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BHE Benchmark Electronics

Participants
Lisa Weeks VP, Strategy & IR
Paul Tufano CEO, President & Non-Independent Director
Roop Lakkaraju EVP & CFO
Mitchell Steves RBC Capital Markets
Jim Suva Citigroup
Sean Hannan Needham & Company
Call transcript
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Operator

Good day, ladies and gentlemen, and welcome to the Benchmark Electronics' Third Quarter 2018 Earnings Conference Call. [Operator Instructions].

As a reminder, today's conference is being recorded. And now I'd like to introduce your host for today's conference, Ms. Lisa Weeks, Vice President of Strategy and Investor Relations. ahead. go please Ma'am,

Lisa Weeks

Roop and review Quarter for me XXXX Paul results will quarter President; I operator, introductory fourth will for and and our comments, this us third Benchmark's have Roop and and CEO Third Earnings a Tufano, CFO. thanks, you, Paul joining give 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 advice 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 third 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

third would the by improved range. our Non-GAAP Revenue joining down XX thank the I X.X%, despite and services today. semi-cap driven guidance Test above quarter revenue sector reflects EPS and quarter. continued by at computing, the is basis was was you, the for Both guidance you margins characterize which and softening XX% our million, X% $XXX is year-on-year our to non-GAAP primarily gross and This Thank market, telco in sequentially which space. midpoint as A&D. growth. within This call Instrumentation points quarter-over-quarter. underlying Lisa, the & was

EPS a of midpoint basis our above Our $X.XX, was non-GAAP on the guidance.

conversion we Our Cash target due anticipate operating slightly cash above breakeven, was shipments. approximately days be to to but cash - range cash cycle operations XX, the free of was from flow linearity full-year positive.

buying aggressively been have back We shares.

$XXX worth purchased that yesterday, stock. As that, of million has And we of million announced authorized $XXX today our that end will grow the million. of to of repurchases. year-end additional we share Also, anticipate by we $XXX an board

revenue progress to future from are X, bookings, of critical turn bookings the to to diversity continue size perspective, on you Slide make which we If a our good and growth.

ranging million. as of This on we $XXX Medical network In services with new space, device telco, won In Within for design from future in a device. edge of six XX% tissue posted key that these up set full-term number quarter, am manufacturing. customer the customers added are that of of is bookings have fetal Industrials, I monitoring ablation XX% a bookings, very the next-generation which of telco by and endeavor, a part new we And a design where of excited basis. two has a servicing was our platform We products deployments. advanced the for very and new are excited of the year-to-date, as a we of long-term projects, $XXX provide will ultrasound I'm manufacturing. a robotic which win by medical, support million new we a to solid handheld device well design, bookings, year-over-year

very manufacturing as a the engineering; good engagements. XX manufacturing. had will for commercial design engineering for quarter, we the of XX high and and both extremely filter aviation have wins applications reliability as well and both in by number pleased a win total, for aircraft. provide and XX in joint military for we support Here, And And component XX In manufacturing we in I new am customers. A&D,

turn you X, an like I'd to guidance our If provide Slide for quarter. update the fourth to on

Our between range diluted non-GAAP to million revenue $X.XX fourth million, quarter the and a $XXX $XXX with guidance $X.XX. in basis on is be for EPS of to

both year-over-year in on of down we Our guidance Instrumentation, margin. reflects and our range Computing Test we'll XX%. the the mix impacts mid-teens, and expect of sector & in the In Test decline the Instrumentation in be shifts & to

reminder, sector a This our front-end our and than precision higher is more by average. margins performed has manufacturing machining semi-cap T&I complex corporate group. of As is consequently composed our primarily technologies

While well we of are to equipment, within short-term a are in semi-cap fundamentals and positive are positioned cause semi-cap to the sector experiencing extremely we the - returns when on growth. it it

it single expect to by high sequentially increase In to digits. addition, continuing

you a velocity segment portion of Computing of system will significant effect impact are the content complexity, high on or integration to is that margins and these two sectors our revenue margin. below Due negative The storage. have average. legacy minimum for high purchase Within our have the a corporate

opportunities our performance. and improved sustained However, remains and for business see core solid, we operational

