BENCHMARK REPORTS FOURTH QUARTER AND FISCAL YEAR 2023 RESULTS
- Positive revenue and cash flow performance in 2023
- Expansion of gross and operating margin despite the dynamic environment
- CEO's confidence in delivering further margin expansion and positive free cash flow in 2024
- Decrease in revenue year over year primarily due to a decrease in Next Gen Communications and Medical sectors
Insights
Examining the fourth quarter and full year 2023 results of Benchmark Electronics, a few key financial metrics stand out. The company has reported a year-over-year decrease in revenue, which could signal a contraction in its market or a loss in competitive edge. However, the increase in both gross and operating margins suggests an improvement in cost management and operational efficiency, which is commendable given the 'dynamic environment' mentioned by the CEO.
Investors should note the positive free cash flow, which indicates the company's ability to generate cash after accounting for capital expenditures. This is a crucial indicator of financial health, as it shows the company can sustain operations and invest in growth without relying on external funding. The company's focus on inventory reductions as a means to aid cash flow is a strategic move that aligns with current market trends of cautious inventory management due to economic uncertainty.
From a market perspective, Benchmark Electronics' performance in various sectors provides insights into broader industry trends. The significant decline in Next Gen Communications revenue could reflect market saturation or shifts in technology that are impacting demand. In contrast, the growth in Aerospace & Defense (A&D) suggests resilience in this sector, potentially due to ongoing governmental and defense spending.
The company's guidance for the first half of 2024 anticipates continued demand softness, which could be a reflection of broader economic conditions affecting consumer and business spending. Stakeholders should consider the potential for continued volatility in the company's end-markets and the impact this may have on future revenue streams.
An important macroeconomic indicator within the report is the cash conversion cycle (CCC). Benchmark Electronics' CCC has seen a slight increase compared to the previous year, which could imply a slower turnover in inventory and receivables or extended payment terms with suppliers. While the company has managed to maintain relatively stable accounts receivable and inventory days, a longer CCC can affect liquidity and might require closer monitoring in uncertain economic climates.
The forward-looking statements regarding restructuring charges and amortization of intangibles suggest an ongoing effort to streamline operations and manage costs. This could be a strategic response to the anticipated softness in demand, aiming to preserve profitability in a challenging market.
Fourth quarter 2023 results:
- Revenue of
$691 million - Generated net cash provided by operations of
$137 million $126 million - GAAP and non-GAAP(1) gross margin of
10.3% - GAAP operating margin of
4.6% and non-GAAP(1) operating margin of5.1% - GAAP and non-GAAP(1) earnings per share of
$0.49 $0.58
Full year 2023 results:
- Revenue of
$2.8 billion - Delivered net cash provided by operations of
$174 million $97 million - GAAP and non-GAAP(1) gross margin of
9.5% , up 70 basis points year-over-year - GAAP operating margin of
3.9% and non-GAAP(1) operating margin of4.4% - GAAP and non-GAAP(1) earnings per share of
$1.79 $2.04
Three Months Ended | ||||||||||||
December 31, | September 30, | December 31, | ||||||||||
(Amounts in millions, except per share data) | 2023 | 2023 | 2022 | |||||||||
Sales | $ | 691 | $ | 720 | $ | 751 | ||||||
Net income | $ | 18 | $ | 20 | $ | 21 | ||||||
Income from operations | $ | 32 | $ | 30 | $ | 27 | ||||||
