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BHE Benchmark Electronics

Participants
Lisa Weeks Vice President, Strategy and Investor Relations
Paul Tufano President and Chief Executive Officer
Roop Lakkaraju Chief Financial Officer
Sean Hannan Needham
Jim Suva Citi
Call transcript
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Operator

Good day, ladies and gentlemen and welcome to the Benchmark Electronics First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference Lisa Weeks, Vice President of Strategy and Investor Relations. ma’am. ahead, go Please

Lisa Weeks

Roop and review quarter for me XXXX Paul results will quarter President I Christie introductory second will for and and our comments this us first Benchmark’s have Roop and and CEO first earnings a Tufano, CFO. thanks you, Paul joining provide detailed everyone provide today afternoon, Lakkaraju, of Thank outlook. call. financial With quarter

call an have closed earnings call be available our a a session. the today, presentation with online The performance advised we and is review market online of the available will the XXXX issued Investor presentation press highlighting webcast under We quarter X will our conclude call. statements we forward-looking live for to the release on After a replay Q&A moment section Slide on take financial prepared our and in call. www.bench.com. the of Please will the this that release are Relations reference first being following and a we This website at presentation.

will forward-looking call, we discuss our information. During

As Actual facts as release will forward-looking releases over well Tufano. a our I GAAP of the from which today’s are as risks call remarks has the to the a Benchmark reconciliation any in CEO, update to provided our to involve in measures uncertainties these results the filings. undertakes are statements. may Paul turn The earnings company forward-looking and and appendix described differ now and statements, statements non-GAAP our presentation. in of of statements SEC reminder, press any obligation not of historical that materially no

Paul Tufano

and good you, ladies afternoon and gentlemen. Thank Lisa

point both our Gross characterize the had up Slide for XX and majority year-over-year. Benchmark. of please revenue across the million good X, quarter non-GAAP margin If on point quarter $X.XX, EPS. segments. And year-over-year million operating XX exceeded and basis is actually basis point flow on I range. to or from $XX X.X%, our for you ROIC EPS and our our revenue XX at XXX days The the basis growth year-over-year. $XXX improvement was QX our of commitments the improvement. year-over-year cash XX.X%, turn was the as would We met cash X% solid cycle was was Operating could were a We growth income non-GAAP was end ago low target a year X.X% period. $X.XX

making on you If turn are Page we X, bookings. good progress to

the for image segment, for the applications. well are charges and the had in filters specialized server. comms those wins some wins, we that high bookings industrial, we computing revenue munitions vehicles electric our bookings vehicle electric markets automobile. In military bookings, on our we all bookings those you of nice a give A&D, as had the well and quarter, bookings in little us are a and markets. In XX% XX% As of of know, bookings. and of computing, from color stabilizer variety of board through win a win the machines. MRI was use in high very long-term on wins we our you to traditional higher across In were performance which were. one In quality XX% In was achieve for growth $XXX for critical nice critical optical of medical two which smart with bookings. is to medical cities the ruggedized as we of device, financial model what as growth like of And in came for our for other second to a land a for as for million I’d to our have devices, related our for XX% generated value of very the XX%

awards. also engineering had XX We

awards Just In little sea, design power industrial, awards sea a deep a of power working want space, design and to we design medical support some good component have in the the computer to converter the to applications. scope. win. color deep we And in design human produce our and generation also we those were for engineering in quantum bookings on the next from what design in stage a early an made are with progress optical

the we the was we of said the year as It for to previously and this that transition. Turning our quarter. was look at to and fourth XXXX repositioning Page company call the in have X, it. year us clearly XXXX for realign

quarter last in the beyond. refine XXXX shape leverage believe is optimize, year ‘XX I our trajectory we said what progress we the did for would in and will make and investments we of to the As XXXX XXXX we