$XXX perspective, the bookings. our of goal had year a bookings first $XXX Slide our at gross progress to point turn toward update of to some million. improvement about we X.X% in up milestones. XX like we three million I'd result, quarters, points an a anticipate have we for If our the a as basis to range. of a exit And X, we From to on As give new margin, sequential average

is so. and am with converting I it is ability funnel Our bookings, into supports to and target, go-to-market tasked this the confident our our organization current in funnel extremely who do

we of high to the in XX% or revenue, a As revenue at it relates higher value at point had above rate the mix, year value our exit from market.

quarter will was year think above at now compute, be to our at the On the we exit softness the that increase or and XX%. margin, X.X%. Gross Given semi-cap - the in waypoint

As I gross margin midpoint our of X.X%. guidance just is indicated, our says at

revenue, lower computing, in discussed with we've outlook percentage has As coupled higher T&I depressed the section, of margin. of our mix the

However, for our an have and to normalize these perspective, business - XX.X% From million SG&A cost of gross we be shifts, our between $XX.X exiting approximated per us XX.X% margin waypoint. the model would quarter. spending mix

foot X, forward. growth our now anticipate quarter X%. in market, which We observations the our margins, margin of our have and assumption target. per expense profit mix lowering ignition, return activity to the coupled X% you XX%. given with I been reduce phase both year to a we finally, to some profit make high long-term the look monitoring our see as loading is presumption to that XXXX. turn preliminary be SG&A but our grow function that of on I'd have proud our Slide semi-cap we revenue And said Within between growth. and its This that expense we current and positioned square our XXXX to second will can of this capacity regarding mirrors primarily as this center, the like returns remain SG&A a growth to the expansions shifts that basis, We to of benefit If business and with and down to well We for half, and foot. will are it's design second square our I before, very ROIC, fact are Computing from and to gap T&I support generating speed approximately strength and and in T&I are accelerate through full, RF go

and However, structure. against are expense backdrop cost taking we our the semi-cap to of reduce softness, actions

the months, Over we have past affecting workforce population. of implemented a reduction, X% number our approximately few of

annual excess We $XX actions of this of we been with approximately taking. million in call, reductions associated have savings As of these are XX% active. anticipate the

optimize of As part to to XXXX and our our our examine business structure expansion. facets cost all are drive we operations, margin planned streamline continuing our of further process,

telco also within evaluating and customers customer circuit ramping. margins. qualification, Arizona by not it of increasing, only RF already our from we or and are progress, the X contracts the that aim for a excited in am next-gen which area, We this but year average. for RF design have design microelectronics above center customer qualified Xx facilitization the expanded currently margin After further engineering pipeline our speed We is wins five diluted high in will assembly, five high be and extremely have of and The prospects engagements improving will and of with the for I both marginal qualifications are and A&D in also corporate and speed contribute, markets. engagements, to

on updates are margins, we these progress our our back gross our return to is actions. mid-Xs. will aggressively SG&A will expand goal further buying Our parallel, In margins we margins we To call, to made we've year-end operating you shares. In also give be more lowering above expenses. against - the

significant our I end more by the like in we XXXX to expect expansion, coupled We the you and these lead With on share color EPS We who'll price to over the levels. are would we'll repurchases, continue over anticipate of stock as repurchase beyond. accretion to from will do million it taking financials. that, with and depress aggressive turn Roop, so give actions the $XXX in margin share year,

Roop Lakkaraju

and Thank you, Paul, good everyone. afternoon,

million end X% summary. XX quarter to demand of was straight for year-over-year primarily of million, year-over-year. This was marks in seventh Slide revenues Computing, $XXX by of to A&D. financial and telecommunications we're high of up quarter XXXX the recap guidance Revenues third increase of million Turning The $XXX revenue and in a increases $XXX towards growth. our driven year-over-year the

