Financial Overview

This report provides a comprehensive look at the financial performance of the company over the past few years. The company serves both original equipment manufacturers (OEMs) and electronics manufacturing services (EMS) providers, with sales to the top five customers accounting for a significant portion of total revenue.

The company operates in several key end markets, with aerospace and defense being the largest, followed by data center computing, automotive, medical/industrial/instrumentation, and networking. Sales to the aerospace and defense market have been increasing as a percentage of total revenue in recent years.

The company generates revenue primarily from the sale of printed circuit boards (PCBs), engineered systems, and RF and microwave/microelectronics components, assemblies, and subsystems. Revenue is recognized either over time as the products are manufactured or at a point in time upon transfer of control to the customer, depending on the nature of the product and customer arrangement.

Critical Accounting Policies and Estimates

The company’s financial statements require management to make significant estimates and assumptions, particularly around revenue recognition, goodwill and intangible asset impairment, and the impact of the COVID-19 pandemic.

For revenue recognized over time, the company applies a gross margin estimate to inventory in process to determine the appropriate contract asset or liability at the end of each period. Inaccurate gross margin estimates could lead to over- or under-recognition of revenue. Goodwill and intangible asset impairment assessments also involve significant judgment, with the company recording impairment charges in recent years.

Results of Operations

The company’s fiscal year runs from the end of December to the following December, with each year consisting of 52 weeks. Key highlights from the results of operations include:

Net Sales

• Total net sales increased 9.4% in 2024 to $2.44 billion, driven by strong demand in the data center computing and aerospace/defense end markets, partially offset by weakness in automotive, medical/industrial/instrumentation, and networking.
• Net sales decreased 10.5% in 2023 to $2.23 billion, primarily due to demand weakness in commercial end markets.

Gross Margin

• Gross margin improved to 19.5% in 2024 from 18.5% in 2023, due to higher sales volume and improved operational execution, partially offset by higher costs.
• Gross margin increased slightly to 18.5% in 2023 from 18.4% in 2022, driven by better product mix and execution in North America.

Operating Expenses

• Selling and marketing expenses increased in 2024 but decreased as a percentage of sales, while general and administrative expenses increased in 2024 due to higher costs.
• Research and development expenses have been increasing as the company invests in new products and technologies.
• Significant goodwill impairment charges were recorded in 2024 and 2023, and restructuring charges were incurred in all three years as the company realigned its global operations.

Other Expenses and Taxes

• Total other expenses decreased in 2024 due to foreign exchange gains and higher interest income, after increasing in 2023 due to higher interest rates and foreign exchange losses.
• Income tax expense decreased in 2023 due to lower pre-tax income and the absence of a valuation allowance recorded in 2022.

Liquidity and Capital Resources

The company’s principal sources of liquidity are cash flow from operations, debt financing, and available credit facilities. Key liquidity and capital resource highlights include:

Cash Flow

• Cash flow from operations increased in 2024 to $236.9 million, up from $187.3 million in 2023, primarily due to higher net income.
• Cash used in investing activities was $146.2 million in 2024, mainly for capital expenditures, partially offset by proceeds from asset sales.
• Cash used in financing activities was $36.8 million in 2024, reflecting stock repurchases and debt repayments.

Debt and Liquidity

• As of the end of 2024, the company had $918.2 million in outstanding debt, net of discounts and issuance costs.
• The company has access to $195.6 million in available borrowing capacity under its revolving credit facilities.
• Capital expenditures are expected to be $230-$250 million in 2025, including $66 million for a new plant construction.

Other Obligations

• The company has $226.0 million in future interest obligations on its debt.
• It also has $27.3 million in outstanding offset agreements, which are industrial cooperation agreements required by some foreign customers.

Outlook and Analysis

The company’s financial performance in recent years has been mixed, with strong demand in certain end markets offset by weakness in others. The aerospace and defense market has been a bright spot, while the automotive, medical/industrial/instrumentation, and networking markets have struggled.

Gross margins have improved, but the company continues to face cost pressures that have impacted profitability. Significant goodwill impairment charges and restructuring costs have also weighed on the bottom line.

Looking ahead, the company’s ability to capitalize on growth opportunities in data center computing and aerospace/defense will be critical. Successful execution of its global realignment efforts and effective management of supply chain and labor challenges will also be key. The company’s substantial debt load and capital expenditure needs will require disciplined financial management.

Overall, the company appears to be navigating a challenging operating environment, but faces ongoing risks and uncertainties that could impact its financial performance. Investors will be closely watching the company’s ability to drive profitable growth, control costs, and strengthen its balance sheet in the coming years.