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BHE Benchmark Electronics

Participants
Lisa Weeks Vice President, Strategy & Investor Relations
Jeff Benck President & Chief Executive Officer
Roop Lakkaraju Chief Financial Officer
Jim Ricchiuti Needham & Company
Anja Soderstrom Sidoti
Call transcript
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Operator

Good afternoon and welcome to the Benchmark Electronics Incorporated Third Quarter 2019 Earnings Conference Call. [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

Thank you, operator, and thanks everyone for joining us today for Benchmark’s third quarter 2019 earnings call. I CFO. Benck, afternoon, and and this Lakkaraju, Roop me have CEO Jeff President; With provide comments, result will of Jeff introductory our detailed provide third review a quarter XXXX and and outlook. Roop will

our call a We will today conclude Q&A with session.

we market of website The online Investor release, press quarter highlighting an the www.bench.com. will call. we release and have a performance After available presentation are issued is section webcast the This at reference that this and financial we call. for earnings today our close third being XXXX, online under call our prepared Relations replay of a the will following presentation live, and be on the available

the presentation. a moment review take statements to in advice forward-looking Please X the on slide

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

reminder, filings. today’s of statements, from may risks forward-looking and these are not any to update are statements, press a statements. our Actual undertakes and SEC in any Benchmark that of releases which statements forward-looking remarks and results uncertainties involve no fact obligation historical materially As differ described

measures provided the The non-GAAP GAAP presentation. to appendix as the in earnings of release our has a well of reconciliation as company in the

turn Jeff our over call Benck. I to now will the CEO,

Jeff Benck

joining everyone for Lisa welcome and Thanks to this afternoon's us call.

and Roop will quarter. I close will and third with quarter then step key brief you first XXXX I'll call, strategic today's the on overview our take During the results wins a new through a provide of updates financial in initiatives. our progress some update through meaningful

$X.XX and non-GAAP of million which at end the XXXX guidance the EPS ending the range. XX, $XXX which delivered Slide of of we we was revenue high In to of at X. achieved quarter turn our guidance our midpoint Please was September

sequential with by driven our NPI revenues from sector along in higher-than-expected and Revenue higher markets, which in the A&D supported Semi-Cap growth. year-over-year builds the Medical value was increases

increased market points operating mix gross non-GAAP higher-value to X.X%. to our on margins margins XX and sequentially Our sequentially basis X.X% non-GAAP improved points XX basis

markets on deliver We complex and from take continue products margins our to rotate as we vertical more customers. higher-value improved into portfolio our

you capital for Roop through full the take will details cash on year. and quarter flow the and working

So please turn Slide X. to

discussed we strategy. first Revenue the integrate and Chief global to Officer we call, our company's quarter's added lead in As last go-to-market

and Rob increase the Crawford with fully opportunities, strategy. now has our new go-to-market of progress aligned this at bookings refining and and up organization the value is has the put of together Two, much accelerate speed funnel right in proposition are to to further in to existing sector customers. area and priorities his made our

pleased very from the I'm with the past early team results the during quarter.

exciting Our sequentially and program XQ some had in I grew detail. bookings will new which we share in wins more

Medical new to sector, in market. the surgical Also, a are were customer we program awarded new market-leading of we In global with defibrillator platform therapeutic awarded our a an devices a with Benchmark. existing customer

In space orders Defense be a high-speed Lark design complex Aerospace from integration microelectronics production will device our RF for center. communication award assemblies deployed ultimately & we satellite a that in and and received for

a for company, industrial industry. their in transportation communications a initiatives smart the from award device an received we IoT Industrial In supporting

the In machine engagement. customers. with design components early Semi-Cap, precision and machining we were programs collaborative of our of existing award for industry-leading awarded the most one This some new was close advanced of Semi-Cap very result

OEM, manufacturing for new OEM Computing all customer. of were to an will we our visual allow are broad and closing, ultimately for set customers. across family These the modules for us we teams further speak programs XQ from wins representative a for and of in services scale Lastly, These of valued and customers to revenue. breadth and grow our the opportunities excellent commercial display contract Telco, state-of-the-art existing are printer awarded a

call the Now, to to for if you Roop turn the quarter. over I will discuss please turn to financial slide results our X,

Roop Lakkaraju

Thank and afternoon everyone. you, good Jeff,

Revenues slide our quarter to third at a start summary. end $XXX XXXX financial million of X $XXX guidance will million. was discussion $XXX of at of million our We of for the high