exposure proposition a key far on a give those our want internal investing in of greater so we provide little on to capabilities will that key help view of number complex complex we The those rich offerings. goal We are problems, new bringing of extremely with of that that goal, sets own to more value To by to – and to with and product and them importantly of goal are operate organizations. them to to them, realize collaborating is have making number solve faster their deal a we ticket XXXX. this the fundamental in to and customers work them, that companies to We actions our you value. just working out with and fundamental to leverage investments we are we of color complex And market expansion to environments it. are center so bit go an focused

customers. enhancing defense we our then India new facility the in primarily be key part have the of microelectronics. America. [ph] two telco servicing in and well and will Today expanding And sites the are Phoenix, as medical our the opening We both we and communities in industrial serving our

components. our RF expanding are We

acquisition. had acquired business. As you filter We remember we our a with Secure

traction customers customers. the primarily offerings defense our last business we our high-speed seeing are we in our circuits. business number of switches of We to circuits several and the shipping serve high-speed developing course converted have finally, And are expanding Today, are multiplexes. high-end we And we over re-missioned good a to from quarters. to include filters are that to

We number will leveraging of have in capacity the regard new facility are online to third our customers Phoenix the engaging we by a and in facility. the quarter that of with end currently of

from block. with proposition to to of capabilities which expanding defense kind expanding in number also distribution in computing value investments design miniaturization are areas engineering originated include building our of center Secure Phoenix with and acquisition, addition our ruggedized defense in of a we and In our making investment solution we offerings, Clearly, power are other in technology online. RF and primarily is a community. these

we see States. are expect and as of We with engaged in number contract border second providing Southern the know. more the you through a currently and systems one to customers are half surveillance a business patrol with have We both the as to surveillance, that to existing protect we year. of I more United the of and move provide potential And border

and this to qualification IoT We we making border operational it and are commercial our potential as be of we are that of of factors well as XXXX. making year bit the will are and finally the quarter the through that color in us, financials. applications in in we end our areas. execution, to dynamics. in complex effect for next the good area coming turn ensure we a item globe foremost with is little And key some final progress some X, the of customers. And but to shipping a making these are defense in customer are both around serve Please a first despite to to secondly to XXXX the customers IoT finally more have the customers And like this a a progress for driving have give on is across we and please, uniform in of from the that expect in you ensure focus in capabilities areas, the systems our and affecting by good are stage of together area, we these patrol slide these on board which progress negative I’d number more Slide experience those

are both product we in and and our both affect margins. transitions will seeing That space. mix products shifts revenue both medical primarily First, to our our

As you a we lifecycles. with broad have know, portfolio medical varying of products

several products. weren’t We losses. products number working able in we But line. we are have timing, could that to of other cycles to and compensate believe a these given In products are replacement We the with new that qualifying FDA that we cases, backfill on going take products, end-of-life.

second half. in expect down While the to we return growth the second the medical quarter, on be will

as In transitions customers. are also customer addition seeing we to new the we product seeing, ramp we are headwinds

As model. of earlier, business the is our in revenue our we discussed growth center achieving growth

that blessed been the revenue by have growth over sequential have past quarters. We several fact the seen we

high products sites, those struggling absorb and into as As customers facility on you seamlessly grown, you meet introduced to we to customers demand a Currently, volumes increase. to facility. two customer able And are has and have level. be have a execute where new a we

to that finally, customer only we importantly unified are our And network. the grow sites deployed third excellence, quarter to our allow well demand. meeting our to not and quarter onboarding by for experience, are or engineering and all operational expect have quarter. Our full investments our the but it’s but end in reinforces working planned rectify and operational of of customer revenue recovery operation our This are global to only second seamlessly more processes situation mentioned, in solutions. And progress by meaningful the sites teams our to the and aware need teams across I improve not two

discussed As value customers we our be need enhance meaningful to our we invest previous in chart, things for have us to on proposition. that more to the

of to in actually by are these we the fully the be expect bottom We the investments that half line contributing and second that year. plan

As and budgets will a then to we gets Slide will I color result turn we the By our waypoints. providing over though, section more second his following which guidance. Roop Q&A. will now, quarter in to our X hand provide are

