Q3-20 Earnings Call
October 28, 2020
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Forward-Looking Statements
This press release 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," "could" "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, the estimated financial impact of the COVID-19 pandemic, the outlook and guidance for fourth quarter 2020 results, the company's anticipated plans and responses to the COVID-19 pandemic, statements (express or implied) concerning future operating results or margins, the ability to generate sales and income or cash flow, and expected revenue mix; and Benchmark's business and growth strategies. Although the company believes these statements are based upon reasonable assumptions, they involve risks and uncertainties relating to operations, markets and the business environment generally. These statements also depend on the duration and severity of the COVID-19 pandemic and related risks, including government and other third-party responses to it and the consequences for the global economy, our business and the businesses of our suppliers and customers. Events relating to or resulting from the COVID-19 pandemic, including the possibility of customer demand fluctuations, supply chain constraints, or the ability to utilize our manufacturing facilities at sufficient levels to cover our fixed operating costs, may have resulting impacts on the company's business, financial condition, results of operations, and the company's ability (or inability) to execute on its plans to respond to the COVID-19 pandemic. 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 Part 1, Item 1A, "Risk Factors" of the company's Annual Report on Form 10-K for the year ended December 31, 2019 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.
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Non-GAAP Financial Information
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 Appendix of this document. In situations where a non-GAAP reconciliation has not been provided, the company was unable to provide such a reconciliation without unreasonable effort due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. 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. This document also references "free cash flow", which the Company defines as cash flow from operations less additions to property, plant and equipment and purchased software. 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.
Third Quarter 2020 Overview
Achieved revenue of $526 million
Realized Non-GAAP gross margin of 8.7% and Non-GAAP operating margin of 3.0%
Global facilities returned to normal operating capacity; employee safety remains a priority Non-GAAP earnings per share of $0.32
Cash conversion cycle of 81 days
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New Business Wins Continue
Rapid COVID-19 diagnostic device manufacturing (mfg) | ||
Medical | | Pulmonary pharmaceutical device (process design, & mfg) |
Optical diagnostic product for renal applications (design) | ||
Semi-Cap | | Control box for Semi-Cap tools (design) |
| Lithography device (manufacturing) | |
Aerospace & | | Secure communication radio modules (design solutions & mfg) |
Defense | | Fighter aircraft electronics (mfg) |
Industrials | | Lidar electronics and full system build (mfg) |
| Oscilloscopes (design and mfg) | |
Computing & | | Hyper Scale Computing (mfg prototyping) |
Telco | | Network control and monitoring electronics (mfg) |
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DNANUDGE SELECTS BENCHMARK FOR VOLUME MANUFACTURING OF RAPID, LAB-FREECOVID-19 TESTING SYSTEM
- Awarded to Benchmark's engineering and manufacturing facility in The Netherlands
- Partnering with DnaNudge to provide design for excellence and high reliability manufacturing for rapid launch in the European market
BENCHMARK HELPED ZOLL MEET HEIGHTENED DEMAND FOR VENTILATOR PRODUCTION CREATED BY COVID-19 PANDEMIC
- Awarded to Benchmark's engineering and manufacturing facility in New Hampshire
- Benchmark established production Line for the ZOLL EMV+ Ventilators and ramped to full capacity in nearly six weeks
Roop Lakkaraju
Chief Financial Officer
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Revenue by Mix and Market Sector
For the Three Months Ended | |||||||||||||
Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | |||||||||||
Higher-Value Markets | Mix % | Revenue | Mix % | Revenue | Q/Q | Mix % | Revenue | Y/Y | |||||
Medical | 26% | $134 | 27% | $135 | 0% | 23% | $128 | 5% | |||||
Semi-Cap | 19% | $99 | 18% | $87 | 14% | 12% | $68 | 45% | |||||
Aerospace & Defense | 20% | $105 | 18% | $88 | 18% | 21% | $115 | (9%) | |||||
Industrials | 16% | $86 | 18% | $87 | (1%) | 21% | $115 | (25%) | |||||
