MFLEX Reports 61% Year-Over-Year Increase in Net Sales for Third Quarter Fiscal 2008

MFLEX Reports 61% Year-Over-Year Increase in Net Sales for Third Quarter
Fiscal 2008
Customer diversification efforts gain further traction as four customers each
represent more than 10% of the Company's net sales

ANAHEIM, Calif., Aug. 5 /PRNewswire-FirstCall/ -- Multi-Fineline
Electronix, Inc. (Nasdaq: MFLX), a leading global provider of high-quality,
technologically advanced flexible printed circuit and value-added component
assembly solutions to the electronics industry, today reported financial
results for the three and nine months ended June 30, 2008. Net sales in the
third quarter of fiscal 2008 were $167.6 million, an increase of 61.0 percent
from net sales of $104.1 million in the same period of the prior year. This
represents the second highest quarterly net sales in the Company's history and
the highest sales ever for a third quarter. The increase in net sales was
primarily due to higher sales to three of the Company's key customers.
MFLEX's key customers currently include four of the leading OEMs which
manufacture portable electronic devices.
Sequentially, from the second quarter to the third quarter of fiscal 2008,
net sales increased 2.2 percent, which was in line with the Company's
expectations. Net sales in the third quarter of fiscal 2008 were positively
impacted by growth in new and continuing programs for smartphones, which were
partially offset by lower volumes produced for more mature mobile phone
programs.
Net income for the third quarter of fiscal 2008 was $8.8 million, or $0.34
per diluted share, compared to a net loss of $6.7 million, or ($0.27) per
diluted share, for the same period in fiscal 2007. Net income for the third
quarter of fiscal 2007 was negatively impacted by the recognition of a $7.8
million before tax expense related to terminated acquisition costs.
Sequentially, net income declined 15.3 percent from the second quarter to
the third quarter of fiscal 2008, primarily due to lower gross margin, which
was partially offset by a lower foreign exchange loss and a lower effective
tax rate.
"We are pleased with the continued growth and diversity of our sales mix,"
said Reza Meshgin, MFLEX's president and chief executive officer. "We believe
we are benefitting from our focus on the high end of the portable electronic
device market, which is where certain customers are seeing strong demand for
their new products. This demand has resulted in a number of significant new
programs for the Company.
"During the third quarter, our gross margin was negatively impacted by
investments to expand our production capacity and temporary inefficiencies
caused by adding and transferring manufacturing personnel to programs that are
ramping in volume. While the new programs have had an adverse effect on gross
margins, we believe they provide us with good visibility on continued
near-term revenue and earnings growth as the programs mature and we deepen our
relationship with these OEMs," said Meshgin.
Financial Highlights
Gross margin during the third quarter of fiscal 2008 increased to 13.8
percent, from 4.6 percent for the same period in the prior year. The increase
in gross margin is primarily attributable to a favorable product mix, improved
yields and the higher volume favorably impacting overhead absorption, offset
by pricing impacts.
Sequentially, gross margin declined from 17.6 percent in the second
quarter of fiscal 2008. The sequential decline was primarily due to costs
associated with expansion of the Company's production capacity in anticipation
of an expected increase in sales in future quarters, as well as temporary
inefficiencies resulting from the addition and transfer of manufacturing
personnel to programs that are ramping in volume. MFLEX continues to believe
that its targeted sustainable gross margin range is 10 to 15 percent.
Nevertheless, the Company expects that its gross margin may be outside this
range from time to time-either above or below-for a variety of reasons,
including changes in its product mix and learning curves associated with new
programs.
Cash flow from operating activities for the third quarter of fiscal 2008
was $17.5 million. This compares to $26.1 million in the comparable period in
fiscal 2007. Cash flow from operating activities in the third quarter of
fiscal 2007 benefited from lower accounts receivable coupled with an increase
in accounts payable compared to the third quarter of fiscal 2008.
The effective tax rate in the third quarter was 14.4 percent. The lower
than normal effective tax rate was due to a change in estimate of the total
year 2008 tax rate as a result of a higher proportion of income in operations
with lower tax rates.
For the first nine months of fiscal 2008, net sales increased 51.0 percent
to $515.7 million from $341.4 million during the same period in fiscal 2007.
Net income increased to $32.8 million, or $1.29 per diluted share, compared to
net income of $7,000, or $0.00 per diluted share, in the same period in fiscal
2007. The substantial increase in net income in fiscal 2008 was driven by
higher gross profit, as well as the elimination of expenses related to a
terminated acquisition that negatively impacted fiscal 2007 results.
Capacity Expansion
The Company continues to proceed with the planning and design phase of the
new MFC3 manufacturing facility. The Company now expects MFC3 to be fully
operational late in the third quarter or early in the fourth quarter of fiscal
2009, with construction now expected to begin in September 2008.
An additional satellite facility for assembly manufacturing has been added
in Suzhou, China. The Company expects that the new assembly manufacturing
facility will become fully operational during the fourth quarter of fiscal
2008. Total capital expenditures related to the expansion of the Company's
satellite facilities, all of which the Company leases, are expected to be
approximately $22 million, $5.4 million of which was incurred during the third
quarter of fiscal 2008, with the remainder expected to be incurred in the
fourth quarter of fiscal 2008.
"The new satellite facility will enable us to bring on additional
just-in-time capacity to accommodate the increased manufacturing volumes we
are projecting in the near-term," said Meshgin. "We anticipate that our