Net income – non-GAAP(1) | $ | 21 | $ | 21 | $ | 21 | ||||||
Income from operations – non-GAAP(1) | $ | 35 | $ | 34 | $ | 33 | ||||||
Diluted earnings per share | $ | 0.49 | $ | 0.57 | $ | 0.60 | ||||||
Diluted earnings per share – non-GAAP(1) | $ | 0.58 | $ | 0.57 | $ | 0.60 | ||||||
Operating margin | 4.6 | % | 4.2 | % | 3.6 | % | ||||||
Operating margin – non-GAAP(1) | 5.1 | % | 4.7 | % | 4.3 | % | ||||||
Year Ended | ||||||||||
December 31, | ||||||||||
(Amounts in millions, except per share data) | 2023 | 2022 | ||||||||
Sales | $ | 2,839 | $ | 2,886 | ||||||
Net income | $ | 64 | $ | 68 | ||||||
Income from operations | $ | 110 | $ | 90 | ||||||
Net income – non-GAAP(1) | $ | 73 | $ | 75 | ||||||
Income from operations – non-GAAP(1) | $ | 124 | $ | 104 | ||||||
Diluted earnings per share | $ | 1.79 | $ | 1.91 | ||||||
Diluted earnings per share – non-GAAP(1) | $ | 2.04 | $ | 2.09 | ||||||
Operating margin | 3.9 | % | 3.1 | % | ||||||
Operating margin – non-GAAP(1) | 4.4 | % | 3.6 | % | ||||||
(1) | A reconciliation of non-GAAP results to the most directly comparable GAAP measures and a discussion of why management believes these non-GAAP results are useful is included below. |
"Benchmark delivered another solid year of performance in 2023 as we continued to execute to our strategic plan. I'm particularly pleased with our free cash flow performance which was aided by inventory reductions. At the same time, our operational discipline allowed us to expand both gross and operating margin despite the dynamic environment," said Jeff Benck, Benchmark's President and CEO.
Benck continued, "Looking forward, we expect the current demand softness across several of our end-markets will likely persist through the first half of 2024, driven by customers closely managing inventories. However, as demonstrated by our performance this past year, I am confident in our ability to deliver further margin expansion and positive free cash flow in 2024."
Cash Conversion Cycle
December 31, | September 30, | December 31, | ||||||||||
2023 | 2023 | 2022 | ||||||||||
Accounts receivable days | 59 | 60 | 59 | |||||||||
Contract asset days | 23 | 24 | 22 | |||||||||
Inventory days | 99 | 100 | 97 | |||||||||
Accounts payable days | (53) | (53) | (56) | |||||||||
Advance payments from customers days | (30) | (26) | (26) | |||||||||
Cash conversion cycle days | 98 | 105 | 96 | |||||||||
Fourth Quarter 2023 Industry Sector Update
Revenue and percentage of sales by industry sector were as follows.
December 31, | September 30, | December 31, | ||||||||||||||||||||||
(In millions) | 2023 | 2023 | 2022 | |||||||||||||||||||||
Medical | $ | 126 | 18 | % | $ | 149 | 21 | % | $ | 144 | 19 | % | ||||||||||||
Semi-Cap | 168 | 24 | 165 | 23 | 178 | 24 | ||||||||||||||||||
A&D | 102 | 15 | 100 | 14 | 90 | 12 | ||||||||||||||||||
Industrials | 132 | 19 | 154 | 21 | 143 | 19 | ||||||||||||||||||
Advanced Computing | 95 | 14 | 66 | 9 | 92 | 12 | ||||||||||||||||||
Next Gen Communications | 68 | 10 | 86 | 12 | 104 | 14 | ||||||||||||||||||
Total | $ | 691 | 100 | % | $ | 720 | 100 | % | $ | 751 | 100 | % | ||||||||||||
Revenue decreased year over year primarily due to a decrease in Next Gen Communications of
First Quarter 2024 Guidance
- Revenue between
$625 million $665 million - Diluted GAAP earnings per share between
$0.32 $0.38 - Diluted non-GAAP earnings per share between
$0.42 $0.48
Restructuring charges are expected to range between
Fourth Quarter 2023 Earnings Conference Call
The Company will host a conference call to discuss the results today at 5:00 p.m. Eastern Time. The live webcast of the call and accompanying reference materials will be accessible by logging on to the Company's website at www.bench.com. A replay of the broadcast will also be available on the Company's website.