Total Mix and Revenue | 81% | $424 | 81% | $397 | 7% | 77% | $426 | (1%) | |||||
Traditional Markets | Mix % | Revenue | Mix % | Revenue | Q/Q | Mix % | Revenue | Y/Y | |||||
Computing | 8% | $44 | 9% | $44 | 1% | 11% | $59 | (26%) | |||||
Telecommunications | 11% | $58 | 10% | $50 | 16% | 12% | $70 | (17%) | |||||
Total Mix and Revenue | 19% | $102 | 19% | $94 | 9% | 23% | $129 | (21%) | |||||
Dollars in millions | |||||||||||||
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Third Quarter 2020 Financial Summary (GAAP)
For the Three Months Ended | ||||||
(In millions, except EPS) | Sept. 30, | June 30, | Q/Q | Sept. 30, | Y/Y | |
2020 | 2020 | 2019 | ||||
Net Sales | $526 | $491 | 7% | $555 | (5%) | |
GAAP Gross Margin | 8.8% | 7.1% | 170 bps | 8.8% | -- | |
GAAP SG&A | $29.7 | $28.5 | 4% | $30.9 | (4%) | |
GAAP Operating Margin | 1.6% | (0.4%) | 200 bps | 1.8% | (20 bps) | |
GAAP Diluted EPS | $0.16 | ($0.09) | 278% | $0.19 | (16%) | |
GAAP ROIC | 0.6% | 0.7% | (10 bps) | 5.2% | (460 bps) | |
See APPENDIX 1 for a reconciliation of GAAP to non- GAAP Financial Results
GAAP ROIC = (GAAP TTM income from operations - GAAP Tax Impact) ÷ (Average Invested Capital for last 5 quarters)
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Third Quarter 2020 Financial Summary (Non-GAAP)
For the Three Months Ended | ||||||
(In millions, except EPS) | Sept. 30, | June 30, | Q/Q | Sept. 30, | Y/Y | |
2020 | 2020 | 2019 | ||||
Net Sales | $526 | $491 | 7% | $555 | (5%) | |
Non-GAAP Gross Margin | 8.7% | 7.0% | 170 bps | 8.8% | (10 bps) | |
Non-GAAP SG&A | $29.7 | $28.5 | 4% | $30.9 | (4%) | |
Non-GAAP Operating Margin | 3.0% | 1.2% | 180 bps | 3.2% | (20 bps) | |
Non-GAAP Diluted EPS | $0.32 | $0.07 | 357% | $0.36 | (11%) | |
Non-GAAP ROIC | 5.8% | 5.9% | (10 bps) | 8.2% | (240 bps) | |
See APPENDIX 1 for a reconciliation of GAAP to non- GAAP Financial Results
Non-GAAP ROIC = (Non-GAAP TTM income from operations + Stock-based compensation - Non-GAAP Tax Impact) ÷ [Average Invested Capital for last 5 quarters]
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Cash Flow / Balance Sheet Summary
For the Three Months Ended
Cash (In millions) | Sept. 30, | June 30, | Sept. 30, |
2020 | 2020 | 2019 | |
Cash Flows from (used in) Operations | $6 | $23 | ($11) |
FCF (1) | $0 | $13 | ($22) |
Cash | $335 | $356 | $348 |
International | $174 | $162 | $180 |
US | $161 | $194 | $168 |
(1) Free cash flow (FCF) defined as net cash provided by (used in) operations less capex
Debt Structure (In millions) | |
Senior Secured Term Loan | $139 |
Revolving Credit Facility Drawn Amount | $15 |
* Leverage ratio is Net debt/LTM adjusted EBITDA, as defined in the credit facility, which are non-GAAP measures
- Flexible and conservative capital structure
- CARES Act implementation; deferral of social security tax payments until 2021/2022
- Credit facility matures July 2023
- Current leverage ratio* in compliance with debt covenants
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Working Capital Update
Q2-19 | Q3-19 | Q4-19 | Q1-20 | Q2-20 | Q3-20 | |
Accounts Receivable | 54 | 56 | 57 | 56 | 55 | 52 |
Days | ||||||
Contract Asset Days | 23 | 26 | 29 | 28 | 28 | 28 |
Inventory Days | 52 | 56 | 60 | 65 | 72 | 66 |
Deposits | 3 | 7 | 7 | 7 | 10 | 11 |
Accounts Payable Days | 60 | 52 | 58 | 61 | 61 | 54 |
Cash Conversion | 66 | 79 | 81 | 81 | 84 | 81 |
Cycle | ||||||
The updated CCC target is 78 to 83 days; excluding the legacy computing contract
Continued Focused Efforts on Demand Management
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Capital Allocation Update
Dividends
- Quarterly dividend of $0.16 per share totaling $5.8 million paid in October 2020
- Recurring quarterly dividends to continue until further notice
Share Repurchases
- Remaining authorization to repurchase shares of $210 million as of September 30, 2020
- Will opportunistically consider share repurchases going forward
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Fourth Quarter 2020 Guidance
Guidance | ||||
Net Sales (in millions) | $500 | - $540 | ||
Diluted EPS - non-GAAP* | $0.32 | - $0.36 | ||
Q4-20 Model Inputs | |
Operating Margin - non-GAAP* | 3.3 - 3.5% |
Other Expenses, Net (in millions) | $2.7 |
Effective Tax Rate | 18 - 20% |
Weighted Average Shares (in millions) | ~36.5 |
- The above guidance excludes the impact of amortization of intangible assets and estimated restructuring charges and other costs. Our guidance includes known constraints due to COVID-19 and assumes no further significant interruptions occur to our supply base, operations, or customers. Guidance also assumes no material changes to market conditions due to COVID-19.
