DDIC Ddi Corp. (MM)

DDi Corp. (NASDAQ: DDIC), a leading provider of time-critical, technologically advanced electronic interconnect design, engineering and manufacturing services, today reported financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights:

• Net sales and bookings of $66.2 million and $65.2 million, respectively, a 0.98 book-to-bill ratio
• Military/Aerospace net sales increase 12% sequentially, to 35% of total net sales
• Net income of $5.2 million, or $0.25 per fully diluted share
• Adjusted EBITDA of $8.7 million
• Paid dividend of $0.10 per share of common stock on September 30, 2011
• Increased cash and working capital to $28.4 million and $59.8 million, respectively

Mikel Williams, President and Chief Executive Officer of DDi Corp., stated, “During the third quarter we continued to execute for both our customers and shareholders, despite the softer demand environment in the industry. While our top line was flat sequentially, our continued profitability and cash flows enabled us to invest in our technical capabilities while also strengthening our financial position and returning value to our shareholders with continued cash dividends. We remain focused on our operational and financial discipline while delivering differentiated technology and service to our customers. Further, we are in solid position to exploit acquisition opportunities that may present themselves as we go forward.”

Third Quarter Results

Net sales for the third quarter of 2011 were $66.2 million, flat sequentially, and a decrease of 4.0% from the third quarter of 2010.

Gross profit margin for the third quarter of 2011 decreased to 21.0% from 21.8% in the second quarter of 2011 and declined from 22.5% in the third quarter of 2010. The sequential decline and the year-over-year decline reflect continued pressure from rising manufacturing input costs, including gold and copper, both of which have recently demonstrated market price reductions that may lead to input cost relief in future periods.

Operating income in the third quarter of 2011 was $5.2 million compared to $5.5 million in the second quarter of 2011 and $6.7 million in the third quarter of 2010.

Adjusted EBITDA for the third quarter of 2011 was $8.7 million representing a decrease from $9.0 million in the second quarter of 2011 and $9.4 million in the third quarter of 2010. Reconciliations of this non-GAAP measure are provided after the GAAP unaudited condensed consolidated financial statements below.

Net income and fully diluted earnings per share in the third quarter of 2011 were $5.2 million and $0.25, up slightly from $5.0 million and $0.24 in the second quarter of 2011 and a decline from $6.5 million, or $0.31 per share in the third quarter of 2010.

Third Quarter Balance Sheet and Liquidity

As of September 30, 2011, DDi increased our cash and cash equivalents by $2.8 million to $28.4 million and net working capital to $59.8 million, after cash dividends of $2.0 million and capital expenditures of $3.4 million.

Quarterly Dividend

The Company paid a dividend of $0.10 per share of common stock on September 30, 2011. Further, on October 11, 2011 the Company declared the fourth quarter 2011 dividend of $0.10 per share payable on December 30 to shareholders of record on December 15. This marks the seventh consecutive quarterly dividend and reflects the Company’s continued focus on returning value to its shareholders.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss third quarter 2011 financial results will be held today at 5:00 p.m. Eastern / 2:00 p.m. Pacific. Participants may access the call by dialing (877) 941-2068 (domestic) or (480) 629-9712 (international). In addition, 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 9, 2011 by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference ID 4476676. An online replay of the webcast will be available 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 electronic interconnect design, engineering and manufacturing services. Headquartered in Anaheim, California, DDi and its subsidiaries offer 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. 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; currency exchange rate fluctuations; integration of acquired operations; international operations; compliance with environmental regulations; potential impacts of natural disasters on the electronics industry and the Company’s supply chain; 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. Unaudited Condensed Consolidated Statements of Income (In thousands, except per share amounts)               Qtr. Ended Qtr. Ended Qtr. Ended Sep. 30, 2011   Sep. 30, 2010   Jun. 30, 2011   Net sales $ 66,175 $ 68,988 $ 66,224   Cost of goods sold   52,267     53,450     51,781     Gross profit 13,908 15,538 14,443 21.0 % 22.5 % 21.8 %   Operating expenses: Sales and marketing 4,142 4,330 4,284 General and administrative 3,968 4,250 3,846 Amortization of intangible assets 190 190 190 Restructuring and other related charges   392     48     623     Operating income 5,216 6,720 5,500   Interest and other expense, net   110     152     449     Income before income taxes 5,106 6,568 5,051   Income tax expense (benefit)   (46 )   69     100     Net income $ 5,152   $ 6,499   $ 4,951     Net income per share: Basic $ 0.25 $ 0.33 $ 0.24 Diluted $ 0.25 $ 0.31 $ 0.24 Dividends declared per share: $ 0.10 $ 0.06 $ 0.10 Weighted-average shares used in per share computations: Basic 20,317 19,916 20,302 Diluted 20,845 20,671 21,005   DDi Corp. Unaudited Condensed Consolidated Statements of Income (In thousands, except per share amounts)                  