I are year-over-year in X%. be In am I perspective, of bookings $XXX made expect half. million sight quarter As to and revenue line X% we bookings and and have I QX grow million progress between solid second was the said $XXX annual we I revenue From of a that metrics. a we to going to by confident bookings, earlier, in achieved

higher we mix Now market. will confident in revenue, to am within our make that than revenue XX% value be greater I our of able of

as As decline see will know, in And level will $XX.X we flat $XX.X of gross the of to within but achieved In believe half QX, X.X% unfortunately the we that margins. per property we our eroded reflect QX growth gross objectives, margin to all we revenue relates will critical. margin the can our the gross year is guidance We by square driving are gross in believe million. we that to half We relates the organization anticipate in the as second ability the X.X% see foot, we second to given spending our And X% approach half we maximize fourth of of finally the slightly. that SG&A, it the to in as be SG&A and numbers the it second SG&A can approach and range have million either/or year quarter. you margin.

have square facilities. new for footage We been adding

critical of denominator Roop will see I is provide some top then aware and answer that to $XX now the numerator come and will the questions goes might if you have. we So we are square down, over the will it organization. will any turn color is to call in a but mind who getting the you foot more up

Roop Lakkaraju

everyone. X, company promised controls ASC to the in and XXX, the financial contracts provided goods the XXX the recognized to Effective revenue you, services implemented with good January would quarter. contract. Paul are governing standard customer ASC customers method. from full the provide in or recap accounting first the a as updates of I using obtains, revenues transition Under the when retrospective that Paul the Thank like quarter few or afternoon XXXX of summary. occurred XXXX,

the conditions the ASC Given the contract. recognizes its in And the by QX from majority substantially of all of XXXX. over the revenue terms than less for is the perspective, of recognition $XXX,XXX customer of beginning and the for revenue company at XXX time of timing company’s historical contracts, process change reduction work nature now the in a implementing revenue in a effect in with

of called we ASC the the to process balance are As contract part a work reclassify over of also criteria consideration, on face but asset billed. finished work completed line as assets from required the item goods meeting not are to XXX, new in company’s inventory sheet. the defined to time and right the Contract

of international repatriated locations. $XXX the cash million company QX approximately During from

also We repatriate expect in future. funds available the additional to

allocation company strategy Goldman QX, As $XX part with capital Sachs. agreement a the during ASR of our entered million into

quarter of changed from earnings its repatriation the core strategy XXXX. first capital repatriate the of jurisdictions XXXX, During company March to to historical U.S. in strategy. support the our began We in our announced foreign allocation

As result, record estimated required foreign excuse assess taxes earnings estimated a – income me. foreign and we withholding to access the are to to taxes earnings, the State foreign

During $XX reported the taxes. we for quarter million these

quarter were of XX our a summary. quarter year-over-year growth growth. guidance year-over-year. by $XXX of markets. first our X% for Revenues the in primarily million Slide revenue was higher to of in value to million revenues turn up exceeded XXXX recap our marked driven The let’s $XXX increase year-over-year financial This $XXX million straight and Now fifth of

operating was which was basis our $X.XX tax $X.XX $X.XX Our year-over-year a X.X%, revenues a at than rate. was Non-GAAP XX improvement. as of EPS margin lower non-GAAP higher expected guidance QX to of of above points result

and million expense cash U.S. GAAP share. $XX distributions tax foreign effects State quarter includes taxes withholding was and and was current future The tax for foreign applicable for per expense $X.XX tax income to the into Our provided loss the $X.XX or

also that costs, results due in written other $X.X of Our our of included to GAAP sale from restructuring the down $XXX,XXX million insolvency. and XXXX customer recovery was inventory

