Benchmark Reports Third Quarter 2020 Results
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 UpdateRevenue 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 CallThe 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 StatementsThis 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 MeasuresManagement 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.