About Benchmark Electronics, Inc.
Benchmark provides comprehensive solutions across the entire product life cycle by leading through its innovative technology and engineering design services, leveraging its optimized global supply chain and delivering world-class manufacturing services in the following industries: commercial aerospace, defense, advanced computing, next generation telecommunications, complex industrials, medical, and semiconductor capital equipment. Benchmark's global operations include facilities in seven countries and its common shares trade on the New York Stock Exchange under the symbol BHE.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts and may include words such as "anticipate," "believe," "intend," "plan," "project," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," "could," "predict," and similar expressions of the negative or other variations thereof. In particular, statements, express or implied, concerning the Company's outlook and guidance for first quarter and fiscal year 2024 results, future operating results or margins, the ability to generate sales and income or cash flow, expected revenue mix, the Company's business strategy and strategic initiatives, the Company's repurchases of shares of its common stock, the Company's expectations regarding restructuring charges and amortization of intangibles, and the Company's intentions concerning the payment of dividends, among others, are forward-looking statements. Although the Company believes these statements are based on and derived from reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond the Company's ability to control or predict, relating to operations, markets and the business environment generally, including those discussed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and in any of the Company's subsequent reports filed with the Securities and Exchange Commission. Events relating to the possibility of customer demand fluctuations, supply chain constraints, continuing inflationary pressures, the effects of foreign currency fluctuations and high interest rates, geopolitical uncertainties including continuing hostilities and tensions, trade restrictions and sanctions, or the ability to utilize the Company's manufacturing facilities at sufficient levels to cover its 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. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of the Company's operations, may vary materially from those indicated. Undue reliance should not be placed on any forward-looking statements. Forward-looking statements are not guarantees of performance. All forward-looking statements included in this document are based upon information available to the Company as of the date of this document, and the Company assumes no obligation to update.
Non-GAAP Financial Measures
Management discloses non‐GAAP information to provide investors with additional information to analyze the Company's performance and underlying trends. A detailed reconciliation between GAAP results and results excluding certain items ("non-GAAP") is included in the following tables attached to 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 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", a non-GAAP measure, 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.
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, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Sales | $ | 691,354 | $ | 750,644 | $ | 2,838,976 | $ | 2,886,331 | ||||||||
Cost of sales | 620,350 | 678,517 | 2,567,906 | 2,631,096 | ||||||||||||
Gross profit | 71,004 | 72,127 | 271,070 | 255,235 | ||||||||||||
Selling, general and administrative expenses | 35,646 | 39,540 | 147,025 | 150,215 | ||||||||||||
