DDi Corp. Announces Third Quarter 2007 Results

DDi Corp. (NASDAQ:DDIC), a leading provider of time-critical, technologically-advanced printed circuit board ("PCB”) engineering and manufacturing services, today reported its financial results for the third quarter ended September 30, 2007. Third Quarter Results Third quarter 2007 net sales were $43.3 million, a decrease of 12 percent sequentially from the second quarter 2007 net sales of $49.1 million and essentially flat compared to PCB net sales of $43.2 million in the third quarter of 2006. Total net sales decreased 16 percent from total net sales in the same period in 2006 of $51.4 million which included $8.2 million in sales from the assembly business that was sold in September 2006. Gross margin as a percentage of net sales decreased to 17.9 percent for the third quarter of 2007 from 22.9 percent in the second quarter of 2007, primarily due to the loss of operating leverage on lower sales. Gross margin on total sales was slightly higher compared to the prior year third quarter gross margin on total sales of 17.7 percent, which included the assembly business, but decreased when comparing only PCB sales which had a 20.8 percent gross margin in the same quarter last year. The decrease in the PCB gross margin from the same quarter last year was primarily due to higher material costs as a percentage of sales driven by a shift in mix to more technologically-advanced boards and material price increases, as well as to lower capacity utilization. Mikel Williams, Chief Executive Officer of DDi Corp., stated, "The third quarter was impacted by slower customer demand, particularly at the start, as demand was softer across the industry. The slow start negatively impacted top line performance and the operating results for the quarter. Going forward, we have seen demand strengthen in our core high-technology, quick-turn commercial business as well as increased interest from customers in the military/aerospace market, which we see as a growth opportunity for the company. In addition to the AS9100 certifications we previously announced, we have recently received the MIL-PRF-55110G certification for our Anaheim facility. We believe these improvements in our certified capabilities, along with new manufacturing process technologies such as DDi’s FLAT-WRAPTM, will facilitate our greater penetration into this vertical market.” Total sales and marketing expenses in the third quarter of 2007 decreased on a sequential basis to $3.0 million from $3.3 million in the second quarter of 2007, primarily due to lower compensation costs and management incentives. Sales and marketing expenses also decreased from the same period in 2006 of $3.9 million, primarily due to the elimination of sales and marketing costs associated with the divested assembly business and a reduction in compensation expense. Total general and administrative expenses for the third quarter of 2007 decreased on a sequential basis to $3.5 million from $3.9 million for the second quarter of 2007, primarily due to lower management incentives and non-cash stock compensation. Compared to the prior year third quarter, general and administrative expenses increased slightly from $3.3 million, primarily due to higher non-cash compensation expense. The Company reported break-even net income applicable to common stockholders, or 0 cents per share, for the third quarter of 2007, compared to $2.0 million, or 9 cents per fully diluted share, in the second quarter of 2007. Compared to the same period in 2006, the net income applicable to common stockholders improved from a net loss applicable to common stockholders of $6.3 million, or 32 cents loss per share, primarily due to the $4.5 million loss associated with the sale of the assembly business and to the $1.8 million of Series B dividends/accretion in the third quarter of 2006. Adjusted EBITDA for the third quarter of 2007 of $4.3 million decreased on a sequential basis from $7.1 million of adjusted EBITDA in the second quarter of 2007 and decreased from the third quarter of 2006 of $4.7 million. A reconciliation of this non-GAAP measure is provided after the GAAP financial statements below. Year to date Results Net sales for the nine months ended September 30, 2007 were $135.9 million, a 4 percent increase over PCB net sales in the same period in 2006 of $131.1 million. Total sales for the nine months ended September 30, 2006 were $154.8 million, which included $23.7 million of sales from the divested assembly business. Gross margin as a percentage of sales for the nine months ended September 30, 2007 was 19.9 percent, an increase from 19.0 percent of total net sales in the same period in 2006, which included the assembly business, but a decrease when comparing only PCB sales which had a 20.8 percent gross margin in the same period last year. The decrease in the PCB gross margin was primarily due to higher material costs as a percentage of sales driven by a shift in mix to more technologically-advanced boards and material price increases. Net income applicable to common stockholders for the nine months ended September 30, 2007 was $1.0 million, or 4 cents per fully diluted share, compared to a net loss applicable to common stockholders