Benchmark Reports Third Quarter 2020 Results

Rhea-AI Summary

Benchmark Electronics (BHE) reported Q3 2020 results with revenue of $526 million, up from $491 million in Q2 2020 but down from $555 million in Q3 2019. The company achieved a net income of $6 million, compared to a loss of $3 million in Q2 2020. Non-GAAP net income was $12 million. Key growth drivers included a 45% year-over-year increase in Semi-cap and an 18% rise in Aerospace and Defense sectors. The company expects revenue between $500 - $540 million for Q4 2020, with diluted GAAP earnings projected between $0.20 - $0.24 per share.

Positive

• 45% year-over-year growth in Semi-cap sector
• 18% sequential improvement in Aerospace and Defense sector
• Sales increased to $526 million from $491 million in Q2 2020
• Non-GAAP gross margin improved to 8.7% from 1.2% in Q2 2020

Negative

• Revenue decreased from $555 million in Q3 2019 to $526 million in Q3 2020
• Significant COVID-19 related costs incurred, totaling $1.3 million in Q3

TEMPE, Ariz., Oct. 28, 2020 /PRNewswire/ -- Benchmark Electronics, Inc. (NYSE: BHE) today announced financial results for the third quarter ended September 30, 2020. 

		Three Months Ended
		Sep 30,			Jun 30,		Sep 30,
In millions, except EPS		2020			2020		2019
Sales		$526			$491		$555
Net income (loss)(2)		$6			$(3)		$7
Net income – non-GAAP(1)(2)		$12			$3		$14
Diluted earnings (loss) per share(2)		$0.16			$(0.09)		$0.19
Diluted EPS – non-GAAP(1)(2)		$0.32			$0.07		$0.36
Operating margin(2)		1.6%			(0.4)%		1.8%
Operating margin – non-GAAP(1)(2)		3.0%			1.2%		3.2%

(1)	A reconciliation of GAAP and non-GAAP results is included below.
(2)	Results for the third quarter ended September 30, 2020 and second quarter ended June 30, 2020 include the impact of approximately $1.3 million and $3.4 million of COVID-19 related costs, respectively.

"We delivered sequential revenue and earnings growth in the third quarter as our business started to recover from second quarter disruptions, enabling earnings to come in above our guidance for the quarter," said CEO and President Jeff Benck. "The results were driven by a 45% year-over-year improvement in Semi-cap and an 18% sequential improvement in the Aerospace and Defense sector, where demand for defense related products remains strong.  In addition, third quarter non-GAAP gross and operating margins improved significantly from the second quarter, reaching 8.7% and 3.0% respectively, as our global network returned to normal operating capacity."

"Entering the fourth quarter, we expect stronger demand and new programs in Defense, Industrials, and Telecommunications to offset declines in Medical as we are completing some of the incremental upside builds for COVID-19 related therapeutic equipment.  We continue to make progress on improving gross margins as we expect to achieve our 9% target in the fourth quarter, which will enable us to also improve earnings sequentially."

Cash Conversion Cycle

		Sep 30,				Jun 30,				Sep 30,
		2020				2020				2019
Accounts receivable days		52				55				56
Contract asset days		28				28				26
Inventory days		66				72				56
Accounts payable days		(54)				(61)				(52)
Customer deposits		(11)				(10)				(7)
Cash Conversion Cycle days		81				84				79

Third Quarter 2020 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		2020						2020					2019
Medical		$	134		26	%		$	135		27	%		$	128		23	%
Semi-Cap			99		19				87		18				68		12
A&D			105		20				88		18				115		21
Industrials			86		16				87		18				115		21
		$	424		81	%		$	397		81	%		$	426		77	%
			Sep 30,						Jun 30,						Sep 30,
	Traditional Markets		2020						2020					2019
Computing		$	44		8	%		$	44		9	%		$	59		11	%
Telecommunications			58		11				50		10				70		12
		$	102		19	%		$	94		19	%		$	129		23	%
	Total	$	526		100	%		$	491		100	%		$	555		100	%

Overall, higher-value market revenues during the third quarter were up 7% quarter-over-quarter and down 1% year-over-year. Traditional market revenues were up 9% quarter-over-quarter due to stronger demand for high performance computing and telecommunications products and down 21% year-over-year primarily from the Company's exit of a legacy Computing contract in 2019, which it decided not to renew.

Fourth Quarter 2020 Outlook

• Revenue between $500 - $540 million
• Diluted GAAP earnings per share between $0.20 - $0.24
• Diluted non-GAAP earnings per share between $0.32 - $0.36 (excluding restructuring charges and other costs and amortization of intangibles)
• 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.

Restructuring charges are expected to range between $2.8 million to $3.2 million in the fourth quarter and the amortization of intangibles is expected to be $2.4 million in the fourth quarter.

Third Quarter 2020 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 until Wednesday, November 4, 2020 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 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, our 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 on and derived from 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 the crisis 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.

