Segment Information

9 Months Ended

Sep. 27, 2020

8.	Segmented information

General description

During the nine months ended September 27, 2020, the Company operated and managed by geographic region in the United States, Mexico and China, which are our operating and reportable segments. Commencing in the three months ended June 28, 2020, China is no longer included as a reportable segment. During the three months ended March 29, 2020, the Company completed final shipments for customers serviced in our Chinese manufacturing facility and the relocation of the equipment to our other North American sites. We utilize each reportable segment’s contribution (revenue minus operating expenses, excluding unrealized foreign exchange gain (loss) on unsettled forward foreign exchange contracts, corporate allocations and restructuring expenses) to monitor reportable segment performance. Contribution by country is utilized by the chief operating decision-maker (defined as the Chief Executive Officer) as the indicator of reportable segment performance, as it reflects costs which our operating segment management are directly responsible for. Intersegment adjustments reflect intersegment sales that are generally recorded at prices that approximate arm’s-length transactions.

In assessing the performance of the reportable segments, management attributes site revenue to the reportable segment that ships the product to the customer, irrespective of the product’s destination. Information about the reportable segments is as follows:

	Three months ended						Nine months ended
	September 27, 2020			September 29, 2019			September 27, 2020			September 29, 2019
Revenue
Mexico	$	61,625		$	57,328		$	183,791		$	182,424
China		—			8,092			4,206			22,541
U.S.		38,227			27,426			103,744			86,448
Total	$	99,852		$	92,846		$	291,741		$	291,413
Intersegment revenue
Mexico	$	(136	)	$	(550	)	$	(2,706	)	$	(1,293	)
China		—			(3,580	)		(3,302	)		(7,687	)
U.S.		(169	)		(34	)		(642	)		(166	)
Total	$	(305	)	$	(4,164	)	$	(6,650	)	$	(9,146	)
Net external revenue
Mexico	$	61,489		$	56,778		$	181,085		$	181,131
China		—			4,512			904			14,854
U.S.		38,058			27,392			103,102			86,282
Total segment revenue (which also equals consolidated revenue)	$	99,547		$	88,682		$	285,091		$	282,267
Segment contribution
Mexico	$	5,334		$	4,815		$	16,297		$	15,456
China		—			1,313			(2	)		3,012
U.S.		2,521			2,191			7,753			5,378
Total	$	7,855		$	8,319		$	24,048		$	23,846
Corporate expenses		3,725			5,962			14,377			17,227
Restructuring charges		871			6,454			525			8,624
Change in fair value of warrant liability		133			(858	)		15			(919	)
Change in fair value of contingent consideration		—			—			—			(3,050	)
Unrealized foreign exchange gain on unsettled forward exchange contracts		(262	)		—			(720	)		—
Interest expense		1,941			2,679			6,021			8,349
Income (loss) before income taxes	$	1,447		$	(5,918	)	$	3,830		$	(6,385	)

Three months ended September 27, 2020	Mexico		U.S.		China		Total
Market Sector:
Test and Measurement	$	147	$	8,019	$	—	$	8,166
Retail and Payment Systems		10,295		—		—		10,295
Telecom, Networking and Communications		2,755		2,021		—		4,776
Medical and Safety		7,072		4,198		—		11,270
Industrial IoT, Power and Clean Technology		29,629		7,387		—		37,016
Semiconductors		11,591		4,436		—		16,027
Avionics, Aerospace and Defense		—		11,997		—		11,997
Segment Revenue		61,489		38,058		—		99,547

Revenue by category	Mexico		U.S.		China		Total
Point in time	$	1,142	$	3,697	$	—	$	4,839
Over time		60,347		34,361		—		94,708
Total Revenue		61,489		38,058		—		99,547

Three months ended September 29, 2019	Mexico		U.S.		China		Total
Market Sector:
Test and Measurement	$	534	$	8,287	$	—	$	8,821
Retail and Payment Systems		10,460		—		—		10,460
Telecom, Networking and Communications		3,986		1,393		4,192		9,571
Medical and Safety		7,861		2,637		40		10,538
Industrial IoT, Power and Clean Technology		26,610		9,851		280		36,741
Semiconductors		7,327		—		—		7,327
Avionics, Aerospace and Defense		—		5,224		—		5,224
Segment Revenue		56,778		27,392		4,512		88,682

Revenue by category	Mexico		U.S.		China		Total
Point in time	$	492	$	2,223	$	871	$	3,586
Over time		56,286		25,169		3,641		85,096
Total Revenue		56,778		27,392		4,512		88,682

Nine months ended September 27, 2020	Mexico		U.S.		China		Total
Market Sector:
Test and Measurement	$	724	$	24,632	$	—	$	25,356
Retail and Payment Systems		29,368		—		—		29,368
Telecom, Networking and Communications		7,554		9,035		714		17,303
Medical and Safety		23,498		9,693		130		33,321
Industrial IoT, Power and Clean Technology		88,102		23,217		60		111,379
Semiconductors		31,839		5,589		—		37,428
Avionics, Aerospace and Defense		—		30,936		—		30,936
Segment Revenue		181,085		103,102		904		285,091

