Benchmark Electronics Reports Fourth Quarter 2018 Results
TEMPE, Ariz., Feb. 7, 2019 /PRNewswire/ -- Benchmark Electronics, Inc. (NYSE: BHE) today announced financial results for the fourth quarter and year ended December 31, 2018.
Three Months Ended Dec 31, Sep 30, Dec 31, In millions, except EPS 2018 2018 2017(1) --- Net sales $657 $641 $666 Net income (loss) $28 $8 (76) Net income - non-GAAP(2) $18 $15 $25 Diluted EPS $0.64 $0.17 ($1.54) Diluted EPS - non-GAAP(2) $0.41 $0.33 $0.49 Operating margin 2.3% 1.7% 3.3% Operating margin - non-GAAP(2) 3.2% 2.9% 4.1% Twelve Months Ended Dec 31, Dec 31, In millions, except EPS 2018 2017(1) --- Net sales $2,566 $2,454 Net income (loss) $23 ($32) Net income - non-GAAP(2) $68 $81 Diluted EPS $0.49 ($0.64) Diluted EPS - non-GAAP(2) $1.45 $1.61 Operating margin 2.3% 3.1% Operating margin - non-GAAP(2) 3.1% 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.
"We capped 2018 with strong results in the fourth quarter, with revenue at $657 million and earnings at $0.41, both above the high end of our guidance," said Paul Tufano, Benchmark's President and CEO. "Bookings increased 23% for the full year and 13% sequentially to $198M; operating margins, on a non-GAAP basis, improved 30 bps quarter-over-quarter to 3.2%, but remain muted from continuing softness in semi-cap; and cash cycle days were 62 for the quarter and 68 days for the full year within our target range. As a result, operating cash flow was $94 million in the quarter and $77 million for the full year. During 2018, we spent $212 million on share repurchases reducing our outstanding shares by 17% year-over-year and have $202 million remaining with our existing program.
"As part of our ongoing process to review marginal and dilutive contracts, we have notified a long standing Computing customer that we will not renew a legacy contract that expires at the end of 2019 in its current form. The resulting reduction in annual revenue will be in the range of $280 million - $320 million, and annualized gross margins will improve by approximately 80 - 90 basis points, which more appropriately shows the strength of our underlying business. During this contractual transition year, we will discuss our actual results with and without the presence of this contract.
"Over the past several years, we have made progress on a number of key initiatives including the implementation of our market?sector sales organization to drive bookings and revenue growth; the expansion of our engineering and solutions capabilities to extend our value proposition to customers; and, the optimization of our global network and continued focus on operational execution," added Tufano. "The progress on these initiatives will enable 3-5% revenue growth on our base business, excluding the legacy Computing contract. For 2019, we also expect gross and operating margin expansion from improved execution, effective cost and expense management, and the growth of additional service offerings including RF and high-speed design capabilities. We remain committed to the achievement of our long-term business model as we continue to pursue growth and create value for our shareholders."
Cash Conversion Cycle
Dec 31, Sep 30, Dec 31, 2018 2018 2017 (as adjusted) Accounts receivable days 64 64 59 Contract asset days 19 22 20 Inventory days 46 49 40 Accounts payable days (63) (57) (54) Customer deposits (4) (4) (3) 62 74 62
Fourth Quarter 2018 Industry Sector Update
Revenue and percentage of sales by industry sector (in millions) was as follows.
Dec 31, Sep 30, Dec 31, Higher-Value Markets 2018 2018 2017 (as adjusted) --- Industrials $ 121 18 $ 128 20 $ 129 19 % % % A&D 105 16 105 16 95 15 Medical 104 16 96 15 100 15 Test & Instrumentation 70 11 77 12 93 14 $ 400 61 $ 406 63 $ 417 63 % % % Dec 31, Sep 30, Dec 31, Traditional Markets 2018 2018 2017 (as adjusted) --- Computing $ 171 26 $ 146 23 $ 172 26 % % % Telecommunications 86 13 89 14 77 11 $ 257 39 $ 235 37 $ 249 37 % % % Total $ 657 100 $ 641 100 $ 666 100 % % %
Higher?value markets were down 4% year?over?year from softer demand in Test & Instrumentation (primarily semi-capital equipment). Traditional market revenues were up 3% year-over-year primarily from new program ramps in Telecommunications.