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 special 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", 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					Nine Months Ended
			September 30,					September 30,
			2020		2019			2020		2019
Sales		$	525,951	$	555,229		$	1,531,881	$	1,759,651
Cost of sales			479,597		506,274			1,407,494		1,611,436
	Gross profit		46,354		48,955			124,387		148,215
Selling, general and administrative expenses			29,724		30,947			89,815		92,461
Amortization of intangible assets			2,368		2,367			7,120		7,095
Restructuring charges and other costs			7,161		5,843			15,480		10,833
Ransomware incident related costs (recovery), net			(1,558)		—			(1,305)		—
	Income from operations		8,659		9,798			13,277		37,826
Interest expense			(2,136)		(1,687)			(6,189)		(5,014)
Interest income			154		734			1,040		3,084
Other income (expense), net			439		(136)			(191)		2,276
	Income before income taxes		7,116		8,709			7,937		38,172
Income tax expense			1,201		1,573			1,577		7,816
	Net income	$	5,915	$	7,136		$	6,360	$	30,356
Earnings per share:
	Basic	$	0.16	$	0.19		$	0.17	$	0.78
	Diluted	$	0.16	$	0.19		$	0.17	$	0.77
Weighted-average number of shares used in calculating earnings per share:
	Basic		36,467		37,419			36,565		38,813
	Diluted		36,544		37,645			36,821		39,184

 

For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation.

Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(UNAUDITED)
(in thousands)
						September 30,			December 31,
						2020			2019
Assets
	Current assets:
		Cash and cash equivalents			$	334,810		$	363,956
		Accounts receivable, net				306,242			324,424
		Contract assets				161,396			161,061
		Inventories				352,851			314,956
		Other current assets				29,928			30,685
				Total current assets		1,185,227			1,195,082
	Property, plant and equipment, net					190,610			205,819
	Operating lease right-of-use assets					82,849			76,859
	Goodwill and other, net					275,821			282,114
				Total assets	$	1,734,507		$	1,759,874
Liabilities and Shareholders' Equity
	Current liabilities:
		Current installments of long-term debt and finance lease obligations			$	8,956		$	8,825
		Accounts payable				282,591			302,994
		Accrued liabilities				157,938			147,426
				Total current liabilities		449,485			459,245
	Long-term debt and finance lease obligations, less current installments					147,522			138,912
	Operating lease liabilities					74,407			67,898
	Other long-term liabilities					72,766			78,987
	Shareholders' equity					990,327			1,014,832
				Total liabilities and shareholders' equity	$	1,734,507		$	1,759,874

 

Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in thousands)
(UNAUDITED)
						Nine Months Ended
						September 30,
						2020			2019
Cash flows from operating activities:
	Net income				$	6,360		$	30,356
	Depreciation and amortization					36,939			36,389
	Stock-based compensation expense					9,464			8,461
	Accounts receivable, net					16,410			121,171
	Contract assets					(335)			(20,986)
	Inventories					(37,131)			(6,557)
	Accounts payable					(18,260)			(122,156)
	Other changes in working capital and other, net					12,168			10,636
		Net cash provided by operations				25,615			57,314
Cash flows from investing activities:
	Additions to property, plant and equipment and software					(29,102)			(25,942)
	Other investing activities, net					2,586			252
		Net cash used in investing activities				(26,516)			(25,690)
Cash flows from financing activities:
	Share repurchases					(19,329)			(118,350)
	Net debt activity					8,395			(4,614)
	Other financing activities, net					(18,747)			(17,699)
		Net cash used in financing activities				(29,681)			(140,663)
Effect of exchange rate changes						1,436			(1,021)
Net decrease in cash and cash equivalents						(29,146)			(110,060)
	Cash and cash equivalents at beginning of year					363,956			458,102
	Cash and cash equivalents at end of period				$	334,810		$	348,042

 

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,
			2020		2020		2019			2020		2019
Income (loss) from operations (GAAP)		$	8,659	$	(1,872)	$	9,798		$	13,277	$	37,826
Restructuring charges and other costs			1,425		5,574		5,843			8,737		10,833
Ransomware incident related costs (recovery), net			(1,558)		83		—			(1,305)		—
Settlement			—		—		—			—		773
Impairment			5,736		—		—			6,743		—
Customer insolvency (recovery)			(796)		(353)		—			(1,149)		(2,758)
Amortization of intangible assets			2,368		2,371		2,367			7,120		7,095
Non-GAAP income from operations		$	15,834	$	5,803	$	18,008		$	33,423	$	53,769
Gross Profit (GAAP)		$	46,354	$	34,672	$	48,955		$	124,387	$	148,215
Settlement			—		—		—			—		773
Customer insolvency (recovery)			(796)		(353)		—			(1,149)		(1,040)
Non-GAAP gross profit		$	45,558	$	34,319	$	48,955		$	123,238	$	147,948
Net income (loss) (GAAP)		$	5,915	$	(3,407)	$	7,136		$	6,360	$	30,356
Restructuring charges and other costs			1,425		5,574		6,168			8,737		11,158
Ransomware incident related costs (recovery), net			(1,558)		83		—			(1,305)		—
Customer insolvency (recovery)			(796)		(353)		—			(1,149)		(2,758)
Amortization of intangible assets			2,368		2,371		2,367			7,120		7,095
Settlements			—		—		(83)			—		(2,248)
Impairment			5,736		—		—			6,743		—
Income tax adjustments(1)			(1,458)		(1,584)		(1,879)			(4,123)		(2,711)
Non-GAAP net income		$	11,632	$	2,684	$	13,709		$	22,383	$	40,892
Diluted earnings (loss) per share:
	Diluted (GAAP)	$	0.16	$	(0.09)	$	0.19		$	0.17	$	0.77
	Diluted (Non-GAAP)	$	0.32	$	0.07	$	0.36		$	0.61	$	1.04
Weighted-average number of shares used in calculating diluted earnings (loss) per share:
	Diluted (GAAP)		36,544		36,439		37,645			36,821		39,184
	Diluted (Non-GAAP)		36,544		36,689		37,645			36,821		39,184

(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.