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BHE Benchmark Electronics

Participants
Lisa Weeks Vice President of Strategy and Investor Relations
Paul Tufano President and Chief Executive Officer
Roop Lakkaraju Chief Financial Officer
Mitch Steves RBC Capital Markets
Anja Soderstrom Sidoti & Company
Call transcript
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Operator

Good day, and welcome to the Benchmark Electronics Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Weeks, Vice President of Strategy and Investor Relations. Please go ahead.

Lisa Weeks

thanks, and joining call. full and Benchmark's today operator, quarter fourth year you, everyone, us for for Thank XXXX earnings me have and I this CEO With President; and Paul Roop Tufano, CFO. Lakkaraju, afternoon, introductory provide our of and detailed quarter will will provide comments, Paul fourth results. XXXX the year full review Roop and

year. issued with the highlighting release, our performance for We call session. the earnings a will conclude market an After quarter and full fourth Q&A our closed today, we financial

will reference under We this a Slide the review section take have live, that we replay be presentation advice This online statements prepared press forward-looking and The available of www.bench.com. will Please and presentation. a webcast available the on moment in release is at presentation X on the call. Relations being online to call a call. our following are website Investor the

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

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

Paul Tufano

you, our Thank call. you thank Lisa, and joining for

above in basis year-over-year. Test was Revenue to QX softening was and full billion, driven our revenue A&D, in turn results continued XX Non-GAAP quarter-over-quarter. and Medical. growth. strength year-over-year approximately operating which were with down year Revenue which million non-GAAP Instrumentation X.X% strong points XX% in This guidance. X% despite for margins to improved the Telco capped in is by primarily both quarter. you and This was sector, Slide and XXXX $XXX the $X.X If fourth EPS reflects was we X, our

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

days the was at XX the XX days, to were of from days was cycle and conversion and Cash million XX year which is at $XX that million we XX year, million days. target full cash our expected for of the range for the low full quarter our $X end Our $XX operations million in above XXXX. outlined this in to approximately $XX range earlier

We aggressively have our continued shares. buyback

and For by XXXX, have reduced million count we of stock outstanding repurchased XX%. $XXX share our our

additional repurchase and yesterday, prudently to shares. million continue shares through of We repurchased we $XX

continue on growth. turn you you to we progress Slide critical as make bookings, are to excellent X, revenue If which know all to

In antenna and systems, ground customers, modules telco components radar space for electronic for In million This of our of had $XXX manufacturing. modules. We had customers, module XX%. in for the new quarter and an for RF vehicles, quarter one wins devices. the $XXX which up XX% the the period to were manufacturing, our we for and aerospace the which If strongest bookings posted existing in we sector new with XXXX time number bookings won diagnostic devices, we solid in the linked projects five cardiac With with bookings is monitoring, of fourth sensor total from reflect vitro XX% year, programs back for image our million all medical XX% ranging customers, up optical of this defense, services. of Seven to while based bookings. new to computing posted two we full design quarter year-over-year.

to joint by engagements value products. had customer If the store now to Bench for and proposition our XX the for total other Slide number manufacturing testament it's turn customers. extremely The to Overall, cloud engineering X. of a I'm engagements. quarter new and and ones pleased we XX

we quarters, a two been As have we've to computing earnings. the contract legacy dilutive has which over our last discussed

to longstanding early life was end As contract recall, with longstanding customer. is substantially line When renewed was December year. be would and XXXX a it with impact decline this go a is assumed XXXX, of middle contract that you this fall informed The in and customer And they may this of us renewing of this changes? were Consequently, our will The anticipate it over transition not will this that has XXXX the this due the sometime the has time. we in notified contract. and this working XX% contract product that Growth since customers have Benchmark supply model we have of occurred to of the attempt increasing contract to acceptable period. this significant Margins, renegotiate once happened. this customer outside from mix to the opposite this by been moving deteriorated in which of year. We I when it chain product numbers. this expires

