three months ended March 31, 2005 decreased to $150.4 million, compared to $186.1 million in the same quarter a year ago. This was due to the planned transition out of certain consumer business and weaker semi-conductor capital equipment orders. The year ago period also includes revenues from manufacturing sites that have since been closed. Revenue for the fiscal year ended March 31, 2005 increased to $689.9 million, as compared with $669.4 million for the fiscal year ended March 31, 2004. The revenue growth was led by growth in semi-conductor capital equipment business.
Net loss for the fiscal fourth quarter ended March 31, 2005 was $(12.3) million or $(0.27) per share, compared to net loss of $(3.3) million or $(0.07) per share in the same quarter a year ago. The increased net loss resulted from a $9.8 million decrease in gross profit compared to the prior year period due to decreased sales resulting in lower capacity utilization. Results for the fourth quarter also include one time adjustments for certain Americas locations and to engineering operations of $4.3 million or $(0.09) per share, including adjustments to estimated unbilled services of $(0.06) and accounts receivable and inventory reserves of $(0.03). Net loss for the full year ended March 31, 2005 was $(33.7) million or $(0.75) per share, compared to net loss of $(25.3) million or $(0.60) per share for the full year ended March 31, 2004. Results for the full year 2005 include one-time restructuring charges totaling $5.2 million or $(0.11) per share. The prior year net loss, as restated, included restructuring charges of $8.0 million or $(0.19) per share. There was a $16.2 million decline in second half gross profit performance due to lower sales resulting in lower capacity utilization in fiscal 2005 versus fiscal 2004, which the company is addressing as noted below.
Excluding the above-mentioned one time adjustments totaling $(0.09) per share, the adjusted net loss for the fiscal fourth quarter of 2005, was $(8.0) million or $(0.18) per share, which is in-line with prior guidance. The adjusted net loss for the fiscal year ended March 31, 2005, excluding charges for restructuring of $5.2 million, accounts receivable and inventory reserves of $7.5 million, was $(25.1) million or $(0.56) per share.
Al Berning, Chairman and CEO of Pemstar stated, "Fiscal year 2005 has been a transition year for Pemstar. Our focus, while taking restructuring actions over the past 12 months, has been on maintaining our ability to support and service our customers globally by strengthening the performance of our core operations."
Roy Bauer, Pemstar's President and COO added, "We are taking actions over the next 6 months to optimize our cost structure, capacity and engineering organization in the Americas. This will result in the reduction of 100,000 square feet from our San Jose facility and one consolidated Americas engineering team. Pemstar's San Jose operation will now be a center for new customer product introductions and prototype builds. We are also reviewing options for our Mexico operation, which would likely include a sale or downsizing, thereby eliminating additional excess capacity. New manufacturing opportunities, requiring lower cost structures, will be shifted to our other low cost facilities around the world. Finally, we are further reducing our SG&A costs with a planned 6% reduction of our domestic workforce. Taken together, our planned actions position Pemstar to better capitalize on our core capabilities geared towards engineering services and high complexity manufacturing, while making us stronger and better able to service our key customers."
Greg Lea, Pemstar's Executive Vice President and CFO commented, "The planned restructuring actions we are currently taking are expected to significantly improve our competitive position and financial model. Once completed, we expect that these actions, along with our other cost containment initiatives currently being implemented, will reduce our operating expense structure by approximately $4 to $5 million per quarter giving Pemstar increased operating leverage and putting us on track to achieve profitability. As a result of our planned restructuring activities, we expect to take a charge of approximately $14 to $18 million over the next two quarters. Based on 2005 actions and expected 2006 reductions, we estimate removing approximately 425,000 square feet of manufacturing capacity from our global operations, leaving us with 1,151,000 square feet worldwide. By the end of the second quarter of fiscal 2006 we will have reduced our workforce in the Americas by 20 percent over that eighteen month period."
During the fourth quarter of fiscal 2005, sales to the industrial sector accounted for 41.5% of net sales; computing and data storage was 28.9 % of net sales; communications was 26.0% of net sales; and medical was 3.6% of net sales.
Accounts receivable at March 31, 2005 was $102.5 million with days sales outstanding (DSO) of 61, compared with $124.9 million in accounts receivable with DSO of 64 at December 31, 2004. Net inventories of $73.4 million as of March 31, 2005 with a turn rate of 8.0 times, compared with $84.0 million at December 31, 2004 and a turn rate of 8.2 times. Pemstar's cash cycle remained at the December quarter's level of 52 days. Cash generated from operations was $23.0 million in the fourth quarter and $25.3 million for fiscal 2005 primarily due to improved working capital management. The cash balance at March 31, 2005, was $26.0 million, compared to $18.4 million at December 31, 2004. Liquidity, defined as worldwide cash plus available domestic borrowing, stood at $48.9 million.
Debt as of March 31, 2005, was $98.1 million, compared to $104.2 million in the quarter ended December 31, 2004. This decrease was due to reduced borrowings under Pemstar's domestic and Asia credit facilities. Debt is calculated as debt plus capital leases, including current maturities in both cases.
Al Berning further commented, "Despite a challenging business environment we remain optimistic about our prospects in 2006 and we expect to derive the incremental benefits from our restructuring actions starting in the fiscal second quarter. By eliminating the less strategic, underperforming parts of our business, Pemstar will now be a leaner, more efficient company with improved capacity utilization levels and the ability to achieve improved financial performance. In addition, we continue to win important new programs from both new and existing customers like the Airbus A380 project and the General Dynamics' Land Warrior program funded by the U.S. Army this past February. Pemstar plays an important role in these programs. Customers continue to value our focus on product development, test, automation services and high complexity manufacturing, which differentiates us."
Fiscal 2006 First-Quarter Outlook
The following forward-looking statements are based on current expectations, and today's economic uncertainties make it difficult to project results going forward. Pemstar currently expects net sales in the fiscal 2006 first quarter ending June 30, 2005, of $160 million to $170 million, and a net loss of $(0.10) to $(0.15) per share, as the company's restructuring improvements are not fully implemented until the second quarter. As is the company's practice, this guidance excludes reserves to adjust capacity to market conditions and customer demands, along with further restructuring charges referred to above.