Medical year-over-year. and Please Slide than to a XX.X%, down improved by year-over-year delay quarter from were the declined market sector. for to basis points turn existing our XXX sequentially shortage up year-over-year revenues year-over-year new sequentially and demand quarter expected Revenues custom instrumentation softer headwinds. customers X% power revenues less first sequentially up the A&D revenues strong revenues For XX% of ramp basis market. primarily X% from increased program X% in were in were new Sequentially, was for X% producing semi-capital from from remained XX% up Test quarter and was program revenue represented first the ROIC XX Industrial cardiac the revenues markets ramps XX% our and higher quarter-over-quarter precision and grew to first XX and point up demand for products. from XX% due from year-over-year. due customers. year-over-year demand XX% demand were infrastructure than which X%, lower quarter and products, were equipment but the and demand existing down program from and value ongoing serving business Overall, up X% and machining our overall expected delay our higher revenue. from customers. our

and was computing by existing broadband seasonality, to year-over-year demand in testing up edge our from from the from down now increases space. up X% sequentially traditional satellite, security primarily and but XX% from Turning market, increases year-over-year customers. Telco driven X% network data demand sequentially was customers

from last were of fourth driven by markets up lower X% quarter XX% year computing. revenues XX% from first the traditional and which quarter Our represented down

computing of was customers first the sales Our for is by trends. first turn a sector XXXX. The improvement. XX XX% in more X.X%, improvement basis for the by mix Please margin and year-over-year to improvement QX improved non-GAAP point quarter-over-quarter business Gross the driven revenue represented quarter-over-quarter higher revenue The reduced driven year-over-year quarter. key is of to for a Slide top discussion XX absorption. mix and due XX result quarter the primarily in favorable revenue, revenue

expect last million additional we point to to restructuring of X.X $XX.X XX. in increase year. and XXXX. to Our Please for we restructuring approximately $X.X resulting had Note QX QX operating in charges was incur basis Slide X.X%, turn margin $X was million and non-GAAP XX that, SG&A million from million

between to continue variable reminder is flow range a updates capital $XX.X the goal SG&A employees. and and to our We the $X of that from continue free QX extending quarter quarter generated highlights. expenditures of in was ball will to have million invest QX XXXX flow we will the capital first our the I in we of the to support it Please a operations February, quarterly XXXX our For projected for XX cash add run-rate to million SG&A working value earnings as in provide It our engineering million end $XX to $XX.X $XX million. off capabilities level and in by to technology programs run-rate few where proposition Slide cash and will cash turn shared our be for reward approximately million. customers on for of after we

available million the was balance March million XX in with cash $XXX Our U.S. at $XXX

repatriated we foreign $XXX from U.S. into noted earlier, million As the locations.

$XXX balance a $XXX XX. $XX conversion March of Contract Inventory The million is million turn up increase million, XX million were decrease million, compared raw accounts year in at at to primarily XX support cycle $XXX XX’s performance. Our were programs. assets billion from cash quarter-over-quarter. our was Please from March was Slide Payables to ramp million review receivable at end. of $XXX $XX materials an December new the of of increase December XX. $X

cash cycle which expectations. XX days conversion our for consistent was Our QX, with is

support and continue between days Our days conversion long-term our cycle to cash range growth. ongoing revenue XX will days to XX

of these Act. the repatriating we reform, cash Reform to benefits million taxes distributions. of the foreign expected these based of earlier, with in the future, or in foreign Turning impact $XX the the tax foreign $X.XX with of $XX of historical recorded state The earnings a $X for Tax associated withholding jurisdictions charge tax current the consists for intention related of expense first to million as XX on the impact applicable cash earnings Slide share U.S. for quarter, quarter a during of highlighted per million summary tax XXXX the

strategy, our updated settled to And allocation XX agreement, in purchases settle included XX capital XX $X.XX in than for shares by the repurchase which million quarter, into of a see share, initial the $XX remaining shares announcement market during million. XXX,XXX of completion increasing shares million. million of stock we Slide million, completed cash $XXX entering little quarterly The As more prior you repurchase dividend a of open plan of a total our expected the first which XX per delivery X.X or we stock accelerated on million is contract. on approximately can the

quarter for to second from XX a to XXXX million. $XXX $XXX we revenue of our Slide to range Turning review expect million guidance,

are earnings non-GAAP $X.XX share from expected to per Our diluted range to $X.XX.