contract that at As substantially you business, annual of XX gross $XXX from million reflect industry chart, to leading both XXXX respectively. an hand true of strength X% we revenue that both our XXXX to you When but is look million years at respectable, contract, dilutive. $XXX can the you see results, basis. on underlying it that and removing By the our the comprises impact points of which was box revenue the and in the on those grow exclude can side margins our continues XX gross left to basis this margins margin in increased at of

established actual I bookings, $XXX about the you on as Slide corner, exiting this million year. hand go milestones milestone and do, earlier to this results. this totally upper with X, will customer, is traditionally the to we the we to bookings a report transition to through the our to contract right If to slide talk In from way until turn next it As to year. achieve of it continue like established points as relates without I'd we we we our the results with removed our

million delivered fourth this $XXX we see can achieving in essentially quarter, you the As target.

high-value chart to have a the relates hand of we set upper corner market the On waypoint XX%. segments, right as it of

Our computing basis way several this point. contract legacy results reported have points including that us below

in you that see that for can contract, this exclude majority As of the the we are we year. mid-XXs

Turning section. margin to waypoint watched number most the probably in was gross the

for waypoint end of was the X.X%. XXXX Our

the our decline year. for can computing of legacy the Given between way X.X%. T&I sector, and the of sector the results our contract the normalize the this of is to second point in related that T&I the you to X.X%. goes strength and the we half softening of legacy in reported X.X% see The difference computing are When X.X% contract

a restructure precision profit given seen of capacity division, In weakness, attempt utilization right-size our T&I weight of first to the have high in square value, the per nature the finally about the XX%. an group, XXXX, at which we the downward T&I facilities. the of weight per contract the and X.X% been I would the dynamics foot dollar of and for use closing the on to ROIC, erosion softened, that of taken steps legacy lower because a we you on look have If quarter above of that, as square have percentage range of And machining been semi-cap in foot. we've the would surrogate And capital profit intensive had of sizing same. or the and not reduce

reiterate Now target our reemphasize turning Slide X. slide, financial to I model. the next want and to

in that, XX%. the to Our excess of goal of and get non-GAAP do range To ROIC a need revenue to to XX%. margins X.X% operating is $X.X range and $X.X to target X.X% gross we billion margin billion to target of

But our that base million out transitioning of continue need of contract threshold we're legacy Because about lays it the billion, fact approach to model. of to the business, of target the revenue. now end Computing contract, range. this the $X.X of that to the that low grow Computing reduction bare the With begin margins $XXX shy our with we of

this bookings will XX. to Slide challenge business teams the drive are to low turn revenue that are I of and aware well next model. on focused Our If to the driving that slide, development get growth end of

some this XXXX. year, like As is case provide normally the to on of time color I'd

front-end expect we between that Test growth the the year-on-year This are to X%. year basis, revenue assuming in that heavily results in XX% full Excluding on would lower of of be growth half Instrumentation first Due softness a slight Computing XXXX & the is semi-cap. than X% and legacy that our which sector, with contract, assumes we half the second of year, XXXX. to

in targeting all around margins continued of are We the improvement sites This to and focusing by X.X% range. gross to X.X% achieved our be will margin operational process globe. the efficiencies in on be

facilities We expense and will structure, and labor balance manage aggressively further load. cost the rationalizing to

of ramp the have Tempe. mix will examine drive RF our to capital we over SG&A growth a XXXX. with actions authorization our acceleration and will the allocation here solutions, will continue related the both operating outstanding especially million count, in prudent will reduction the our revenue Combination income to SG&A of reduce center dividends. that and EPS the the about, refer high-speed $XXX of lastly, and and to and shares we associated And we year. and we improving take to on standpoint, talked services actions of drive We design From share quarterly continue should we through our

Turning to XX. Slide

$XXX low-end to the $XXX our of targeting the the we looking is bookings provide year. the $XX to course quarterly milestones standpoint, be million. assume to add competing standpoint, XXXX. $XX.X down That'll is high and linearity XXXX a like we to we'll $XXX we’re the guidance $XX organization what million bit estimated X.X% $XX in you spending from of booking the these standpoint, a go million, our about in million The SG&A margin. Obviously, XX% at as we’d as per revenue for million value through And standpoint, high From million call, the at said done. a our traditionally little before, from have fluctuating a of contract, we markets. a of we of that represents of margin million targeting of $XX are throughout which them improvement and From exclude From million, As range I gross X.X% a deliver range value case to gross previously the are a be legacy tracking driving from previous course of it quarter. are I milestones in to will XXXX. year-end XX% market to we to the