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Jeff Benck
President & Chief Executive Officer
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Revenue Trends by Market Sector
Q4-20 Market | Q4-20 Revenue | |
Sector | Demand | Outlook |
Medical
Semi-Cap | z |
Defense
Aerospace
Industrial
Computing/ | z |
Telco |
Comments
- Softer demand as COVID-19 product build out abates
- Non-COVIDdevices recovering in first half 2021
- Demand outlook for Q4 remains strong
- Expect demand to remain strong through next year
- Continued strong demand in defense (~70% of sector revenues)
- Security, munitions, aircraft, and satellite demand remains strong
- Significant decline in commercial aircraft related revenues
- No recovery expected in Q4 and not anticipated in 2021
- Limited recovery for oil & gas, commercial building & transportation markets
- Higher revenue in Q4 from engineering services projects
- High performance computing strength; enterprise demand muted
- Network infrastructure demand remains strong; commercial satellites stable
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Key Strategic Initiatives Remain on Track
Focus on the Customer
- Optimize customer experience; customer satisfaction remains high
- Aligning Benchmark capabilities to customer technology roadmaps
Grow Our Business
- Expand and scale strategic customers in target markets
- Investing in technology innovations to increase win rates
- Selling the full breadth of services and capabilities
Drive Enterprise Efficiencies
- Optimizing footprint around customer needs and for greater efficiency
- Right sizing SG&A expenses
Engage Talent and Shift Culture
- Continuing to invest in critical skills, tools, and talent development
- Advancing Diversity and Inclusion efforts as part of ESG focus
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Mid-Term Target Model (through 2022)
~5% | 9.3 - 9.7% | < 6% | 3.4 - 3.8% | |||||
Annual | Expand Non- | Increase Non- | ||||||
Manage SG&A | ||||||||
Revenue | GAAP Gross | GAAP Operating | ||||||
Expenses | ||||||||
Growth | Margins | Margins | ||||||
- Highly selective and targeted customer base for strategic account growth
- Effective management of SG&A expenses
- Expect to grow earnings faster than revenue
- Resulting improvements to ROIC
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Appendix
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APPENDIX 1 - Reconciliation of GAAP to non-GAAP Financial Results
(Amounts in Thousands, Except Per Share Data) - (UNAUDITED)
(1) This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates.
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APPENDIX 2 - Reconciliation of GAAP to Non-GAAP Financial Measures
(Amounts in Thousands) - (UNAUDITED)
Three Months Ended
Sep 30, | June 30, | Sep 30, | |||
2020 | 2020 | 2019 | |||
GAAP Gross Profit | $46,354 | $34,672 | $48,955 | ||
Customer insolvency (recovery) | (796) | (353) | - | ||
Non-GAAP Gross Profit | $45,558 | $34,319 | $48,955 | ||
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APPENDIX 3 - Reconciliation of Free Cash Flow
(Amounts in Thousands) - (UNAUDITED)
Three Months Ended
Sep 30, | June 30, | Sep 30, | |||
2020 | 2020 | 2019 | |||
Net Cash Provided by (Used in) | $5,697 | $23,027 | ($11,458) | ||
Operations | |||||
Additions to property, plant and | (5,812) | (10,394) | (10,447) | ||
equipment and software | |||||
Free Cash Flow (Free Cash Flow Used) | ($115) | $12,633 | ($21,905) | ||
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Disclaimer
Benchmark Electronics Inc. published this content on 28 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 October 2020 21:59:02 UTC