information working XX. modeling Slide and second mid based discrete sequential demand quarter, be transportation single-digits on industrial is For turn including and for and revenues our Cyclical to to down new into to mid for our component the QX to recover. orders legacy the programs be please redesign. we Overall, performance factors led by up and expect infrastructure markets customer which are location several on within in aggressively expected single-digits hold QX we from in programs put execution issues new

We program customer fluidics and revenues low the expect of programs. on to cardiac based transitions medical timing be teens down for

medical have other continue to and QX the saw that up four we we and with quarters. that strong in instrumentation, quarters expect T&I mode should be past in coming the transitions sequentially. early ramp mid customers in programs are test We new In the will single-digits these offset demand in

current high performance forecast by combination now high of and single-digits increase legacy in the on to computing. computing the markets, to based a customer programs and expect sequentially revenues Turning new traditional we

in a customers. should Interest please is rate be million the the QX and charges. Operator, impact not softness call X.X% guidance our operating to margin expense customers Expected increased from edge assets of be tax demand XXXX Software XX%. intangible do million. for effective shares [ph] amortization estimated expected be modeling flat and from thus overall are satellite guidance to moderate is for demand The backhaul a expected average Implied questions. revenues for quarter-over-quarter, restructuring offset purposes. of to is the X.X% variety range and provided device excludes $X.X of weighted XX.XX open

Operator

[Operator you. Needham. first of from Our Thank of the line comes Instructions] Hannan question Sean

is open. line Your

Sean Hannan

question taking for Good the evening. Thanks here. Yes.

a understood first and Just as at of percent is end this comments now half the are modeling kind for to of correctly of you looking things or solidify half second point get there, check the are just by the we a on year down out in X-ish on to may year, of that the as make can end to you? about value to I SG&A second just to sure on value think I well the back talking some some X.X% to here, want gross are sure make few we misheard gross or margin clarify approaching, as margin front SG&A, I in but the looking the at have is hitting I we where the this achieve that

Paul Tufano

will I that margin SG&A So Roop and am point we on talk let sure the point. take gross

to well, said going that’s have as X.X%, I have approach year. we we we As ability believe the be the enter probably to

operational to of would would some issues. we the net or growth, how two, revenue absorb but second these more can of be end do a can revenue its half that number drive ability function we revenue. that growth long two And be okay. Our of things, in resolve How

of but to gross the be be on from So the year, will quarter the on gross of the line. that And relentless we second we are end margin. focused margin going to the maximizing question trajectory the are

Roop Lakkaraju

think that will X% range X%. we approximately of the in we and range add some $XX.X we to X% we get that growth be to obviously the just so regarding range as going color in about $XX.X with be expect we were Sean year, provided And QX in revenue that on your we anticipate as that end that million we think year question, towards about the of overall are to of we for And million, we million. the SG&A the $XX.X to

Sean Hannan

Okay.

make would something So type am December, $XXX revenue the very the about looking million this kind end and back of of I suggest this thinking probably number and I we correctly year imply for a of would are understand close mass just appropriately? mean at think ramp, sure this I to I significant I mean

Paul Tufano

the you the Sean, We again this mostly we stronger the that to it half second year, correctly, are is about thinking see expect first. year. than answer yes, last revenue saw in it

Sean Hannan

seem customer feedback in what of just in color see is Okay. bit here. of more terms then you little to terms headwinds, And ramp exactly we get these if occurring can Do want a express if occurring? this it amount can fair a and to a around resolve is more operationally you want could see of what’s confidence little just to bit we address get

Paul Tufano

Sure.