Revenue by category	Mexico		U.S.		China		Total
Point in time	$	2,192	$	6,117	$	452	$	8,761
Over time		178,893		96,985		452		276,330
Total Revenue		181,085		103,102		904		285,091

Nine months ended September 29, 2019	Mexico		U.S.		China		Total
Test and Measurement	$	4,968	$	28,941	$	—	$	33,909
Retail and Payment Systems		35,538		—		—		35,538
Telecom, Networking and Communications		11,493		5,784		11,076		28,353
Medical and Safety		24,362		9,393		481		34,236
Industrial IoT, Power and Clean Technology		84,389		25,122		3,297		112,808
Semiconductors		20,381		16		—		20,397
Avionics, Aerospace and Defense		—		17,026		—		17,026
Segment Revenue		181,131		86,282		14,854		282,267

Revenue by category	Mexico		U.S.		China		Total
Point in time	$	1,708	$	5,321	$	946	$	7,975
Over time		179,423		80,961		13,908		274,292
Total Revenue		181,131		86,282		14,854		282,267

Certain customers were reclassified from the Test and Measurement sector to the Industrial IoT, Power and Clean Technology sector and Semiconductors sector, Avionics, Aerospace and Defense sector to Medical and Safety sector during the three months and nine months ended September 27, 2020. The comparative three and nine month periods have been adjusted to conform to this classification.

Additions to property, plant and equipment

The following table contains additions, including those acquired through capital leases, to property, plant and equipment for the three and nine months ended:

	Three months ended				Nine months ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
U.S.	$	676	$	446	$	1,595	$	963
Mexico		763		859		1,249		2,212
China		3		98		5		152
Segment total		1,442		1,403		2,849		3,327
Corporate and other		5		—		8		24
Total	$	1,447	$	1,403	$	2,857	$	3,351

Property, plant and operating lease right of use assets (a)

	September 27, 2020		December 29, 2019
U.S.	$	19,058	$	16,904
Mexico		10,125		10,970
China		—		670
Segment total		29,183		28,544
Corporate and other		111		96
Total	$	29,294	$	28,640

Other long term segment assets (b)

	September 27, 2020		December 29, 2019
U.S.	$	8,458	$	9,273
Mexico		20,291		22,179
China		—		—
Segment total		28,749		31,452
Corporate and other		742		859
Total	$	29,491	$	32,311

Total segment assets (a)

	September 27, 2020		December 29, 2019
U.S.	$	132,313	$	112,789
Mexico		101,212		93,349
China		—		6,694
Segment total		233,525		212,832
Corporate and other		552		547
Total	$	234,077	$	213,379

(a)	Property, plant and equipment information is based on the principal location of the asset.

(b)	Includes Goodwill, Intangible assets, deferred income taxes and deferred financing costs.

Geographic revenue

The following table contains geographic revenue based on our customer invoicing location, for the nine months ended September 27, 2020 and September 29, 2019.

	Three months ended				Nine months ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
U.S.	$	95,381	$	83,276	$	270,303	$	260,210
Canada		4,166		3,916		13,834		13,686
China		—		1,490		954		8,371
Total	$	99,547	$	88,682	$	285,091	$	282,267

Significant customers and concentration of credit risk

Sales of the Company’s products are concentrated in certain cases among specific customers in the same industry. The Company is subject to concentrations of credit risk in trade receivables. The Company considers concentrations of credit risk in establishing the allowance for doubtful accounts and believes the recorded allowances are adequate.

The Company expects to continue to depend upon a relatively small number of customers for a significant percentage of its revenue. In addition to having a limited number of customers, the Company manufactures a limited number of products for each customer. If the Company loses any of its larger customers or any product line manufactured for one of its larger customers, it could experience a significant reduction in revenue. Also, the insolvency of one or more of its larger customers or the inability of one or more of its larger customers to pay for its orders could decrease revenue. As many costs and operating expenses are relatively fixed, a reduction in net revenue can decrease profit margins and adversely affect the business, financial condition and results of operations.

During the nine months ended September 27, 2020, two customers exceeded 10% of total revenue, comprising of 22.7% of total revenue across all geographic segments. During the nine months ended September 29, 2019, one customer exceeded 10% of total revenue, comprising of 13.4% of total revenue across all geographic segments.

As of September 27, 2020, no customers represented more than 10% of the trade accounts receivable. At December 29, 2019, one customer comprised 10% of the Company’s trade accounts receivable. No other customers individually represented more than 10% of total revenue or trade accounts receivable.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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+ Details

SMTC CORP 10-Q