$X.XX. Our was for quarter GAAP EPS the

million provision our $X.X a inventory results net write-off financing existing $X customer accounts receivables, charge restructuring comprised million due of of the $X.X due the The $X.X and also facilities GAAP million net cost, quarter. of and of deferred to write-down also $X.X insolvencies. charges of charge refinancing credit Our was million included for to during other million

operating point Non-GAAP XX our within $X.XX. non-GAAP QX improvement. quarter-over-quarter of margin was EPS to a $X.XX guidance $X.XX was basis of X.X%, Our

sequentially increased was the two revenue X% year-over-year. sequentially, was basis for with Please the navigation declining less sequentially down reflects than Slide custom program from the XX from revenues quarter, increased growth and to ROIC and and quarter Sequential flat points was X% year-over-year. component by sector. our now demand market was due X% automation transitions. of from demands from revenues were our quarter flat XX customers which for third ramps. softer that programs. the few For secure were sequentially, A&D communication quarter timing devices. turn is insolvent. year-over-year, to for expectation from industrial our third revenues top Industrial third customers X% for and and was Test XX in-feed basis due process primarily increased & third were timing Year-over-year to new X% growth points across from customer the X.X%, initial our Instrumentation greater demand who higher expected relatively better revenue primarily and issues primarily an the XX% of technologies revenues demand third our the the sequentially utilize for revenues X% in Overall, revenue our semi-cap Year-over-year which down program year-over-year, quarter existing customers. than quarter a were and increased markets of slightly in XX% Revenues precision higher X% represented value down Medical services. semi-cap softness. XX% of and from down customers and declines year-over-year for

ramp by X% computing XX% up of last demand XX% our as driven sequentially XX% primarily variation due to new sequentially a customer increased now to Turning from year-over-year satellite from customers. traditional delayed up the was product. legacy program, storage and existing and quarter a Telco year-over-year, down was was result from markets, which up of demand

were Our revenues, slightly XX% quarter third which XX% traditional down sequentially. up represented last markets, and year from of

and up impact improvements points. the adverse represented of XX X.X%, basis of XXXX decline of XX margin outside improved our from operation an of Our softness. for Slide quarter customers sales a mix offset improvement QX point due was base turn market discussion third non-GAAP XX% the key trends. top Please the Gross sequential semi-cap quarter. year-over-year and by of XX continued a was business to Sequentially, to third for basis XX gross margin semi-cap a

the which was flat margin. resulting of $XX.X million restructuring points X.X%, relatively million, gross for margin operating $X.X sequentially higher basis was And in non-GAAP result QX. had non-GAAP as was up We SG&A XX Our sequentially. a

capital million for for cash was highlights. quarter. cash in usage flow $X expenditures of approximately and the to of We $X.X on million I'll additional working provide incur Please charges used Free the million flow quarter a to $X $XX expect the million. turn in after operations third where few capital million approximately XXXX. We to QX Slide XX, updates $XX cash restructuring from

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

June $XXX accounts down receivable quarter-over-quarter. an XX. from June receivable and performance. June at accounts million review Inventory were Slide a The of XX September of mix million in linearity function XX conversion of of $XX from assets million shipment turn Our was to $XX million was XX. and $X our to cash $XXX $XXX our an increase customers. million were XX increase million, million, was Payables balance $XXX Contract at XX. at September cycle increase Please

cycle was conversion QX, higher expectations timing cash due our revenues. Our days the of mix which than XX to for is our and customer

our update Please QX, conversion was million XXXX, days have turn revenue between which our Slide long-term repatriated QX. effective mix from a growth. for Non-GAAP support our international XX range and rate cash XX higher an of to cycle the continue XX in cash forecasted than review result not days XX.X% quarters. of ongoing to repay/create did will additional U.S. Our as allocation income capital was higher prior tax strategy. days to $XXX location. We than cash of in being in to we

million Term have capital expenditures opportunities. $XXX we've to facility. evaluate repurchase prior The to and of approximately quarter repatriated through for the shares OMR funds XX paying million, down We'll to repurchases, As A capital, and committed further will approximately repurchases, XXXX our ASR October we of amount XXXX. year. fund for been between was and program, continue the in OMR, share $XXX $XXX of expect exceeded reported, our which fourth Total through working we used to million repurchase combination repatriation continue our Loan

quarter to an guidance. quarterly $XXX cash turn under and authorized the for program In were of in million dividend. April, $X.XX board available the by million, current review XXXX the fourth share slide Dividends $X repurchase Additionally, per expansion XX XXXX, the of million share of we our October. another program. a July makes per paid which expanded recurring March $XXX approximately Please quarter announced

expect $XXX to million We to range revenue from million. $XXX

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

QX custom products. program with for process a XX. and QX For Slide controls a down new be revenues from quarter, component please midteens A&D information demand Overall, expect sequential customer. and in of softer up expected digits modeling, fourth industrial in issue based to in to to is the correction we mid-single turn be transportation ramp industrial on security