Okay, have as is absorb our in you look and our local And mean our I – – factory. factories every customer multiple product to seamlessly. customer job job transitions

hard. Now, lot When it’s haven’t a of factories, our like and don’t it’s growth in exercise. you exercise, seen while

the So, what the coming are these to comes, not processes have as think an coordination volume of car unison little bit of are factories to we is don’t out. the – get the need. And when Well, at in at into pit in a don’t work factories easy you the everybody using pit the though, terms quite level sequence. you be volumes have the the to organization, get experiencing, you that a of We it’s that to and like out got alignment about like quite because it need. stresses organization some have has NASCAR increasing, a happens these crew

volume the you end tough the by. quarter back add either crunched to without of you sequence, get try get missed If to to could cost having recover and or on a it’s additional you

are tandem, right It comes execute to needed. organization working the to people and ensuring process down things. down comes problem, Tools and in right three getting it people planning and has to in not processes tools. So, quite the right place, the as the it’s accordingly together just the

on are And back I in work on part am track about And rocket with working that. third It’s not the but maybe quarter. definitely our this through those in work. us teams quarter and hard a most issues get will its so large we science resolve confident

Sean Hannan

Okay.

Paul Tufano

where If fine to make you growth would the is no sure get you executing are want that point. network revenue the about That just mission point I demand we matter sure to be, for Mike are that ready this, that of and in off a they make it and our it you must going we like team fine and flawlessly. are And as mission. his are you in catch to see we

Sean Hannan

Okay, fair enough.

jump I and Let could gears in the switch just I back if me see queue. will here then

Just great a color wide would looking range wins, you the so that just really great clarity are here? the in we for see new bit congratulations this that to of get around if Any on doing time much a front. it’s quarter, want a little taking that, business range thanks terms procuring on program at more job be and very

Paul Tufano

Okay.

of and and So, goal volumes. we lot complex, rich to to as is bookings can customers it range relates engagements are get new our for require new going to as Clearly, with that that in a bookings, seconds as it’s a wider each objective our the partners after have of those complexity possible. we have technically deal of model target that

are curve trying our see procuring products customers are that. are of we the that end they way so engage of front the that S in we And doing importantly, And a to with more into growth. it

some the ones with is really And of doing way if this medical to stuff space [indiscernible] look the you we so as had quarter do it. a at we in innovative the are

stuff that. want bigger we you storage, going think energy a become The doing it’s management, We it’s about forward with excited play are in going DC-to-DC we energy different, to are that to market about if while really energy market. and power,

niche Given seen past. have we in There going spaces years. of fair high-performance through we vehicles, next fair budgets land across see are defense, are engage the course computing, see from of the us is the to to got share, two ypi computing the we and to to be amount communications, so play for we our to take going we so And more old board. is munitions of defense there. avionics the will pleased over want spending than our in We

Sean Hannan

much, Paul. Great, thanks so

Operator

Thank you.

is from Citi. next Our Jim question Suva of

open. line Your is

Jim Suva

does you also like remarks first the if hear but declines wrong, years it and totality? have in is of this math seen your this the year-over-year or those outlook, in accounting or like of about prepared two, Q&A my on Maybe impact so X year did – you June so expect for the is I growth year has much. for that the very Thanks but notably

Paul Tufano

So, believe guidance, did QX year. last range our if to revenue I you $XXX is XXX look $XXX, about at we

we should So, midpoint are below midpoint, we above growth. at the the slightly flat, see

we to year between expect the – year, to X%. revenue of the full for X% full Now for see growth

Jim Suva

it there half would now some in feels loaded, have the And just would budget about of customers spending it. there also and also QX the of kind be Got you getting flushes loaded if be second obviously things?

Paul Tufano

look backend the half, if was at So, you loaded. it second

look example, the quarter you the at of highest for was year. our XXXX fourth quarter If

think friends that with our is historically. I consistent

Jim Suva

for Okay, great. the clarification. much Thanks so

Operator

management you. time, this Thank At like to back questions. And I further am I showing turn no any to for would the over further call remarks.

Paul Tufano

and operator you, Thank call. taking thank you for the

in In make guidance we areas saying achieved. to the our about, we what our second second focus balanced is guidance the that view we to improve we quarter as you we is just me Let call move can by do. goal unrelenting a have we of all the the the of year. ensure put talked believe end out half It this upon

So, thank for you to with call. the to just that, listening want I

days. much. you to XX very you Thank We will in talk

Operator

does This participating thank today’s gentlemen, conference. conclude and today’s for program. Ladies in you

great all have may a You Everyone disconnect. day.