Finally, turning to year. And has successor. we a end to XX. underway year. intention the release appointment, identify their advisor the to this of Board earlier I In remain as announced, to our with retire my upon The this company search Slide today, my press will

extended revenue driving of the assume the I CEO of to and As subsequently and role And the and to the made remain company we asked this of That months that role Benchmark proud retirement to we years. improving September another has or the It operational strides. goal you would lead have of performance, in months. out the several last strategy. less. have Board my year, and XXXX XX time, an was by position operational March in been progress for contemplated joined and growth, From with Board know, made in I that refining great Benchmark, the a XX very past standpoint, great privilege that accelerating over come am I of I year, we

from two with days working working have period capital an have years. improved XX and reduced average almost from at been days, over million, of generated that $XXX in cycle days XXX XX% which almost past at significantly capital. of have approximately XXXX, over the is Cash of management. beginning coming the by remained three-year over XX% were We operations the Cash improvements

underperforming renegotiated have exited contracts. We or

sites improving importantly, the more and, transformed overall customer around have federation uniform globe. execution We experience providing into network, a the market sector of a global

years. my but the We XX% have team, in only below, not leadership with direct two of the refreshed several levels organization the new nearly reports past

a to speed revenue the collaboration We our we headquarters and functions an established growth have years and customers focus of deployment last decline, team that of corporate the rich, entire revenue and revenue sector processes perspective, other adoption into decentralized returned a business teams number breadth after our decision-making environment that two offer and We’ve development acquiring growth drive of a organization. forecasting opportunity that in market sets This on not tools. continued are and our to staff XXXX. in our tasked have sector only have of with and strategies years of the capabilities. Tempe to in new is are Benchmark technically consolidated common complex to revenue each better From growing of product in aligned in the but growth utilize

in growth company, investment increase our million, over seen a a have years we $X mark this bookings to and are fuel seen from we next come, levels in to over revenue These organization XXXX. years, and this and two billion months. to this will drive in the last the bookings Over XX% high XXXX XX organization growth $XXX driving historic bookings the for in

and But stands our by more by over as variety relevant wins proposition engineering continued value systems, engineering our levels. revenue customers, lead at growing optical a growing We’ve offerings. and of fluidics, solutions level manufacturing our engagements that Benchmark to third. engineering such to expand have We robotics over in importantly, XX% to more capabilities the XXXX disciplines, now of making engineering expanded

manufacturer more customers enable and have transformed and the I’ve go fact of have to three And unique last into perspective, the I sector of I to capabilities take a offerings repositioned over been years, the from And principally a evolution fortunate of a taken of what from them am market in company, been strategy what in acquired have an technology witness eras. We very decision our describe transaction that to services number set engineering to believe secure manufacturing the Benchmark we I entire technology great of economically. technology faster solutions a contract will career. as principally transition. and that a the finally, powerful advantage next to sector the my four is proud I with

the drove computing semiconductors The to mainframe, and emergence advancement first the that PCs. era power the distributed where computing of of the is hardware, in enabled

second the first now enterprise cloud software, of and application and SaaS The era software, then is software. software,

the voice other to voice the upon capabilities and more end of users technology, end mobility the at across sets any improvements, are spectrum more markets wireless the and is and products connectivity of third data of which markets and to a driving provided opinion, which to enable device, we offerings. industry but of of built and video evolution eras associated the the verticals. beginning is applications the even Each and end which new era transmission, will The technology network and these of not enabled on new In XG importantly, and anywhere. new have my era access broader diverse only fourth speed

our afford. Benchmark I/O XG range architecture with and few the and manufacturing front-to-end have years, key associated capture partner architecture, past customers opportunity RF advanced to For that to make we a been high-speed from the SMT. capabilities capabilities radio manufacturing, developing that traditional to for frequency design These circuit microelectronics will to topology, wireless to and coupled RF high and components in