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

Our million with of to costs, $X.X with impacted closure a $X.X restructuring site results this expenses. previously impacting Of activities, other due total remainder other operating included and also of non-recurring and activities. GAAP restructuring announced the associated other non-operating million expenses margin total the

improvement, operating due efficiency Our of our slightly $X.XX. Non-GAAP $X.XX XX of of basis EPS improved and operational guidance point basis point X.X%, was a QX and to lower was the margin range non-GAAP SG&A. quarter-over-quarter XX to midpoint our $X.XX at year-over-year

points our and flat quarter, was the For year-over-year. sequentially X.X% basis ROIC down XXX

programs. Turning Industrial transportation revenues to from months down Revenues XX. flat our revenue from X September year-over-year by from for our sector were three Industrial market, from market QX. ended were demand booked and the the previously new slide customers slightly delays XX% certain expectations from softer in ramp down for and

ramps up XX% overall strength existing program from and and year-over-year ground-based and for vehicles. were X% revenues airborne quarter-over-quarter new A&D products for

revenues an Medical a that XX% cardiovascular increased and end of going is last existing across including we product but our demand buy year-over-year, time life. saw quarter-over-quarter higher were programs, XX% build for

revenues not a Semi-cap related continued that were that, begun. widespread programs Note are has yet recovery ramp. new down are broad starting seeing increased we signals year-over-year sequentially Semi-Cap is The XX% to softness. sequential to and X% from that increase

half expect quarter X% and XX% X% up still the broad represented markets XXXX. higher were customers recovery the to revenue year-over-year. occur our of value sequentially in Our of Overall, and third the second

computing decline is satellite from to now programs. and Turning our year-over-year, XX% computing XX% our softer from year-over-year. sequentially the traditional was X% down exit was Year-over-year to sequentially markets, due down legacy Telecommunications demand from contract. XX% and

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

XX% customers quarter. XX top Our sales third represented the for of

XXX improvement revenue. global to network, year-over-year margin improvements exit points. and slide to higher-value third the attributable improvement for of basis quarter throughout Gross market legacy turn gross a X.X%, basis trends. from our improvement better contract key non-GAAP margin the of XX our business sequential Please operational computing a XX the point was mix Year-over-year discussion for from and is

in had activities. our was to million, line basis operating and XX $X.X $XX.X is reduction in and guidance restructuring from X.X%, QX margin, and year-over-year. points XX including other and down which SG&A for XXXX restructuring margin site our sequentially basis our operating Non-GAAP points a We million non-GAAP expense. non-GAAP with was closures Our compensation in impacted other that up due expenses variable costs associated QX QX announced with

mid-XXXX closures, Regarding our site planned. we are previously track announced by completed to as be on

$X $X million, was restructuring the previously, of XXXX. in and half closures we these closures charges are $X be $X QX. savings million beginning second completed, mentioned which with annualized associated As of between million the recorded expect approximately of site expected Once to million are

other We activities restructuring related additional and discussed are to above and to in expenses. expect charges QX transition of incur million restructuring $X.X $X.X approximately to employee-related million

million. provide between still We And Please on used from $XX $XX million flow we slide where used XX cash $XX XXXX the cash updates turn the from to to quarter working of in a million and operations capital full I'll few operations cash free expect highlights. $XX from and million. generate year flow flow and cash

expect million. CapEx million also to the between $XX to We year range $XX for

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

to which Our million assets million quarter-over-quarter XX related Inventory million September September Payables legacy were $XXX $XX a down due from was million $X June accounts $XX XX. June receivable computing increase balance is million from XX, $XXX of the at was $XXX contract. decrease at an were quarter-over-quarter. activity the to million, Contract XX. flat of

Please review performance. turn our to XX slide conversion to cycle cash

for XX XX result contract. cash cycle a the was days XX cycle range will Our legacy cash of conversion QX. days conversion days of Future completion and as computing the between

QX capital during average dividends announced $XX.XX. XX XXXX. $XX or were a million have our $XXX Please March or $X.XX shares for of allocation slide shares. repurchased we million recurring an September share we paid $X.X In quarterly Total were share repurchases million Through million XX, turn in approximately price cash at X.X update. QX XXX,XXX to per dividend. XXXX, in

had million approximately under $XX of As of the available current the XXXX, repurchase share end September program. we

to slide of a XX quarter our for XXXX guidance. Turning review fourth

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

range to $X.XX of a the share or midpoint expected diluted $X.XX earnings in non-GAAP per to Our is $X.XX. be from

