Benchmark Electronics Reports Third Quarter 2018 Results
SCOTTSDALE, Ariz., Oct. 30, 2018 /PRNewswire/ -- Benchmark Electronics, Inc. (NYSE: BHE) today announced financial results for the third quarter ended September 30, 2018.
Three Months Ended
Sep 30,
Jun 30,
Sep 30,
In millions, except EPS 2018 2018 2017(1)
---
Net sales $641 $661 $611
Net income $8 $11 $18
Net income - non-GAAP(2) $15 $14 $20
Diluted EPS $0.17 $0.23 $0.35
Diluted EPS - non-GAAP(2) $0.33 $0.30 $0.40
Operating margin 1.7% 2.2% 3.4%
Operating margin - non-GAAP(2) 2.9% 2.7% 4.0%
(1) On January 1, 2018, we adopted new
accounting guidance, FASB ASC Topic 606
"Revenue from Contracts with Customers"
(ASC 606), relating to revenue
recognition. We adopted ASC 606 using
the full retrospective transition method.
Accordingly, we have adjusted prior
period information to be consistent with
ASC 606. The adoption of ASC 606 did not
materially impact our overall financial
position.
(2) A reconciliation of GAAP and non-GAAP
results is included below.
"Third quarter revenue and earnings were in line with our expectations", said Paul Tufano, Benchmark's President and CEO. "Bookings remained strong at $175 million; revenue was up 5% year-over-year; and gross margins, on a non-GAAP basis, improved 30 bps quarter-over-quarter to 8.5%, but remain muted from continuing softness in semi-cap. Cash cycle days were 74 and slightly above our target range due to the linearity of shipments; we expect our Q4 cash cycle days to be within our target range. As a result, we expect full year operating cash flow to be positive in 2018."
"As of this earnings release, we have spent $152 million on share repurchases year-to-date and are expecting to exceed $200 million in share repurchases exiting this year, which well exceeds our $100 million target for 2018," said Tufano. "Additionally, the board has authorized an additional $100 million for share repurchases above our existing program."
"Our fourth quarter guidance reflects strength in our core business and sustained operational improvement, but remains tempered by softness in the semi?cap market, which we expect to persist through the first half of 2019. Despite an expected 10% year-over-year reduction in the Test & Instrumentation sector, we expect annual revenue growth in 2019 of 3-5%. For 2019, we also expect gross and operating margin expansion from not only operational execution and the progressive growth of our new RF and high-speed design center, but also the reduction of our cost and expense structure, including SG&A and the evaluation of marginal or dilutive contracts. We are committed to the achievement of our business model and are encouraged by the opportunities to further expand customer engagements," said Tufano.
Cash Conversion Cycle
Sep 30,
Jun 30,
Sep 30,
2018 2018 2017
(as adjusted)
Accounts receivable
days 64 61 61
Contract asset days 22 20 24
Inventory days 49 47 46
Accounts payable
days (57) (57) (55)
Customer deposits (4) (2) (4)
74 69 72
Third Quarter 2018 Industry Sector Update
Revenue and percentage of sales by industry sector (in millions) was as follows.
Sep 30, Jun 30, Sep 30,
Higher-Value Markets 2018 2018 2017 (as adjusted)
---
Industrials $
128 20 $
118 18 $
126 21
% % %
A&D 105 16 100 15 96 16
Medical 96 15 97 15 102 17
Test & Instrumentation 77 12 106 16 89 14
$
406 63 $
421 64 $
413 68
% % %
Sep 30, Jun 30, Sep 30,
Traditional Markets 2018 2018 2017 (as adjusted)
---
Computing $
146 23 $
161 24 $
126 20
% % %
Telecommunications 89 14 79 12 72 12
$
235 37 $
240 36 $
198 32
% % %
Total $
641 100 $
661 100 $
611 100
% % %
Higher?value markets were down 2% year?over?year from softer demand in Test & Instrumentation (primarily semi-capital equipment) and Medical program transitions. Traditional market revenues were up 19% year-over-year primarily from strong storage demand in Computing and new program ramps in Telecommunications.
Third Quarter 2018 Bookings Update
-- New program bookings of $175 million at the midpoint of projected
annualized revenue.
-- 27 engineering awards supporting early engagement opportunities.
-- 31 manufacturing wins across all market sectors.
The Company projects that new program bookings for the third quarter will result in annualized revenue of $162 to $182 million when fully launched in the next 12-24 months, medical up to 36 months.
Additional Share Repurchase Authorization and Capital Allocation Update
On March 7, 2018, the board expanded an existing share repurchase program by $250 million. The Company has repurchased $122 million of common stock shares year-to-date through September 30, 2018 and $152 million through October 29, 2018. On October 26, 2018, the Board authorized an additional $100 million and the total remaining authorization outstanding is $262 million.