came then both in help Benchmark our like was the to see. and execute track. from now customers, team, to entire I to our but foundation ability team and will I for that its this company thank the am to company reality. time is Roop. desire of past new have years. They organization the that leadership. When not the go its engineering XXXX, told and that and this for their that backdrop, and like the level With to its I set time to potential. unleash the aligned. a as these The make confident engagement these several transition you so is this arising manufacturing was tie the over potential. the call Benchmark I they bright by To for the and our capture can that leadership and We right first to to over were it's opportunities to our achieve a capabilities leadership to our lead this faster by CEO, in solve support turn job them Feedback altogether. they would future market my on offerings, we're indicate excited problems, in I'd organization

Roop Lakkaraju

Thank you, everyone. Paul good and afternoon,

people, we Paul at of I opportunity the is Paul Benchmark want the success to foundations had is Paul he deliver to value. of few leaves and well one recap Through Paul work I've and company, the there's about Before several with thank Paul efforts companies. management investors, quarter, and Benchmark. years. discuss to word, fourth the our over describe If the behalf to his passionate. team tireless grow on customers, for last positioned company of his use the our the passionate I'd efforts, of technology strengthen our our and has entire

discussion year-over-year. year I'll but So appreciate million our telecommunications guidance with Revenues With of was done. Slide by say $XXX semi-cap just a our to X% that and that XX, continued you've the The turn increases of to that market end quarter of it $XXX the for Paul, I'll prior million exceeded financial decline XXXX We thank you. offset million, $XXX A&D. fourth due all down of to from softness was high in summary.

the non-recurring GAAP the of and $X.X Our tax XXXX million of restructuring million for and $XX.X our of Cuts tax on costs restructuring accounting cash due on call. of Act Tax related Jobs XXXX QX sight the results from GAAP benefits announced actions to foreign credits generated the primarily finalization the the earnings our EPS other to quarter repatriation. execution part was XXXX in for $X.XX, also included tax

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

reduction by months Industrial For the year-over-year. quarter, from year-over-year X% revenues Slide seasonal for for insolvent revenue sequentially, the ended quarter as for market decreased Revenues sequentially XX% points revenue for and for demand down and quarter than in semi-cap communication were lower security three fourth demand quarter from changes better represented infrastructure vascular our result sequentially customers, the sector ROIC year-over-year, XX% revenues on declined expected the to XXX our in of military expected basis year-over-year, device XX an up value A&D X% a and was points December the Instrumentation increased we're and we're from we're XX. and X% were XX X.X%, in Please Sequentially, decline, customer. turn the cardiac down fourth customers. And our for basis our revenue. commercial from custom the sequentially and revenues products, of precision demand down for increases increased component quarter who year-over-year, than services. primarily X% aerospace technology demand Test X% in year-over-year our delays. and and products. from declines higher renal markets will fourth X% XX% utilize from Overall, and softness. XX% fourth flat revenues increased & revenues X% Medical transportation products. down semi-cap

our year-over-year Turning to sequentially was and traditional with from XX% markets, up but Computing program XX% year-over-year, computing forecasted. was slightly Telecommunications broadcast storage new ramps less which program quarter-over-quarter up X% from satellite and and down products down X% new ramp. is now than sequentially,

XX% of sequentially. represented Our XX% fourth traditional quarter X% were revenues, from markets, which last and year up

quarter. represented XX in Our sales top customers of XX% the fourth

margin points. Turning legacy to X.X% decline as adverse decline and revenues higher XX customer. points Sequentially, of the XX non-GAAP softness down discussion to was Slide due for basis continue semi-cap trends. year-over-year impacts was a to quarter QX XX well as storage for Gross gross business and our basis computing from sequential of margin of XXXX

