Highlights:
Full year gross margin improved to 20.3%;
Full year adjusted EBITDA growth of 27% to $26 million;
Continued program wins in the military/aerospace market;
Fourth quarter goodwill impairment charge due to decline in market capitalization;
Additional stock repurchases of up to $10 million approved.
Fourth Quarter Results:
The company reported fourth quarter 2008 net sales of $43.0 million, gross margin of 19.6%, operating income before goodwill charge of $1.3 million, and adjusted EBITDA of $5.5 million.
Mikel Williams, president and chief executive officer of DDi, said, “Although we experienced a slowdown during the back end of the quarter, I am pleased with the bottom line results we achieved. The fourth quarter is typically slower for our business, with our quick turn business being impacted by holiday seasonality. This year the general economic conditions impacted our customer base as well and we saw additional softness in the November and December months for our commercial customers. Somewhat offsetting this weakness is our military/aerospace business. We revised our business strategy early in 2006 to pursue the military/aerospace market both as a growth opportunity and to also serve as a counter balance to the cyclical commercial markets. We are now experiencing the benefits of this strategy, as we have doubled our military/aerospace business in each of the last two years and we continue to see solid performance in this market segment with long-term program wins that will benefit the company moving forward.”
The company has recorded a fourth quarter non-cash charge of $38.9 million to write off the entire carrying value of its goodwill in connection with its annual impairment test. The charge was driven by a decrease in the company’s stock price and market capitalization as a result of the weakened economy and adverse capital market conditions. As a result of this charge, the company reported a GAAP net loss for the fourth quarter and full year 2008. Prior to the charge, net income was $1.6 million or $0.08 per share for the fourth quarter.
Williams added, “While the impairment charge resulted in a net loss for the fourth quarter and full year, this is a non-cash accounting charge which did not affect the company’s normal business operations, liquidity position or availability under its credit facility, and we believe does not reflect the actual performance of the business. Essentially all of the goodwill balance was established in fresh start accounting when the company exited from the 2003 restructuring. We move forward with no goodwill on our balance sheet and thus no future goodwill impairment issues related to our existing business. The quarter’s adjusted EBITDA and operating income, aside from the goodwill impairment, reflects our successful ongoing efforts to manage our business and our cost structure.”
Fourth quarter 2008 net sales of $43.0 million decreased 5% from the prior year’s fourth quarter net sales of $45.2 million and also decreased sequentially 13% from third quarter net sales of $49.3 million primarily due to the unstable economy and resulting decline in customer demand. While several market segments were down consistent with the overall reduction in PCB market demand, the company had significant improvement in the military/aerospace market year over year and maintained sales levels in this market segment on a sequential basis from the third quarter.
Gross margin for the fourth quarter of 2008 increased to 19.6% of net sales compared to 17.4% in the fourth quarter of 2007 primarily due to better absorption of fixed overhead costs and operational improvements. On a sequential basis, gross margin was down from 20.8% of net sales in the third quarter primarily due to the reduction in net sales.
The company’s adjusted EBITDA for the fourth quarter of 2008 of $5.5 million, or 12.9% of net sales, increased from $5.1 million, or 11.4% of net sales, for the same period in 2007 primarily due to the improvement in gross margin. Adjusted EBITDA was down on a sequential basis from $7.1 million, or 14.3% of net sales, for the third quarter of 2008 primarily attributable to the decrease in net sales.
The company reported a GAAP net loss of $37.3 million, or $1.89 loss per share, for the fourth quarter of 2008. Excluding the impact of the goodwill write-off, net income would have been $1.6 million, or $0.08 per share, an improvement over last year’s fourth quarter net loss of $285,000, or $0.01 loss per share, due to the improvement in gross profit margin, and on a sequential basis, net income would have been essentially flat compared to net income of $1.6 million, or $0.08 per share, in the third quarter.
2008 Full Year Results:
The increase in net sales was primarily driven by the growth in the military/aerospace market.
Gross margin for 2008 improved to 20.3% of net sales from 19.3% of net sales in 2007 due to top line sales growth and improved operational performance.
Adjusted EBITDA increased 27% to $26.0 million, or 13.6% of net sales, for 2008, compared to $20.5 million, or 11.3% of net sales, for 2007. The improvement in adjusted EBITDA was primarily driven by the top line sales growth and improved margin performance while maintaining control over operating expenses.
Liquidity:
As of December 31, 2008, DDi had total cash and cash equivalents of $20.1 million and no borrowings outstanding under its revolving credit facility which had a borrowing capacity of about $15.9 million.
During 2008 the company repurchased 2.6 million shares of its common stock for a total cash outlay of about $14.4 million.
The company used cash for capital expenditures of $2.7 million and $11.5 million, respectively, in the three and twelve months ended December 31, 2008.
Share Repurchase Plan Extended:
The company’s board of directors also amended the company’s share repurchase program to increase the amount of shares of its common stock authorized to be repurchased by up to an additional $10 million worth of shares.
Williams concluded, “Obviously in difficult economic markets cash is king, however, we continue to balance the needs for liquidity and alternative uses of cash with the opportunity to repurchase shares in the market at attractive valuations. We have now spent a total of $16.3 million repurchasing our shares, and will continue to do so with excess cash as conditions allow.”