Amortization of intangible assets | 1,204 | 1,592 | 5,979 | 6,384 | ||||||||||||
Restructuring charges and other costs | 2,054 | 4,049 | 8,402 | 8,567 | ||||||||||||
Income from operations | 32,100 | 26,946 | 109,664 | 90,069 | ||||||||||||
Interest expense | (8,692) | (5,466) | (31,875) | (12,894) | ||||||||||||
Interest income | 2,033 | 887 | 6,256 | 1,730 | ||||||||||||
Other (expense) income, net | (3,105) | 3,860 | (2,825) | 5,437 | ||||||||||||
Income before income taxes | 22,336 | 26,227 | 81,220 | 84,342 | ||||||||||||
Income tax expense | 4,784 | 5,008 | 16,905 | 16,113 | ||||||||||||
Net income | $ | 17,552 | $ | 21,219 | $ | 64,315 | $ | 68,229 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.60 | $ | 1.81 | $ | 1.94 | ||||||||
Diluted | $ | 0.49 | $ | 0.60 | $ | 1.79 | $ | 1.91 | ||||||||
Weighted-average number of shares used in | ||||||||||||||||
Basic | 35,658 | 35,166 | 35,566 | 35,179 | ||||||||||||
Diluted | 35,956 | 35,630 | 35,973 | 35,718 | ||||||||||||
Benchmark Electronics, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Balance Sheets (In Thousands) (UNAUDITED) | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 277,391 | $ | 207,430 | ||||
Restricted cash | 5,822 | — | ||||||
Accounts receivable, net | 449,404 | 491,957 | ||||||
Contract assets | 174,979 | 183,613 | ||||||
Inventories | 683,801 | 727,749 | ||||||
Other current assets | 44,350 | 41,400 | ||||||
Total current assets | 1,635,747 | 1,652,149 | ||||||
Property, plant and equipment, net | 227,698 | 211,478 | ||||||
Operating lease right-of-use assets | 130,830 | 93,081 | ||||||
Goodwill and other, net | 280,480 | 270,623 | ||||||
Total assets | $ | 2,274,755 | $ | 2,227,331 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Current installments of long-term debt | $ | 4,283 | $ | 4,275 | ||||
Accounts payable | 367,480 | 424,272 | ||||||
Advance payments from customers | 204,883 | 197,937 | ||||||
Accrued liabilities | 136,901 | 122,652 | ||||||
Total current liabilities | 713,547 | 749,136 | ||||||
Long-term debt, less current installments | 326,674 | 320,675 | ||||||
Operating lease liabilities | 123,385 | 86,687 | ||||||
Other long-term liabilities | 32,064 | 44,417 | ||||||
Shareholders' equity | 1,079,085 | 1,026,416 | ||||||
Total liabilities and shareholders' equity | $ | 2,274,755 | $ | 2,227,331 | ||||
Benchmark Electronics, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Cash Flows (In Thousands) (UNAUDITED) | ||||||||
Year Ended | ||||||||
December 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 64,315 | $ | 68,229 | ||||
Depreciation and amortization | 45,410 | 44,252 | ||||||
Stock-based compensation expense | 15,286 | 18,485 | ||||||
Accounts receivable | 42,050 | (136,455) | ||||||
Contract assets | 8,634 | (28,370) | ||||||
Inventories | 45,071 | (206,247) | ||||||
Accounts payable | (35,320) | (16,656) | ||||||
Advance payments from customers | 6,946 | 79,813 | ||||||
Other changes in working capital and other, net | (18,098) | (518) | ||||||
Net cash provided by (used in) operating activities | 174,294 | (177,467) | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment and software | (77,739) | (46,774) | ||||||
Other investing activities, net | 601 | 5,600 | ||||||
Net cash used in investing activities | (77,138) | (41,174) | ||||||
Cash flows from financing activities: | ||||||||
Share repurchases | — | (9,391) | ||||||
Net debt activity | 5,509 | 194,261 | ||||||
Other financing activities, net | (29,087) | (25,641) | ||||||
Net cash provided by (used in) financing activities | (23,578) | 159,229 | ||||||
Effect of exchange rate changes | 2,205 | (4,907) | ||||||
Net increase (decrease) in cash and cash equivalents and restricted cash | 75,783 | (64,319) | ||||||