$XX up million sequentially. restructuring was XX non-GAAP X.X%, down was had was for and million, operating management SG&A margin We which basis resulting driven points X% other QX. sequentially, by costs continued $X.X non-GAAP expense and Our

the Savings previously. QX in announced our actions the of guidance. results in forward prior all restructuring are completed reflected have actions from We and our

in $XXX,XXX charges $X We expect incur of XXXX. additional restructuring million approximately to QX to

for XX, margin in XX our markets XXXX, Slide compared $X.X of to Gross driven increase growth basis for of billion to demand our Revenues as of softness declined X% overview XXXX compared in Computing X% and due were XXXX. traditional growth in for the X% points to customer year-over-year, legacy and growth semi-cap. financial by an higher-value $X.X summary a XXXX year-over-year to Turning billion markets. our

to basis function revenue a X.X%, X.X%. declined SG&A capabilities. XXX Non-GAAP of go-to-market by $X.XX, EPS to Non-GAAP points as to year-over-year. decreased XX% basis continued a point decreased income points our percent a and of our increased XX and increase non-GAAP as XX ROIC Our operating investment basis

XX market sector Turning to revenue Slide by the for our year. for full

ramps our Instrumentation for grew growth second still Medical For and markets new program demand and pace products. the defense benefited X% higher-value stronger-than-expected from rate declines, & in sector service XXXX did Test programs sector new increased Revenues but slightly Computing year, from annualized The softness. of existing as grew up of the the declined in due of The half short on security XX% A&D programs. engagement. engineering from offset customer XXXX, sector X% to spending and the strength the Industrial were The full markets from traditional transitions. increased not new resulting

returned at was XX.X%. growth for in As new from Telecommunications revenue XX% greater growth only fiscal broadcast satellite for expected, XX% programs with approximately IBM we than year products. and to our in XXXX XXXX customer a

million XX cash to expenditures flow was generated approximately fourth million. for in Turning Slide on million quarter for and cash a quarter. $XX We few $XX highlights. capital $XX of Free flow the cash capital the after from working for updates operations

the for to full $XX capital previously. we full million. XXXX, million approximately million exceeded range Free which in of $XX from flow after discussed $XX the year generated is $XX flow cash billion operations, billion the of expenditures cash $XX year For

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

million $XX $XXX international from repatriated repatriated we XXXX cash locations, to bringing million. our QX, During cash total of

to As our A repurchases, share forward, down and capital, repatriated we'll used we expenditures, of move prior are loan The continue fund opportunities. facility. further capital funds evaluate repatriation working to paying term

Payables customers. balance $XXX a accounts million Contract decrease was September million in function $XX $XXX an September XX $XXX and XX. accounts million Inventory $XX quarter-over-quarter. were XX. XX December December of at shipment increase a linearity million, our from increase at The mix receivable XX. Our of is assets receivable and is of at million September million, million $XX were from $XXX of

driving on which customer for due cycle inventory is our was expectations a our for conversion cycle. XX days of the Turning better and payments. on was allocation QX, million lower committed demand Slide Cash exceeded to our to repurchases XX year. Update which conversion review XX. million, of Slide timing than days approximately capital cash through for $XXX of $XXX December certain XX Total amount

continue will our further through to OMR in XXXX We evaluate program. repurchase

end XXXX, a had been program. In approximately repurchase the October recurring announced cash March in $X per of available of the XXXX we As billion $X.XX share we $XXX April, and under of share of and paid XXXX. January of million XXXX, dividend, dividend approximately had expanded July quarterly

of Turning our to first contracts. the Computing a XX includes legacy Slide guidance for our review quarter guidance. – And everyone, to remind to include continue

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

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

we modeling sequential Slide down XX. be to seasonally A&D are softer Industrial on to to first revenues slower For ramps, quarter, quarters. QX in please program expected recover which in subsequent for low based to demand; expect expected flat the turn from be singles Overall,

expect We XX% to up Test softness expect continuing by Instrumentation, Medical from revenues driven low customer to in we In decline & semi-cap. programs. be new digits, single

holiday. tax amortization and $X.X other impact to expected estimated provided Interest of million, be China tax be Implied be is revenues the greater a of Turning and now of our range to the from does program expect effective the our modeling purposes. telco, Computing costs. to due X.X% intangible mostly markets, restructuring than exclude expected expense guidance XX% traditional The guidance and timing. for assets seasonality; operating the is down new we and to rate to expiration is down X.X% to to in margin due XX%

would XXXX China we XXXX for receive year Slide tax information provided the year China If call legacy shares for are of XX.X tax mid-XXXX be for on QX your in will expiration The the reflect to holiday XXXX we expected modeling for rate expect closing, to a when reapplying and average fiscal the And we normalize the questions. please reference open weighted million. tax Operator, – holiday, contract. our fiscal XX, effective We Computing allowed. when XX%.