continued progress on MFC3 will ultimately provide the capacity to expand our
volume of business with current customers, as well as more aggressively pursue
new OEM relationships."
Outlook
For the fourth quarter of fiscal 2008, MFLEX expects net sales to be
significantly higher than the third quarter of fiscal 2008, while gross profit
as a percentage of net sales is expected to be similar to the third fiscal
quarter. The sequential quarter growth in net sales is primarily expected to
come from the ramp-up of new programs for smartphones.
During the fourth quarter of fiscal 2008, the Company expects to take
additional steps to improve its longer-term cost structure and increase
efficiencies. In an effort to reduce overall costs, the Company recently made
the determination to transfer its Tucson, Arizona operations to its
headquarters in Anaheim, California. As a result, the Company expects to
record a fourth quarter non-recurring charge of $1.5 to $2.0 million, net of
tax, or approximately $0.06 to $0.08 per diluted share. With this action,
MFLEX expects to realize annual cost savings of approximately $2 to $3
million.
In addition, during the fourth quarter, the Company also expects to
continue its international restructuring efforts and transition various
business functions to Singapore to better align these activities with the
Company's Asian operations. This restructuring is expected to result in a
fourth quarter non-recurring tax expense of $6 to $8 million, or approximately
$0.24 to $0.32 per diluted share. In addition to enhanced operational
efficiencies, this restructuring is expected to reduce the Company's future
effective tax rate, with partial benefits expected to begin as early as fiscal
2009.
Conference Call
MFLEX will host a conference call at 5:30 p.m. Eastern time (2:30 p.m.
Pacific time) today to review its financial results for the third quarter of
fiscal 2008. The dial-in number for the call in North America is 800-219-6110
and 303-262-2053 for international callers. The call also will be webcast live
on the Internet and can be accessed by logging onto http://www.mflex.com.
The webcast will be archived on the Company's website for at least 60 days
following the call. An audio replay of the conference call will be available
for seven days beginning at 8:30 p.m. Eastern time (5:30 p.m. Pacific time)
today. The audio replay dial-in number for North America is 800-405-2236 and
303-590-3000 for international callers. The replay pass code is 11117684.
About MFLEX
MFLEX (http://www.mflex.com) is a global provider of high-quality,
technologically advanced flexible printed circuit and value-added component
assembly solutions to the electronics industry. The Company is one of a
limited number of manufacturers that provides a seamless, integrated
end-to-end flexible printed circuit solution for customers, ranging from
design and application engineering, prototyping and high-volume manufacturing
to turnkey component assembly and testing. The Company targets its solutions
within the electronics market and, in particular, focuses on applications
where flexible printed circuits are the enabling technology in achieving a
desired size, shape, weight or functionality of an electronic device. Current
applications for the Company's products include mobile phones and smart mobile
devices, personal digital assistants, mobile power adapters, medical devices,
computer/data storage and portable bar code scanners. MFLEX's common stock is
quoted on the Nasdaq Global Select Market under the symbol MFLX.
Certain statements in this news release are forward-looking statements
that involve a number of risks and uncertainties. These forward-looking
statements include, but are not limited to, statements and predictions
regarding revenues, net sales, sales, net income, earnings, gross profit, tax
rates and the benefits expected from the Company's restructuring and cost
reduction efforts, operating expenses, capital expenditures, profitability,
gross margins, including without limitation, the Company's targeted range of
gross margins, achievement of margins within or outside of such range and
factors that could affect gross margins, yields, the Company's diversification
efforts, the Company's relationship and opportunities with, and expected sales
to and demand from, its customers, the relative size of each customer to the
Company, market opportunities and the utilization of flex and flex assemblies,
current and upcoming programs and product mix, the costs and benefits
associated with new programs, the Company's manufacturing capabilities,
capacity, growth and expansion of the Company's facilities/capacity and
equipment installation, and the costs associated therewith. Additional
forward-looking statements include, but are not limited to, statements
pertaining to other financial items, plans, strategies or objectives of
management for future operations, the Company's future operations and
financial condition or prospects, and any other statement that is not
historical fact, including any statement which is preceded by the words
"assume," "can," "will," "plan," "expect," "estimate," "aim," "intend,"
"project," "foresee," "target," "anticipate," "may," "believe," or similar
words. Actual events or results may differ materially from those stated or
implied by the Company's forward-looking statements as a result of a variety
of factors including the impact of changes in demand for the Company's
products and the Company's success with new and current customers, the
Company's ability to develop and deliver new technologies, the Company's
ability to diversify its customer base, the Company's effectiveness in
managing manufacturing processes and costs and expansion of its operations,
the Company's ability to manage quality assurance issues, the degree to which
the Company is able to utilize available manufacturing capacity, enter into
new markets and execute its strategic plans, the impact of competition,
pricing pressures and technological advances, and other risks detailed from
time to time in the Company's SEC reports, including its Quarterly Report on
Form 10-Q for the quarter ended June 30, 2008. These forward-looking
statements represent management's judgment as of the date of this news
release. The Company disclaims any intent or obligation to update these
forward-looking statements.