For quarter expect turn we please revenues Overall, slide fourth the QX. information Industrial sequential XX. to in for to modeling be flat

newly sector from Industrial targets the Even aligned headwinds, sector we our growth. are should with We these funnel return bookings previous new funnel with coupled to future with leader. rebuilding believe opportunities this

sustained in demand expected flat QX. A&D to from is be

growth programs a and expect strong in from XXXX U.S. budget. return overall new to a QX in growth further defense We sustained and

in be moderate expect down mid-single digits revenues third to We after the and quarter. Medical larger-than-expected builds slightly

primarily expected top rather new from demand new in Medical across for growth increases up continued expect ramps we greater broader XX% XXXX. to Semi-Cap is be ahead, than program programs. our Semi-Cap than customers for Looking continued

revenues expect in storage now Turning greater our demand contract up computing and products. than XX% softness to computing of we due to the legacy completion other be to traditional markets, down

We intangible other for to impact gear. expect non-GAAP costs. amortization exclude of testing does Implied a in assets in satellite is and network Telco estimated flat X.X% our be guidance range restructuring softer The to and margin provided the demand of commercial and from X.X% guidance modeling operating purposes.

million. for million is approximately $X.X XX%. expense QX be effective to shares The and tax estimated average Interest expected are expected is be the XX.X rate to weighted XXXX

now back call will I the to Jeff. turn

Jeff Benck

Thanks, Roop.

XX. Let's go slide to

have we outlined further made the quarter, we in progress past on initiatives the July. During strategic

As optimizing I the are go-to-market referenced our efforts priority. earlier call, our in

our teams into and new role our also last emerging addition organizational of part we've CRO's sector organization. marketing leaders, as account In quarter, development the manager integrated the business alignment

our in process. depths Account breadth representing capabilities of complexity the servicing managers to their are Benchmark focused selling on customers, and current reduce

effectiveness One key a to our this wins testament coordinated the quarter was approach. of selling for new customer our of

support our go-to-market existing Benchmark. for critical for and structure, optimizing revenue the improving targeted customers our accelerating our of portfolios sector are Aligning

on operational process capabilities into our feedback This with for sites. our is The we customers, aligning Through a the network. where customers' to our our future. second and want and requirements to for strategy driving initiative to them work loop the focused consistency across seamlessly global ability be continuous efficiencies geographic customers now our are footprint across our us our considers and

part network, cost such as of As utilization, factors are services considering and our global feedback. we geographic evaluating many process customer manufacturing engineering our and certainly scale, planning placement,

California Jose target to the we San and decided date our Guaymas As close last quarter, closure with operations Mexico of announced mid-XXXX. we

working our closely transitions. are to manage affected with employees customers these and We

on drive to we to Across focused consistent remain utilization. cycle process reduction time and order our deployment productivity in asset improvements programs network, increase

teams initiatives. are making on Our progress these

creating enable to and we to our will finance, services realign us and kicked end legal initiative our deliver efficiently off year by centralized a functionally HR, benefit deliver teams G&A well cost-effective as the accelerate underway. Last process organization scale our services. this This shared and our to third structure teams of of internal to well is the is corporate our this as The quarter ability activity customers. a updated IT to

initiative is -- And finally, challenges. To focused on the help more services accelerating customers fourth customers' solve our our and engineering complex help solutions.

we've in invested RF in discussed we've our Phoenix, to design the provide past high-speed differentiation microelectronics. center substrates quarters, Lark Arizona As and over and in

quarter, Micro-E During the prototypes substrate new our of several many were builds qualification and third started. were completed

new we turn and host to beginning into ramp orders of our are as new production customers. substrate QX, our qualification deliver Now to units Micro-E we a

and leadership We are differentiated where executive the pivotal believe an as the team we in developing are is these these We milestones initiatives are and for right these organization priorities organization. aligned towards driving our these throughout excited to engaged reach capabilities.

turn with operator the I that, call the over Q&A. conduct to will the to And

Operator

now Instructions] first with begin Ricchiuti ahead. Jim from & will The question [Operator session. We Needham the Company. question-and-answer Please go is

Jim Ricchiuti

A growth part you this the Medical this in Good wondering, you. clearly the of business afternoon. build-by the first because business. had? on How was if could growth time it came you the thank you that stronger Hi, than meaningful question forecasting? size I'm were last to in

Roop Lakkaraju

you. is this Jim talk Roop. to Good to Yes.