expect to transition up continuing We from cardiac ramp decline single be expect the low of we further Medical digits Instrumentation, semi-cap. for customer from programs softness devices. new revenues and fluidics In Test in mid-teen &

the Turning now to markets. traditional

to We product. and program from single in expect seasonality digits computing legacy the ramp revenues storage new be up our high

be is costs. guidance the for amortization other and is customer exclude of there expected Software restructuring The expense revenue rate for for current million, and based operating on open Implied be estimated to weighted purposes. tax average modeling a Operator, flat demand. to shares effective X.X% call QX, intangible should our to million. assets guidance, expected margin range in of impact The provided Interest please XX%. questions. X.X% the $XX.X does be the is $X.X, expected of

Operator

Instructions]. [Operator

the question RBC first Our from of Markets. line Steves Capital Mitch comes with

Mitchell Steves

I just two. had

So first on reduction. the actual, headcount the

of So if we kind couple we expect to the think a next when the on should about here? of basis quarters sequential improve OpEx

Roop Lakkaraju

Yes.

is So Mitch, Roop. this

improvements, moderate. OpEx to we've already the So started

and that we we moderation of XX.X% guidance our And if go QX expenses. XX.X% QX those from So in of remember, been actions and expenses. SG&A midst range planning per the obviously to see to as part you And we'll for move of, of reduce has of look as further. process the down forward quarter reflect that - as actions And the the further potential we're to some closer moderate XXXX below we'll XXXX, towards that we'll around into - range, that XX%.

Mitchell Steves

Okay. is expect in do know year semi-cap low you full together some put talked year, And guide. computing about, a items guys of be secondly, then year assumption? top given growth offset hadn't that all a for guys? guys you I the But fair a single if you full weakness to you line kind the for strength, I digits XXXX by

Roop Lakkaraju

that So base business, to we Mitch, said the X% on current X% of we it's think

Mitchell Steves

X%. to X%

And just then one the Okay. last Perfect. side. semi-cap on actual is

are guys improvement. the talking half back a guess about up seeing rationale a snapback you there? that what's And So time frame? I behind why

Paul Tufano

this Mitch, So is Paul.

and for If are you of this first we growing, view chips is of always look the at semi-cap, the the The strong. semiconductors all, demand thought. fundamentals industry and as positive a temporary semi-cap and

you growth. what's that see So our we to to and a pulling going written think of we been if in our are look Aros, by at customers, return

Second in increase. tools through the inventory, new of And half. demands second as as that it's the we logical - quarter these accelerating we through then work moving it tabs, digestion work on

Operator

with Our comes Citi. next from question Jim Suva

Jim Suva

And aware wins, the at ramping we flush ask Is coming out other on costs. have things be in or anything A always EMS wins pressure or companies the quick anything And bit not look should so may the should about those with get we unique been question. wins, increasing. of? business business at the old. because a EMS why When you competitors specifically some way business reason I in look higher there any they've new - your be always that it, of should bringing industry talked little new is business obsolete, new the we we margins in when seasonality year-over-year, in new that

it's business of? bit complexity, about aware should we location, So can that talk a just you anything be new little mix, of pipeline whether

Paul Tufano

So of start, more let and I'll is Paul. I'll kind color. Jim, add this Roop

large a sites into have and be wins, therefore, are business ramp within number the our to able capability of predominance the these - and, minimal staff more larger sites products should our with of These broader transition issues. our at look targeted network. you them If

In that hiccups. nets we don't on to ensure been have plans sure efforts safety make have we that redoubling addition, have transition our our to we

So be from There's doubling programs. They issues those our larger of that's large confident. sites. very not to the go in we'll our - there standpoint where be going network. And some going these But mega the where are when sites same going, are into as are of they're smaller they pretty well. these problems, into

Roop Lakkaraju

management obviously we timing Yes. think Jim, effectively Obviously, additional advance aspect. supply this chain, with the about think process Roop. inventory add just and inventory see constrained customers. those as in markets could supporting one lead-type is a around those I'll with those, I ramps in of And the support of for critical ramps, we in collaboration long items. it's some buys especially around those

Jim Suva

follow-up. like a should going Measurement to about softness profitability? Test in due versus be seems be But year-over-year that Anything impact will quick we on may that industry. mixes? Then Okay. forward down That of, say, mix aware historical mix and anything