(SUMMARY FINANCIAL INFORMATION FOLLOWS)

Multi-Fineline Electronix, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share and share data)
(unaudited)

Three Months Ended Nine Months Ended
June 30, June 30,
2008 2007 2008 2007
Net sales $167,623 $104,138 $515,710 $341,431
Cost of sales 144,450 99,355 432,824 308,788

Gross profit 23,173 4,783 82,886 32,643

Operating expenses:
Research and
development 638 570 1,719 1,798
Sales and marketing 5,056 3,263 14,201 8,310
General and
administrative 7,622 5,606 22,151 18,034
Terminated acquisition
expenses - 7,821 - 7,821
Total operating
expenses 13,316 17,260 38,071 35,963

Operating income
(loss) 9,857 (12,477) 44,815 (3,320)
Interest income 437 454 1,284 1,161

Interest expense (33) (40) (103) (277)
Other income/(loss),
net 48 457 (1,733) 635

Income (loss) before
income taxes 10,309 (11,606) 44,263 (1,801)
(Provision for)
benefit from
income taxes (1,480) 4,894 (11,423) 1,808

Net income (loss) $8,829 $(6,712) $32,840 $7

Net income (loss)/
per share:
Basic $0.35 $(0.27) $1.33 $0.00
Diluted $0.34 $(0.27) $1.29 $0.00

Shares used in
computing net
income (loss)/
per share:
Basic 24,907,085 24,551,861 24,773,436 24,502,256
Diluted 25,624,415 24,551,861 25,362,032 25,158,017

Multi-Fineline Electronix, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)

June 30, 2008 September 30, 2007
Cash, cash equivalents and
short term investments $56,588 $37,298
Accounts receivable, net 125,004 124,313
Inventories 43,082 63,424
Other current assets 12,918 9,523
Total current assets 237,592 234,558
Property, plant and equipment 151,607 133,846
Other assets and long-term investments 24,197 8,883
Total assets $413,396 $377,287

Accounts payable $85,482 $111,934
Other current liabilities 23,717 15,143
Other liabilities 5,945 204
Stockholders' equity 298,252 250,006
Total liabilities and stockholders'
equity $413,396 $377,287

Multi-Fineline Electronix, Inc.
Statement of Cash Flows
(In thousands, except per share and share data)
(unaudited)

Three months Nine months
ended ended
June 30, June 30,
2008 2007 2008 2007
Cash flows from operating activities
Net Income $8,829 $(6,712) $32,840 $7

Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 7,313 5,444 21,248 14,395
Provision for doubtful accounts (493) 633 559 78
Deferred taxes (32) - (32) 16
Stock based compensation expense 1,005 802 2,515 2,285
Impairment of cost investment - - 450 -
(Gain) Loss on disposal of equipment 290 4 451 50
Changes in operating assets and
liabilities 614 25,879 4,170 17,996
Net cash provided by operating
activities 17,526 26,050 62,201 34,827
Cash flows from investing activities
Sale (Purchase) of short term
investments 821 14,605 (5,479) 18,355
Cash paid for property plant and
equipment (15,930) (19,692) (27,380) (36,097)
Purchases of software and capitalized
internal-use software (283) (57) (366) (153)
Deposits on property plant and
equipment (1,897) (3,168) (2,592) (4,167)
Proceeds from sale of equipment 7 17 198 317
Decrease (increase) in restricted
cash, net (5) (183) 14 (263)
Net cash used in investing
activities (17,287) (8,478) (35,605) (22,008)
Cash Flows from financing activities
Income tax benefit related to stock
option exercise 39 (319) 64 (42)
Payments on lines of credit - (2,000) - (4,000)
Proceeds from exercise of stock options 775 175 2,002 475
Net cash provided by (used in)
financing activities 814 (2,144) 2,066 (3,567)
Effect of exchange rate on cash (482) 1,574 (29) 3,749
Net change in cash 571 17,002 28,633 13,001
Cash and cash equivalents at beginning
of period 56,017 20,459 27,955 24,460
Cash and cash equivalents at end of
period $56,588 $37,461 $56,588 $37,461

SOURCE Multi-Fineline Electronix, Inc.

Lasse Glassen, Investor Relations, +1-213-486-6546,
investor_relations@mflex.com, for Multi-Fineline Electronix, Inc.