9 Mo. Ended

% of Net

9 Mo. Ended

% of Net

Sep. 30, 2011 Sales Sep. 30, 2010 Sales   Net sales $ 198,858 $ 202,035   Cost of goods sold   156,355   157,196   Gross profit 42,503 21.4 % 44,839 22.2 %   Operating expenses: Sales and marketing 13,064 6.6 % 13,131 6.5 % General and administrative 11,773 5.9 % 12,463 6.2 % Amortization of intangible assets 570 0.3 % 570 0.3 % Restructuring and other related charges   1,015 0.5 %   338 0.2 %   Operating income 16,081 8.1 % 18,337 9.1 %   Interest and other expense, net   855 0.4 %   1,252 0.6 %   Income before income taxes 15,226 7.7 % 17,085 8.5 %   Income tax expense   119 0.1 %   790 0.4 %   Net income $ 15,107 7.6 % $ 16,295 8.1 %   Net income per share: Basic $ 0.74 $ 0.82 Diluted $ 0.72 $ 0.80 Dividends declared per share: $ 0.30 $ 0.12 Weighted-average shares used in per share computations: Basic 20,282 19,868 Diluted 21,013 20,396   DDi Corp. Unaudited Condensed Consolidated Balance Sheets (In thousands)             Sep. 30, 2011 Dec. 31, 2010 Assets Current assets: Cash and cash equivalents $ 28,436 $ 28,347 Accounts receivable, net 40,799 40,821 Inventories 23,854 20,970 Prepaid expenses and other   2,778     1,889   Total current assets 95,867 92,027 Property, plant and equipment, net 43,089 42,605 Intangible assets, net 44 614 Goodwill 3,664 3,664 Other assets   888     954   Total assets $ 143,552   $ 139,864     Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 22,663 $ 25,137 Accrued expenses and other current liabilities 12,225 14,113 Current portion of long term debt   1,209     1,751   Total current liabilities 36,097 41,001 Long term debt 8,783 9,704 Other long-term liabilities   416     527   Total liabilities   45,296     51,232     Stockholders' equity: Common stock, additional paid-in-capital, and treasury stock 224,200 228,881 Accumulated other comprehensive income 261 1,063 Accumulated deficit   (126,205 )   (141,312 ) Total stockholders' equity   98,256     88,632   Total liabilities and stockholders' equity $ 143,552   $ 139,864     DDi Corp. Unaudited Schedule of Non-GAAP Reconciliations (In thousands)                 Qtr. Ended Qtr. Ended Qtr. Ended Sep. 30, 2011 Sep. 30, 2010   Jun. 30, 2011 Adjusted EBITDA: GAAP net income $ 5,152 $ 6,499 $ 4,951 Add back: Interest and other expense, net 110 152 449 Income tax expense (46 ) 69 100 Depreciation 2,541 2,138 2,341 Amortization of intangible assets 190 190 190 Non-cash compensation 355 352 306 Restructuring and other related charges   392     48   623 Adjusted EBITDA $ 8,694   $ 9,448 $ 8,960         9 Mo. Ended 9 Mo. Ended Sep. 30, 2011 Sep. 30, 2010 Adjusted EBITDA: GAAP net income $ 15,107 $ 16,295 Add back: Interest and other expense, net 855 1,252 Income tax expense 119 790 Depreciation 7,021 6,501 Amortization of intangible assets 570 570 Non-cash compensation 931 1,041 Non-recurring Coretec acquisition costs - 850 Restructuring and other related charges   1,015     338 Adjusted EBITDA $ 25,618   $ 27,637