Operator

[Operator Instructions].

Our come Steves go of first Mitch question ahead. Markets. will today RBC from Please Capital

Mitch Steves

first of touch equipment? of in the guys you Or the end a hit I going my for on kind Hey, to forward? semi-cap a that’s on for guys guys. of sort you rate know instrumentation and pretty kind lowered do million run bottoming that seeing market Thanks Because you segment side. question. taking Are testing there. any $XX guys of to I want expect

Roop Lakkaraju

Yes, I’ll out. start Mitch. This is Roop.

to with We’re half a year-over-year of see, accelerated decline XXXX expect we kind as really we we demand to and go as increase growth. a through second expecting XXXX to that – said, overall XX%

Mitch Steves

it. Got segment on customer guys you secondly, And on then for computer moving the are high-end that from. the

just the was So profitability standpoint we margin how we margin? that the that versus will Or I think gross the do understand flow from operating an the that mix will Because standpoint, operating about so that margin of business is margins but – that should in assume through gross the op up, margins be similar?

Roop Lakkaraju

margins. operating There an on effect is Yes.

you million that if single ask range maybe very to $XXX take gross type digit to $XXX the about think million, is of overall. the is So you I’d it low way margin

when million around you million the of $X somewhere profit you’re or looking do math, dollars at so. so $X And operating maybe to

XX exactly can operating maybe that where Overall, And margin. depending is, stream so revenue that it’s points basis points or in from upon perspective, XX basis op overall see you an margin effect. increase

Mitch Steves

Got it.

be point to clear XX margin? Just gross so improvement to but XX here, op to basis on XX in only margin XX

Roop Lakkaraju

flows margin math it basis XX to of point improvement, how the XX and that’s just through. in op

Mitch Steves

Thank much. you very Understood.

Roop Lakkaraju

Mitch. Thanks,

Operator

[Operator & ahead. Sidoti from Instructions] Soderstrom Our go Please Anja next question Company. will of come

Anja Soderstrom

to I It fourth going a going sort little this how bit forward. and think question forward. Hi just what for Paul, of you question. the end the I wondered lower and Lisa my impact with lower taking quarter. guidance a had that for thank expected SG&A was range than of about and that of the

Roop Lakkaraju

Hi, this is Roop.

you for the thanks good and have So question. to

still action structure look expect that million have in been but So, comments, be expect we being $XX that out of $XX we continue in prudent and quarter million. we are we it as within be came in put with As to overall moving fourth our to in normalize place that to cost that SG&A, investments we obviously, XXXX, to we'll management terms in forward pointed at focused Paul the SG&A have on There we towards around range. as $XX his some make million

Anja Soderstrom

And have a terms that? things you the the also gotten you had question semi-cap the have then still color I share any second that more about you. before you been that turnaround? of with about just Or in Thank us half. seeing on turnaround you Are can in talking same

Roop Lakkaraju

said, kind I composite with we would half story now that mean, our in is expect diversified different one of we recovery as a roster to – and aggregate we're a each in and lucky it still of we would slightly based customers second a what and With set customers. on considerations. see that have say those discussions expect semi-cap, of

Anja Soderstrom

for so you questions. Thank taking my Okay. much

Roop Lakkaraju

Thank you.

Operator

no back Instructions] question-and-answer [Operator turn time, any conclude Showing like the this this questions, conference remarks. closing At for I'd to Roop over session. our will further to Lakkaraju

Roop Lakkaraju

be days. speaking Thank Thank after in for you. you joining forward answer available all everyone, Thank day. you, Have – call the operator. and We'll our a XX today. rest for look we you your further good questions, to to with call of any

Operator

attending The conference has now today's concluded. Thank you presentation. for

disconnect. now You may