Fourth Quarter 2018 Bookings Update
-- New program bookings of $198 million at the midpoint of projected annualized revenue. -- 17 engineering awards supporting early engagement opportunities. -- 34 manufacturing wins across all market sectors.
The Company projects that new program bookings for the fourth quarter will result in annualized revenue of $165 to $233 million when fully launched in the next 12-24 months, medical up to 36 months.
First Quarter 2019 Outlook
-- Revenue between $570 - $610 million. -- Diluted GAAP earnings per share between $0.23 - $0.31. -- Diluted non-GAAP earnings per share between $0.29 - $0.37 (excluding any additional impact related to U.S. Tax Reform, restructuring charges and other costs and amortization of intangibles).
Fourth 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 2019 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 Year Ended Dec 31, Sep 30, Dec 31, Dec 31, 2018 2018 2017 2018 2017 (as adjusted) (as adjusted) Income from operations (GAAP) $ 15,265 $ 10,957 $ 21,910 $ 58,538 $ 76,826 Restructuring charges and other costs 3,527 1,845 3,062 9,365 8,628 Customer insolvency (recovery) (113) 3,295 (239) 2,511 2,657 Amortization of intangible assets 2,384 2,368 2,367 9,485 10,065 Non-GAAP income from operations $ 21,063 $ 18,465 $ 27,100 $ 79,899 $ 98,176 Gross Profit (GAAP) $ 55,199 $ 52,777 $ 60,661 $ 220,593 $ 225,920 Customer insolvency (recovery) (113) 1,581 (239) 797 960 Non-GAAP gross profit $ 55,086 $ 54,358 $ 60,422 $ 221,390 $ 226,880 Net income (loss) (GAAP) $ 27,716 $ 7,799 $ (76,361) $ 22,817 $ (31,901) Restructuring charges and other costs 3,527 1,845 3,062 9,365 8,628 Customer insolvency (recovery) (113) 3,295 (239) 2,511 2,657 Amortization of intangible assets 2,384 2,368 2,367 9,485 10,065 Refinancing of credit facilities 1,982 1,982 Income tax adjustments(1) (1,050) (1,914) (1,793) (4,592) (6,312) Tax Cuts and Jobs Act(2) (14,529) 97,633 26,008 97,633 Non-GAAP net income $ 17,935 $ 15,375 $ 24,669 $ 67,576 $ 80,770 Diluted Earnings (loss) per share: Diluted (GAAP) $ 0.64 $ 0.17 $ (1.54) $ 0.49 $ (0.64) Diluted (Non-GAAP) $ 0.41 $ 0.33 $ 0.49 $ 1.45 $ 1.61 Weighted-average number of shares used in calculating diluted earnings (loss) per share: Diluted (GAAP) 43,229 46,455 49,576 46,655 49,680 Diluted (Non-GAAP) 43,229 46,455 49,998 46,655 50,250
(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., offset by available U.S. foreign tax credits, and a non-recurring tax true-up benefit as a result of finalizing our federal and state income tax accounting for the U.S. transitions toll tax from the 2017 Tax Cuts and Jobs Act.