Cash and cash equivalents and restricted cash at beginning of year | 207,430 | 271,749 | ||||||
Cash and cash equivalents and restricted cash at end of year | $ | 283,213 | $ | 207,430 | ||||
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 | |||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
Income from operations (GAAP) | $ | 32,100 | $ | 30,341 | $ | 26,946 | $ | 109,664 | $ | 90,069 | ||||||||||
Amortization of intangible assets | 1,204 | 1,592 | 1,592 | 5,979 | 6,384 | |||||||||||||||
Restructuring charges and other costs | 2,054 | 1,437 | 799 | 7,281 | 5,710 | |||||||||||||||
Gain on assets held for sale | — | — | — | — | (393) | |||||||||||||||
Asset impairment | — | 198 | — | 1,121 | — | |||||||||||||||
Settlement | — | — | 3,250 | — | 3,250 | |||||||||||||||
Customer insolvency (recovery) | — | — | — | — | (599) | |||||||||||||||
Non-GAAP income from operations | $ | 35,358 | $ | 33,568 | $ | 32,587 | $ | 124,045 | $ | 104,421 | ||||||||||
GAAP operating margin | 4.6 | % | 4.2 | % | 3.6 | % | 3.9 | % | 3.1 | % | ||||||||||
Non-GAAP operating margin | 5.1 | % | 4.7 | % | 4.3 | % | 4.4 | % | 3.6 | % | ||||||||||
Gross Profit (GAAP) | $ | 71,004 | $ | 69,077 | $ | 72,127 | $ | 271,070 | $ | 255,235 | ||||||||||
Customer insolvency (recovery) | — | — | — | — | (425) | |||||||||||||||
Non-GAAP gross profit | $ | 71,004 | $ | 69,077 | $ | 72,127 | $ | 271,070 | $ | 254,810 | ||||||||||
GAAP gross margin | 10.3 | % | 9.6 | % | 9.6 | % | 9.5 | % | 8.8 | % | ||||||||||
Non-GAAP gross margin | 10.3 | % | 9.6 | % | 9.6 | % | 9.5 | % | 8.8 | % | ||||||||||
Selling, general and administrative expenses | $ | 35,646 | $ | 35,509 | $ | 39,540 | $ | 147,025 | $ | 150,215 | ||||||||||
Customer insolvency (recovery) | — | — | — | — | 174 | |||||||||||||||
Non-GAAP selling, general and administrative expenses | $ | 35,646 | $ | 35,509 | $ | 39,540 | $ | 147,025 | $ | 150,389 | ||||||||||
Net income (GAAP) | $ | 17,552 | $ | 20,412 | $ | 21,219 | $ | 64,315 | $ | 68,229 | ||||||||||
Amortization of intangible assets | 1,204 | 1,592 | 1,592 | 5,979 | 6,384 | |||||||||||||||
Restructuring charges and other costs | 2,899 | 1,437 | 799 | 8,126 | 5,710 | |||||||||||||||
Gain on assets held for sale | — | — | — | — | (393) | |||||||||||||||
Asset impairment | — | 198 | — | 1,121 | — | |||||||||||||||
Settlement | (37) | (3,375) | (2,344) | (4,567) | (2,955) | |||||||||||||||
Customer insolvency (recovery) | — | — | — | — | (599) | |||||||||||||||
Income tax adjustments(1) | (657) | 245 | (5) | (1,598) | (1,644) | |||||||||||||||
Non-GAAP net income | $ | 20,961 | $ | 20,509 | $ | 21,261 | $ | 73,376 | $ | 74,732 | ||||||||||
Diluted earnings per share: | ||||||||||||||||||||
Diluted (GAAP) | $ | 0.49 | $ | 0.57 | $ | 0.60 | $ | 1.79 | $ | 1.91 | ||||||||||
Diluted (Non-GAAP) | $ | 0.58 | $ | 0.57 | $ | 0.60 | $ | 2.04 | $ | 2.09 | ||||||||||
Weighted-average number of shares used in calculating diluted earnings per share: | ||||||||||||||||||||
Diluted (GAAP) | 35,956 | 35,876 | 35,630 | 35,973 | 35,718 | |||||||||||||||
Diluted (Non-GAAP) | 35,956 | 35,876 | 35,630 | 35,973 | 35,718 | |||||||||||||||
Net cash provided by (used in) operations | $ | 137,080 | $ | 37,583 | $ | (52,749) | $ | 174,294 | $ | (177,467) | ||||||||||
Additions to property, plant and equipment and software | (11,026) | (19,664) | (13,180) | (77,739) | (46,774) | |||||||||||||||
Free cash flow (used) | $ | 126,054 | $ | 17,919 | $ | (65,929) | $ | 96,555 | $ | (224,241) | ||||||||||
(1) | This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates. |
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SOURCE Benchmark Electronics, Inc.
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