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NYSEBHE
Benchmark Electronics Reports Third Quarter 2018 Results
- Quarterly revenue of $641 million
- Quarterly EPS of $0.17 ($0.33 non-GAAP)
PR Newswire
SCOTTSDALE, Ariz.

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.

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