So, that growth was time aggregate the last build within overall quarter. the for the relatively in small

as than less of of XX% that XX% about You can it number. kind think

Jim Ricchiuti

Okay.

it Looking in vertical, at stronger. that came

being business was What that shipments? -- the the some in You're customer was Is guiding that timing of I that? to QX. down guess it drove it

Jeff Benck

while bit growth be Yes, in look XX% for there well. pullback So, Jim a expect little right? a you we bit there's into it as significant I as quarter, a is we is mean fourth little market us year a know to as next pretty growth,

step-up growth So, it's off coming but here. big little mix-related, a pretty you're of

And unexpected win bit see to so modulation as to continue we totally of that's not there in segment. focus like little that and a

Jim Ricchiuti

what at year? it to more Sure. semi-cap towards hearing sounds looking the you're time its And but that half the same second some encouraging sounds yet improvement, you're customers of like is next on Jeff out it's still like starting your see from

Jeff Benck

half that's earlier said life. preparing pretty about the of bit we that. been -- hearing. and but of with year. recovery there's volume. this what for And are well mean And we've also little we I we signs we're see looking next love as really Yes, of a thinking strength at consistent we point, second drive know to in that memory to logic, ourselves we'd here been But

Jim Ricchiuti

you. seeing Thank bookings, where the I'll but jump strength I sequentially. give question, talk Can don't bookings? specifically you're know queue. One bookings flavor up for in the were us back about that you you in any final indicated the you

Jeff Benck

to publish continue try directional I That's why some a want of specific -- we detail wins sector that the did said -- quarter. are we by there. I how to share bit of doing things to Yes, to we we've like accomplished give number, I while we in want don't a the quite mean

Clearly, and A&D that the growth areas It's in strength for to been that had winning sectors going key focus to we've of which business those of we've systems and some go going that being the good winning are space. huge. two systems sophisticated of satellite to are two and some medical really part are us key

sector of device we had customers solutions surgical medical a the win about another In been also a win for we've talked therapeutic and there. and defibrillator supplier

contributed. We about broad-based strength. industrial. So, it's good part Every talked

and time there going that wins even to A&D to say computing space. back had new and the that build pipeline drivers. the take was the we leadership But and were telco the medical I'd in With

Jim Ricchiuti

Thanks Okay, terrific. a lot.

Jeff Benck

Sure.

Operator

go Anja Soderstrom [Operator from Instructions] Sidoti. ahead. with The Please next comes question

Anja Soderstrom

Hi me? everyone. hear Can you

Jeff Benck

hi. Yes, hear you. I can

Anja Soderstrom

Great. my you for Congratulations on questions. a good quarter. taking Thank

on and along are more So, about that and working is you buckets. you're were with Which of And far that? the And like your fill see would Jeff urgent a bucket priority? results? talking more them you to expect initiatives you what one and how for

Jeff Benck

But from Rob -- Yes, of the all here. important run. go-to-market I They're me. all would I why for That's are mind brought top Crawford my children certainly on was say

getting lot board wins in further there the Our a to the well a pipeline he and if to now say things but of and hands our kind was and were focus development go-to-market the there him, of on as there bit we've that drive focus conversion under efforts along growth around sales continuing marketing on and as to I sense centralized business is there, the which to A is on. revenue. of one lot of efforts

The other is this solutions. on really a our and new services quarter updates probably of little one engineering bit that around

those the invested been substrate time has bet to a For to section the qualification and highlight and host and facility start have to from those But quite joined Lark are and us to to technology samples that are a that. big glad few investments some for that before solutions a in things RF deliver that samples company initiatives. opportunity see build customers. the I to of this able in is strategic microelectronic opportunity and Really online in coming starting from

Anja Soderstrom

thank in of there? Okay, maybe that there of margin gross are by you. in of improvement aware mix. revenue improvement driven terms anything terms And else that the you Is

Roop Lakkaraju

in contract mix. as I compute the revenue the up Obviously Anja finished primarily No. mean, well. we it's quarter third

that So that revenue contributed it's mix. little but primarily a

Anja Soderstrom

mix? Okay, you thank before think I you. And traditional non-traditional said what is goal? that you've for goal but the reiterate your the versus it if

Jeff Benck

of have range We're, value we the XX% excluding I mix. market XX% were legacy obviously, -- higher targeting the at that mean Yeah. we already. higher think to had previously contract, end with I computing

see somewhere we're at to planning our even we through have As target to we'll XX% planning maybe XXXX cycle to XX% going likely now, look that XX% and finish be around cycle. to the we'll and

Anja Soderstrom

Okay, great.