Fourth Quarter 2018 Outlook
-- Revenue between $610 - $650 million.
-- Diluted GAAP earnings per share between $0.21 - $0.32.
-- Diluted non-GAAP earnings per share between $0.32 - $0.40 (excluding any
additional impact related to U.S. Tax Reform, restructuring charges and
other costs and amortization of intangibles).
Third Quarter 2018 Results Conference Call Details
A conference call hosted by Benchmark management will be held today at 5:00 p.m. Eastern Time to discuss the Company's financial results and outlook. This call will be broadcast via the internet and may be accessed by logging on to the Company's website at www.bench.com.
About Benchmark Electronics, Inc.
Benchmark is a worldwide provider of innovative product design, engineering services, technology solutions and advanced manufacturing services. From initial product concept to volume production, including direct order fulfillment and aftermarket services, Benchmark has been providing integrated services and solutions to original equipment manufacturers since 1979. Today, Benchmark proudly serves the following industries: aerospace and defense, medical technologies, complex industrials, test and instrumentation, next-generation telecommunications and high-end computing. Benchmark's global operations network includes facilities in eight countries and common shares trade on the New York Stock Exchange under the symbol BHE.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "estimate," "anticipate," "predict" and similar expressions, and the negatives thereof, often identify forward-looking statements, which are not limited to historical facts. Forward-looking statements include, among other things: guidance for 2018 results; projected annual revenues resulting from new program bookings; statements, express or implied, concerning future operating results or margins, the ability to generate sales and income or cash flow; and Benchmark's business and growth strategies and expected growth and performance. Although Benchmark believes these statements are based upon reasonable assumptions, they involve risks and uncertainties relating to operations, markets and the business environment generally. If one or more of these risks or uncertainties materializes, or underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Readers are advised to consult further disclosures on these risks and uncertainties, particularly in Item 1A, "Risk Factors", of the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and in its subsequent filings with the Securities and Exchange Commission. All forward-looking statements included in this document are based upon information available to the Company as of the date of this document, and it assumes no obligation to update them.
Non-GAAP Financial Measures
This document includes certain financial measures that exclude items and therefore are not in accordance with U.S. generally accepted accounting principles ("GAAP"). A detailed reconciliation between GAAP results and results excluding special items ("non-GAAP") is included in the following tables attached to this document. Management discloses non?GAAP information to provide investors with additional information to analyze the Company's performance and underlying trends. Management uses non?GAAP measures that exclude certain items in order to better assess operating performance and help investors compare results with our previous guidance. The Company's non?GAAP information is not necessarily comparable to the non?GAAP information used by other companies. Non?GAAP information should not be viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as a measure of the Company's profitability or liquidity. Readers should consider the types of events and transactions for which adjustments have been made.
Benchmark Electronics, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Results
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
Three Months Ended Nine Months Ended
Sep 30,
Jun 30,
Sep 30,
Sep 30,
2018 2018 2017 2018 2017
(as adjusted) (as adjusted)
Income from
operations (GAAP) $
10,957 $
14,349 $
20,903 $
43,273 $
54,916
Restructuring charges and
other costs 1,845 1,758 2,511 5,838 5,566
Customer insolvency
(recovery) 3,295 (330) (1,514) 2,624 2,896
Amortization of intangible
assets 2,368 2,367 2,736 7,101 7,698
Non-GAAP income
from operations $
18,465 $
18,144 $
24,636 $
58,836 $
71,076
Gross Profit (GAAP) $
52,777 $
54,299 $
58,243 $
165,394 $
165,259
Customer insolvency
(recovery) 1,581 (330) (1,514) 910 1,199
Non-GAAP gross
profit $
54,358 $
53,969 $
56,729 $
166,304 $
166,458
Net income (loss)
(GAAP) $
7,799 $
10,943 $
17,831 $
(4,899) $
44,460
Restructuring charges and
other costs 1,845 1,758 2,511 5,838 5,566
Customer insolvency
(recovery) 3,295 (330) (1,514) 2,624 2,896
Amortization of intangible
assets 2,368 2,367 2,736 7,101 7,698
Refinancing of credit
facilities 1,982 1,982
Income tax adjustments(1) (1,914) (811) (1,674) (3,542) (4,519)
Tax Cuts and Jobs Act(2) 423 40,537
Non-GAAP net
income $
15,375 $
14,350 $
19,890 $
49,641 $
56,101
Diluted Earnings (loss) per
share:
Diluted (GAAP) $
0.17 $
0.23 $
0.35 $
(0.10) $
0.88
Diluted (Non-GAAP) $
0.33 $
0.30 $
0.40 $
1.04 $
1.12
Weighted-average number of shares used in
calculating diluted earnings (loss) per share:
Diluted (GAAP)(3) 46,455 47,631 50,330 47,415 50,292
Diluted (Non-GAAP) 46,455 47,631 50,330 47,754 50,292
(1) This amount represents the tax
impact of the non-GAAP
adjustments using the
applicable effective tax
rates.