Benchmark Electronics, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Amounts in Thousands, Except Per Share Data) (UNAUDITED) Three Months Ended Year Ended December 31, December 31, 2018 2017 2018 2017 (as adjusted) (as adjusted) Sales $ 657,050 $ 666,036 $ 2,566,465 $ 2,454,479 Cost of sales 601,851 605,375 2,345,872 2,228,559 Gross profit 55,199 60,661 220,593 225,920 Selling, general and administrative expenses 34,023 33,322 143,205 130,401 Amortization of intangible assets 2,384 2,367 9,485 10,065 Restructuring charges and other costs 3,527 3,062 9,365 8,628 Income from operations 15,265 21,910 58,538 76,826 Interest expense (1,930) (2,544) (10,473) (9,405) Interest income 1,651 1,749 6,848 5,370 Other income (expense), net (199) (481) 628 (1,786) Income before income taxes 14,787 20,634 55,541 71,005 Income tax expense (benefit) (12,929) 96,995 32,724 102,906 Net income (loss) $ 27,716 $ (76,361) $ 22,817 $ (31,901) Earnings (loss) per share: Basic $ 0.64 $ (1.54) $ 0.49 $ (0.64) Diluted $ 0.64 $ (1.54) $ 0.49 $ (0.64) Weighted-average number of shares used in calculating earnings (loss) per share: Basic 43,120 49,576 46,332 49,680 Diluted 43,229 49,576 46,655 49,680
For the three months ended December 31, 2017, the adoption of ASC 606 decreased revenue by $13.8 million, operating income by $1.2 million and net income by $21 thousand. For the year ended December 31, 2017, the adoption of ASC 606 decreased revenue by $12.3 million, decreased operating income by $1.8 million and increased net income by $0.1 million.
Benchmark Electronics, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (UNAUDITED) (in thousands) December 31, December 31, 2018 2017 (as adjusted) Assets Current assets: Cash and cash equivalents $ 458,102 $ 742,546 Accounts receivable, net 468,161 436,560 Contract assets 140,082 146,496 Inventories 309,975 268,917 Other current assets 27,230 36,138 Total current assets 1,403,550 1,630,657 Property, plant and equipment, net 210,954 186,473 Goodwill and other, net 285,279 292,174 Total assets $ 1,899,783 $ 2,109,304 Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt and capital lease obligations $ 6,793 $ 18,274 Accounts payable 422,053 362,701 Accrued liabilities 108,313 97,342 Total current liabilities 537,159 478,317 Long-term debt and capital lease obligations, less current installments 147,277 193,406 Other long-term liabilities 83,122 98,443 Shareholders' equity 1,132,225 1,339,138 Total liabilities and shareholders' equity $ 1,899,783 $ 2,109,304
As of December 31, 2017, the adoption of ASC 606 increased current assets by $12.0 million, increased total liabilities by $1.7 million and increased shareholder's equity by $10.3 million.
Benchmark Electronics, Inc. and Subsidiaries Condensed Consolidated Statement of Cash Flows (in thousands) (UNAUDITED) Year Ended December 31, 2018 2017 (as adjusted) Cash flows from operating activities: Net income (loss) $ 22,817 $ (31,901) Depreciation and amortization 51,839 48,672 Stock-based compensation expense 10,089 7,815 Accounts receivable, net (33,952) 6,354 Contract assets 6,414 9,710 Inventories (43,264) (24,570) Accounts payable 61,391 29,542 Other changes in working capital and other, net 1,353 100,220 Net cash provided by operations 76,687 145,842 Cash flows from investing activities: Additions to property, plant and equipment and software (66,732) (54,506) Other investing activities, net (2,117) (1,615) Net cash used in investing activities (68,849) (56,121) Cash flows from financing activities: Share repurchases (211,858) (29,348) Net debt activity (58,024) (12,396) Other financing activities, net (21,085) 10,392 Net cash used in financing activities (290,967) (31,352) Effect of exchange rate changes (1,315) 2,744 Net increase (decrease) in cash and cash equivalents (284,444) 61,113 Cash and cash equivalents at beginning of year 742,546 681,433 Cash and cash equivalents at end of period $ 458,102 $ 742,546
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SOURCE Benchmark Electronics, Inc.