Roop Lakkaraju

That is a in driver to margin us. going itself for be

Anja Soderstrom

Yeah, yeah, yeah of course.

lot a still there right? of So upside potential

Roop Lakkaraju

opportunity an us. I for I there's think mean So

is, what in the see visibility towards. semi-cap As XXXX we half kind said of second we of,

and continued of having mix, these margin line the be all expansion. will contributors driving right So top that mix

Anja Soderstrom

me. Thank was yeah. you. for you. That Okay, Thank all

Operator

is Ricchiuti Needham from follow-up question Please The next & go ahead. Company. Jim a of

Jim Ricchiuti

like you're in made It you there newer looks being seeing sounds fairly -- early customers? that you how do can relates changes it strategy, success anticipate It the to about are with customers? we Or existing like strategy set. think with go-to-market you've the the as your

Jeff Benck

Yeah.

that business business also I think like brings We I focused strongly the with on the doing felt they're the and important company new development customers could both folks opportunities had to us. with. do we we're us. to been -- had new more traditionally certainly for organization But

So been we development the opportunities management buried And will customers commentary that I with new and referenced opportunities. account for are account aligning the we in business thought little we're whole working sure look have the there be will that organization. really our new that managers but leaders might that are current CRO have make that is to it farming really be pleased that our

than we've within of grow think for And We've so sophisticated we And those quite installed space. can got number who base. the more got some A&D a we it's do more I a definitely customers. where we've traditionally because do for can but marquee know customers our more the we model look bit clearly, I from can -- just been who's across

make thinking But maintain and about we new important welcome balance we're that that's it. sure a being but always and said, customers we'll how are

Jim Ricchiuti

to can Jeff are that flavor some give of business the And us of respect of winning? you you with just the any profile kind margin

Jeff Benck

Roop margin, results. in it -- -- corporate that above up really that the medical, to we and bit our to be mix kind you and is the of, of kind These about and I to us the complexity allows and value-add mean Well, defense talked opportunity aerospace quite get above the allows have there. as which at/or of garner sophisticated in more bit is saw allows That that a and fact involved in us a our led of an systems are us that.

from So the mid-Xs as we've gross double-digits. we the at we've in we computing got that that large a being look without to contract margin, seen like

time, look to higher. continue we'd And range we over so to out nudge as like that

Roop Lakkaraju

just And to that question. if add could I Jim's a maybe comment Jeff to

sectors our for as think and Medical sectors, I to target think average. corporate be margins got than tend our we higher Aerospace and about those Defense of margins each we've and

into obviously, we growth so not that out of getting of but the future look sectors. And revenue as part just these growth mix margin revenue across expansion the is right

Jim Ricchiuti

Well, I were quarter you last excluding XX%, precedent large that guess there's generating above contract, the some gross margins for computing because right?

Jeff Benck

were sensitive even we excluding will quarter are in customers' solid. a at it in XX.X% this and stuff. mid-Xs mix and on Yes, volumes pretty based that But how contract fluctuate is the

Roop Lakkaraju

right? business, Jim different lot And varying it's those Yes. of different And a customers lot a remember got a within We've margins. just of of portfolio with customers. products

it's so mix. with finding that always And balance that that --

Jim Ricchiuti

me about to concern last your as of base? for macro the there's some just you ongoing is -- still guys just relates from question hearing lot -- And what curious given a it environment. I'm are customer

Roop Lakkaraju

noise said, the the to mean, expect it come and second I half ultimately back them. out expectation. in there's can and about, our we of think are Defense see, marketplace. markets strengths within XXXX there is Semi-Cap With I our Medical Well, you Aerospace we've talked that still in

a And legacy little that is for bit and growth us. there's there potential coming has is think compute result of space I where think more it the it little had we've sector But bit contract. us seen customer-by-customer I effect. fluctuation some compute a softness maybe we've down the but obviously for to much sector as is Industrial date considerations. not of primary But a the

Jeff Benck

about like there's mean the think bit sectors. devices how of maybe in Medical feels gets resilient the the a these in market. and the even. you think It population and are the the that how going little And economy. on about fantastic of do drives oftentimes volumes and new pretty as some in about before bit that and I press you world and for being in consumer of that we're that Semi-Cap devices think built aging some see a I everybody cycle little trepidation buildup you out need large I what's reads concerned think

there's U.S. And with current a that been Defense, support in administration. for in lot and then Aerospace investment the of -- and you certainly the know

follow So think where But it's business we I of kind of maybe across fluctuation. participate our like breadth those resilience with sectors that said, we've think Industrial is Roop the in. pretty to one good market going more got the I

Jim Ricchiuti

a Okay. lot. Thanks

Jeff Benck

you. Thank

Operator

concludes question-and-answer now also This attending session. our you for conference And presentation. today's Thank the has concluded.

disconnect. now may You