Benchmark: Fourth Quarter 2018 Results

The following excerpt is from the company's SEC filing.

Quarterly revenue of $657 million

Quarterly EPS of $0.64 ($0.41 non-GAAP)

TEMPE, AZ, February

7, 201

9 – Benchmark Electronics, Inc. (NYSE: BHE)

today announced

financial results for the

fourth quarter

and year end

December 31, 2018

Three Months Ended

Dec 31,

Sep 30,

In millions, except EPS

Net sales

Net income (loss)

Net income – non-GAAP

Diluted EPS

($1.54)

Diluted EPS – non-GAAP

Operating margin

Operating margin – non-GAAP

Twelve Months Ended

$ 2,566

$2,454

($0.64)

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.

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,” said Tufano.

Cash Conversion Cycle

(as adjusted)

Accounts receivable days

Contract asset days

Inventory days

Accounts payable days

Customer deposits

Fourth Quarter 2018 Industry Sector Update

Revenue and percentage of sales by industry sector (in millions) was as follows.

Higher-Value Markets

2017 (as adjusted)

Industrials

Medical

Instrumentation

Traditional Markets

Telecommunications

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.

For More Information, Please Contact:

Lisa K. Weeks, VP of Strategy & Investor Relations

623-300-7052 or lisa.weeks@bench.com

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)

Year Ended

Income from operations (GAAP)

15,265

10,957

21,910

58,538

76,826

Restructuring charges and other costs

Customer insolvency (recovery)

Amortization of intangible assets

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

Non-GAAP gross profit

55,086

54,358

60,422

221,390

226,880

Net income (loss) (GAAP)

27,716

(76,361)

22,817

(31,901)

Refinancing of credit facilities

Income tax adjustments

(1,050)

(1,914)

(1,793)

(4,592)

(6,312)

Tax Cuts and Jobs Act

(14,529)

97,633

26,008

Non-GAAP net income

17,935

15,375

24,669

67,576

80,770

Diluted Earnings (loss) per share:

Diluted (GAAP)

(1.54)

(0.64)

Diluted (Non-GAAP)

Weighted-average number of shares used in

   calculating diluted earnings (loss) per share:

43,229

46,455

49,576

46,655

49,680

49,998

50,250

This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates.

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.

Condensed Consolidated Statements of Income

December 31,

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

Selling, general and administrative expenses

34,023

33,322

143,205

130,401

Interest expense

(1,930)

(2,544)

(10,473)

(9,405)

Interest income

Other income (expense), net

(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)

Weighted-average number of shares used in calculating

   earnings (loss) per share:

43,120

46,332

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.

Condensed Consolidated Balance Sheets

(in thousands)

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

18,274

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

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.

Condensed Consolidated Statement of Cash Flows

Cash flows from operating activities:

Depreciation and amortization

51,839

48,672

Stock-based compensation expense

10,089

(33,952)

(43,264)

(24,570)

61,391

29,542

Other changes in working capital and other, net

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)

Net increase (decrease) in cash and cash equivalents

(284,444)

61,113

Cash and cash equivalents at beginning of year

681,433

Cash and cash equivalents at end of period

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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