Paul Tufano

& Instrumentation, awards Test I new us So the specifically opportunity that constant, be enhance mix new for should to though mix. think we in winning tools are give pretty will

to edge characterization. mix you ensure usually deployment. leading are a the new we better wins that gives So of on tool, we're and that And continuing

Operator

Our comes from next & question Sean Hannan Needham Company. with

Sean Hannan

you semi-caps been of the I context well was path how for to 'XX. see has Clearly, looking hit on some about think that. have as provided if general guys to as

can talked - perhaps, What's X% confidence can about to of your order you granularity that that's you those material when think type I about the when that other - when the maybe, where those rank about. you business gives to But - more the the a and to if wins, the you talk us in see we markets really - Maybe think bit that. going for are, stronger aggregate of might been and the little you to provide Paul, when well providing more X% segments, pieces than to you X% then be growth aspects into that get see driving what what I you So range? think of X% if risks?

Paul Tufano

Okay.

we answer that, the to Jim, have So look to obviously, at...

Sean Hannan

Sean.

Paul Tufano

sorry, I apologize. Oh, Sean,

- revenue to You at the bookings have conversion to revenue look rate.

of that I positive a next-gen in depending is carriers. be they to 'XX. those significant products impact cycles The [indiscernible] look come with revenue telco, products growth into whether reason usually on for would expecting are So telco to

You [indiscernible]. begin to ramp pretty fast

A&D, wins a reason is also rate. telco booking So XX-month be normally years. driver. I I'm A&D X.X been booking I'm will the the for on to a bullish conversion we've bullish and last revenue And on has A&D think A&D

revenue pressing conversion to some a would that, the start growth in think last industrial bookings bookings the that I there in be couple given or over the we've to last team to will revenue And shorter booked that's we XX or years fact will say I I so. that months 'XX. then materialize quicker that, Medical, of see after to our drive revenue And closing am given bookings should got more of the drive metric. on

I'd to So from the A&D, Industrial it. rank order, telco, a being choose with Medical, ability say

Sean Hannan

- a forward Okay. the other we That's of very depending you helpful. some factor allows how then of from anything progress help us think of look performance? earlier when the a kind in in on telco, our margins have margin about to of move the telco, growth, that is that all profile or of a disruption the to that, is consider the how to And change. And impacts may question this if the continue mix, then then that, how mix. Or that that to the so in next-gen point? there link just to of success, terms there is does aggregate mix margin you think Jim next-gen bigger I had to clearly, contributes our can terms aspect on Is there asked our

Paul Tufano

Okay.

I me on let So some if you give that. color see can

base products, that telco mature very legacy don't products transport, are chains stations, obstacle thing those shift either much. shares out pretty have with that supply that the have So that suppliers wrung are maybe telco, about pretty

newer at these are the network. products. look of at telco, you As They're next-gen more edge the

providers, as with reduction. [indiscernible]. in have manufacturing, think you're supply to influence ability chain design it help of either the through to cost ability design the profile I putting you And those a the margin the concert have for for than legacy better design gives You that those,

an we And has reasons. telco, for densification edge been so that enhance will or the product exclusively it very of network have as those been a targeting product in growth network

Operator

showing Tufano remarks. in back to questions call this closing I'm Mr. to any at for And further not I'd the time. queue like turn

Paul Tufano

Okay. joining Well, few you In the make for a want on I us thank call. just closing, remarks. to

I First off, ever model our as and, it. am in importantly, to our as confident achieve business strategy more

standpoint First, annual to leading from a position our in customers, expand we to growth continue is growth. bookings value is sequential continued value translating proposition, That and bookings. growth to revenue this in to

all our forward on Thank engineering repurchases, EPS our the want result and will grow capital The our customers, solutions and in be talking the expansion for to margin as you our are of these year-end take things share this we of to manufacturing our And to substantial. increasing offering of combined be to thirdly, continue expand I look engagements and execution. I service minds every capabilities drive with us thank and and to Secondly, mature. operational three impact customers much. differentiating and you and again When company our the profitability. on their to the employees levels accretion absolute our and of will of will commitments our to opportunity our of very allocation call. dedication their

Operator

day. program, the Everyone, Ladies and gentlemen, may a disconnect. conference. you great have now your participation and thank concludes you This today's for in