(2) This amount represents the
impact of repatriating foreign
earnings from our foreign
jurisdictions to the U.S. For
the three months ended June
30, 2018, this includes the
applicable state tax impact of
foreign cash distributions
into the U.S.
(3) Potentially diluted securities
totaling 0.3 million for the
nine months ended September
30, 2018 were not included in
the computation of GAAP
diluted loss per share because
their effect would have
decreased the loss per share.
Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30,
September 30,
2018 2017 2018 2017
(as adjusted)
(as adjusted)
Sales $
640,688 $
610,929 $
1,909,415 $
1,788,443
Cost of sales 587,911 552,686 1,744,021 1,623,184
Gross profit 52,777 58,243 165,394 165,259
Selling, general and
administrative expenses 37,607 32,093 109,182 97,079
Amortization of intangible
assets 2,368 2,736 7,101 7,698
Restructuring charges and other
costs 1,845 2,511 5,838 5,566
Income from operations 10,957 20,903 43,273 54,916
Interest expense (3,822) (2,324) (8,543) (6,861)
Interest income 1,619 1,334 5,197 3,621
Other income (expense), net 1,139 (394) 827 (1,305)
Income before income taxes 9,893 19,519 40,754 50,371
Income tax expense 2,094 1,688 45,653 5,911
Net income (loss) $
7,799 $
17,831 $
(4,899) $
44,460
Earnings (loss) per share:
Basic $
0.17 $
0.36 $
(0.10) $
0.89
Diluted $
0.17 $
0.35 $
(0.10) $
0.88
Weighted-average number of shares used in calculating
earnings (loss) per share:
Basic 46,301 49,865 47,415 49,716
Diluted 46,455 50,330 47,415 50,292
For the three months ended September 30, 2017, the adoption of ASC 606 increased revenue by $7.4 million, operating income by $0.1 million and net income by $0.3 million. For the nine months ended September 30, 2017, the adoption of ASC 606 increased revenue by $1.5 million, decreased operating income by $0.5 million and increased net income by $0.1 million.
Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(UNAUDITED)
(in thousands)
September 30,
December 31,
2018 2017
(as adjusted)
Assets
Current assets:
Cash and cash
equivalents $
475,713 $
742,546
Accounts receivable,
net 455,971 436,560
Contract assets 155,898 146,496
Inventories 321,194 268,917
Other current assets 35,026 36,138
Total current assets 1,443,802 1,630,657
Property, plant and
equipment, net 208,495 186,473
Goodwill and other, net 288,474 292,174
Total assets $
1,940,771 $
2,109,304
Liabilities and Shareholders' Equity
Current liabilities:
Current installments
of long-term debt
and capital lease
obligations $
4,880 $
18,274
Accounts payable 373,879 362,701
Accrued liabilities 99,414 97,342
Total current liabilities 478,173 478,317
Long-term debt and
capital lease
obligations, less
current installments 149,341 193,406
Other long-term
liabilities 111,575 98,443
Shareholders' equity 1,201,682 1,339,138
Total liabilities and
shareholders' equity $
1,940,771 $
2,109,304
Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in thousands)
(UNAUDITED)
Nine Months Ended
September 30,
2018 2017
(as adjusted)
Cash flows from operating activities:
Net income
(loss) $
(4,899) $
44,460
Depreciation
and
amortization 39,643 36,591
Stock-based
compensation
expense 8,229 6,819
Accounts
receivable,
net (20,019) 30,926
Contract assets (9,402) (5,373)
Inventories (54,342) (36,747)
Accounts
payable 12,620 3,922
Other changes
in working
capital and
other, net 10,877 9,292
Net cash
provided
by (used
in)
operations (17,293) 89,890
Cash flows from investing activities:
Additions to
property,
plant and
equipment and
software (52,933) (37,736)
Other investing
activities,
net (2,102) 364
Net cash
used in
investing
activities (55,035) (37,372)
Cash flows from financing activities:
Share
repurchases (122,053) (5,887)
Net debt
activity (57,758) (9,288)
Other financing
activities,
net (13,897) 9,012
Net cash
used in
financing
activities (193,708) (6,163)
Effect of exchange rate changes (797) 2,358
Net increase (decrease) in cash and cash
equivalents (266,833) 48,713
Cash and cash
equivalents at
beginning of
year 742,546 681,433
Cash and cash
equivalents at
end of period $
475,713 $
730,146
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SOURCE Benchmark Electronics, Inc.