for the same period in 2006 of $12.5 million, or 67 cents loss per share. Adjusted EBITDA for the nine months ended September 30, 2007 was $15.4 million, or 11.3 percent of net sales, compared to $15.5 million, or 10.0 percent of net sales for the same period in 2006, slightly higher as a percentage of sales on lower total net sales in 2007 as a result of the sale of the assembly business in September 2006. The Company made capital expenditures in the three and nine months ended September 30, 2007 of $1.7 million and $5.4 million, respectively. As of September 30, 2007, the Company had total cash and cash equivalents of $18.9 million and no borrowings outstanding under its revolving credit facility, which had a borrowing capacity of approximately $16.1 million. Conference Call and Webcast A conference call with simultaneous webcast to discuss third quarter 2007 financial results will be held today at 5:00 p.m. Eastern / 2:00 p.m. Pacific. The call is being webcast and can be accessed at the Company’s web site: www.ddiglobal.com/investor. Participants should access the website at least 15 minutes early to register and download any necessary audio software. A telephone replay of the conference call will be available through November 6, 2007 by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and entering the conference ID 26465241. An online replay of the webcast will be available for 12 months at www.ddiglobal.com/investor under "Financial Calendar.” For more information, visit www.ddiglobal.com. About DDi DDi is a leading provider of time-critical, technologically-advanced, electronics manufacturing services. Headquartered in Anaheim, California, DDi and its subsidiaries offer PCB engineering, fabrication and manufacturing services to leading electronics OEMs and contract manufacturers worldwide from its facilities across North America and with manufacturing partners in Asia. Non-GAAP Financial Measures This release includes ‘adjusted EBITDA’, a non-GAAP financial measure as defined in Regulation G of the Securities Exchange Act of 1934. Management believes that the disclosure of non-GAAP financial measures, when presented in conjunction with the corresponding GAAP measures, provide useful information to the Company, investors and other users of the financial statements and other financial information in identifying and understanding operating performance for a given level of net sales and business trends. Management believes that adjusted EBITDA is an important factor of the Company’s business because it reflects financial performance that is unencumbered by debt service and other non-cash, non-recurring or unusual items. This financial measure is commonly used in the Company’s industry. It is also used by the Company’s lenders to determine components of covenant compliance. However, adjusted EBITDA should not be considered as an alternative to cash flow from operating activities, as a measure of liquidity or as an alternative to net income as a measure of operating results in accordance with generally accepted accounting principles. The Company’s definition of adjusted EBITDA may differ from definitions of such financial measure used by other companies. The Company has provided a reconciliation of adjusted EBITDA to GAAP financial information in the attached Schedule of Non-GAAP reconciliations. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Except for historical information contained in this release, statements in this release may constitute forward-looking statements regarding the Company’s assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as "anticipates,” "believes,” "estimates,” "expects,” "intends,” "plans,” "predicts,” "projects,” "targets,” "will likely result,” "will continue,” "may,” "could” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company cautions that while it makes such statements in good faith and it believes such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records, and other data available from third parties, it cannot assure you that the Company’s projections will be achieved. In addition to other factors and matters discussed from time to time in the Company’s filings with the U.S. Securities and Exchange Commission, or the SEC, some important factors that could cause actual results or outcomes for DDi or its subsidiaries to differ materially from those discussed in forward-looking statements include changes in general economic conditions in the markets in which it may compete and fluctuations in demand in the electronics industry; the Company's ability to sustain historical margins; increased competition; increased costs; loss or retirement of key members of management; increases in the Company’s cost of borrowings or unavailability of additional debt or equity capital on terms considered reasonable by management; and adverse state, federal or foreign legislation or regulation or adverse determinations by regulators. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors. DDi Corp. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)       Qtr. Ended Qtr. Ended Qtr. Ended Sept. 30, 2007 Sept. 30, 2006 Jun. 30, 2007   Net sales $ 43,290 $ 51,374 $ 49,133   Cost of goods sold   35,562     42,263     37,867     Gross profit 7,728 9,111 11,266 17.9 % 17.7 % 22.9 %   Operating expenses: Sales and marketing 2,976 3,879 3,328 General and administrative 3,471 3,331 3,892 Amortization of intangible assets 1,339 1,150 1,339 Restructuring and other related charges 124 120 132 Loss on sale of assembly business   -     4,544     -     Operating income (loss) (182 ) (3,913 ) 2,575   Interest and other expense, net   80     265     233     Income (loss) before income taxes (262 ) (4,178 ) 2,342   Income tax expense (benefit)   (268 )   307     384     Net income (loss) $ 6   $ (4,485 ) $ 1,958     Less: Series B preferred stock dividends and accretion   -     (1,798 )   -   Net income (loss) applicable to common stockholders $ 6   $ (6,283 ) $ 1,958     Net income (loss) per share applicable to common stockholders – basic $ 0.00 $ (0.32 ) $ 0.09 Net income (loss) per share applicable to common stockholders – diluted $ 0.00 $ (0.32 ) $ 0.09   Weighted-average shares used in per share computations – basic 22,571 19,819 22,613 Weighted-average shares used in per share computations – diluted 22,624 19,819 22,655 DDi Corp. Condensed Consolidated Statements of Operations (In thousands, except for per share amounts) (Unaudited)     9 Months Ended 9 Months Ended Sept. 30, 2007 Sept. 30, 2006   Net sales $ 135,870 $ 154,838   Cost of goods sold   108,886     125,376     Gross profit 26,984 29,462 19.9 % 19.0 %   Operating expenses: Sales and marketing 9,428 12,168 General and administrative 11,174 10,587 Amortization of intangible assets 4,018 3,449 Restructuring and other related charges 333 992 Loss on sale of assembly business - 4,544 Litigation reserve   -     1,727     Operating income (loss) 2,031 (4,005 )   Interest and other expense, net   646     1,069     Income (loss) before income taxes 1,385 (5,074 )   Income tax expense   412     2,064     Net income (loss) $ 973   $ (7,138 )   Less: Series B preferred stock dividends and accretion   -     (5,398 ) Net income (loss) applicable to common stockholders $ 973   $ (12,536 )   Net income (loss) per share applicable to common stockholders – basic $ 0.04 $ (0.67 ) Net income (loss) per share applicable to common stockholders – diluted $ 0.04 $ (0.67 )   Weighted-average shares used in per share computations – basic 22,593 18,807 Weighted-average shares used in per share computations – diluted 22,641 18,807 DDi Corp Condensed Consolidated Balance Sheets (In thousands) (Unaudited)     September 30, December 31, 2007 2006 Assets Current assets: Cash and cash equivalents $ 18,893 $ 15,920 Accounts receivable, net 25,491 24,593 Inventories 13,932 14,559 Prepaid expenses and other   1,520     1,146   Total current assets 59,836 56,218 Property, plant and equipment, net 29,657 31,162 Goodwill and intangible assets, net 47,678 51,696 Other assets   657     535   Total assets $ 137,828   $ 139,611     Liabilities and Stockholders' Equity Current liabilities: Revolving credit facility $ - $ - Accounts payable 10,746 12,884 Accrued expenses and other current liabilities   10,450     12,104   Total current liabilities 21,196 24,988 Other long-term liabilities   4,652     5,056   Total liabilities   25,848     30,044     Stockholders' equity: Common stock and additional paid-in-capital 241,592 240,379 Accumulated other comprehensive income 495 268 Accumulated deficit   (130,107 )   (131,080 ) Total stockholders' equity   111,980     109,567   Total liabilities and stockholders' equity $ 137,828   $ 139,611   DDi Corp. Schedule of Non-GAAP Reconciliations (In thousands) (Unaudited)       Qtr. Ended Qtr. Ended Qtr. Ended Sept. 30, 2007 Sept. 30, 2006 Jun. 30, 2007 Adjusted EBITDA: GAAP net income (loss) applicable to common stockholders $ 6 $ (6,283 ) $ 1,958 Add back: Interest and other expense, net 80 265 233 Income tax expense (benefit) (268 ) 307 384 Depreciation 2,498 2,372 2,415 Amortization of intangible assets 1,339 1,150 1,339 Non-cash compensation 548 384 598 Loss on sale of assembly business - 4,544 - Restructuring and other related charges 124 120 132 Series B Preferred Stock dividends and accretion -     1,798     - Adjusted EBITDA(a) $ 4,327   $ 4,657   $ 7,059       (a) Earnings before interest and other, income taxes, depreciation, amortization, non-cash compensation, and if applicable, restructuring and other related charges, loss on sale of assembly business, and Series B dividends and accretion.     9 Months Ended 9 Months Ended Sept. 30, 2007 Sept. 30, 2006 Adjusted EBITDA: GAAP net income (loss) applicable to common shareholders $ 973 $ (12,536 ) Add back: Interest and other expense, net 646 1,069 Income tax expense 412 2,064 Depreciation 7,275 7,513 Amortization of intangible assets 4,018 3,449 Non-cash compensation 1,698 1,051 Officer’s severance - 240 Restructuring and other related charges 333 992 Litigation reserve - 1,727 Loss on sale of assembly business - 4,544 Series B Preferred Stock dividends and accretion - 5,398   Adjusted EBITDA(a) $ 15,355 $ 15,511       (a) Earnings before interest and other, income taxes, depreciation, amortization, non-cash compensation, and if applicable, officer’s severance, litigation reserves, loss on sale of assembly business, restructuring and other related charges, and Series B dividends and accretion.