8-K
Benchmark Electronics Inc (BHE)
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| Date of Report (Date of earliest event reported): July 28, 2021 |
|---|
BENCHMARK ELECTRONICS, INC.
(Exact name of Registrant as Specified in Its Charter)
| Texas | 001-10560 | 74-2211011 |
|---|---|---|
| (State or Other Jurisdiction<br>of Incorporation) | (Commission File Number) | (IRS Employer<br>Identification No.) |
| 56 South Rockford Drive | ||
| Tempe, Arizona | 85281 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| Registrant’s Telephone Number, Including Area Code: (623) 300-7000 | ||
| --- |
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.10 per share | BHE | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On July 28, 2021, Benchmark Electronics, Inc. (the “Company”) issued a press release announcing its results of operations for the quarter ended June 30, 2021. A copy of the press release and accompanying investor presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein. The information disclosed under this Item 2.02, including Exhibits 99.1 and 99.2 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release, dated July 28, 2021 |
| 99.2 | Investor presentation, dated July 28, 2021 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BENCHMARK ELECTRONICS, INC. | ||
|---|---|---|
| Date: July 28, 2021 | By: | /s/ Stephen J. Beaver |
| Stephen J. Beaver, Esq. | ||
| Senior Vice President, General Counsel and Chief Legal Officer |
EX-99.1
Exhibit 99.1
FOR IMMEDIATE RELEASE
BENCHMARK REPORTS SECOND QUARTER 2021 RESULTS
Second quarter 2021 results:
Quarterly revenue of $545 million
11% year-over-year revenue growth
Semi-Cap revenue growth of 60% year-over-year
Industrials revenue growth of 15% year-over-year
A&D revenue growth of 9% year-over-year
Higher-value markets revenue mix of 82%
GAAP diluted EPS of $0.20 and non-GAAP diluted EPS of $0.27
TEMPE, AZ, July 28, 2021 – Benchmark Electronics, Inc. (NYSE: BHE) today announced financial results for the second quarter ended June 30, 2021.
| Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Jun 30, | Mar 31, | Jun 30, | |||||||
| In millions, except EPS | 2021 | 2021 | 2020 | ||||||
| Sales | $ | 545 | $ | 506 | $ | 491 | |||
| Net income (loss)(2) | $ | 7 | $ | 8 | $ | (3 | ) | ||
| Net income – non-GAAP(1)(2) | $ | 10 | $ | 8 | $ | 3 | |||
| Diluted earnings (loss) per share(2) | $ | 0.20 | $ | 0.22 | $ | (0.09 | ) | ||
| Diluted EPS – non-GAAP(1)(2) | $ | 0.27 | $ | 0.21 | $ | 0.07 | |||
| Operating margin(2) | 2.0 | % | 2.4 | % | (0.4 | )% | |||
| Operating margin – non-GAAP(1)(2) | 2.5 | % | 2.3 | % | 1.2 | % |
(1) A reconciliation of GAAP and non-GAAP results is included below.
(2) Results for the second quarter ended June 30, 2021 and 2020 and first quarter ended March 31, 2021 include the impact of approximately $0.9 million, $4.1 million and $1.4 million of net COVID-19 related costs, respectively.
"In the second quarter, we delivered double digit revenue growth year-over-year from continued strength in the Semi-Cap market, improving Industrials demand, and strength in the Telecommunications sector,” said Jeff Benck, Benchmark’s President and CEO. “Additionally, we expanded gross and operating margins supported by our strong revenue growth.”
“I am particularly pleased with our team’s execution in the quarter given the challenges related to the global supply chain constraints and facility disruptions in Malaysia related to the pandemic. Strong end market demand, new program ramps, and operational execution provide momentum for sequential growth in revenue and gross margins through the balance of 2021.”
Cash Conversion Cycle
| Jun 30, | Mar 31, | Jun 30, | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2021 | 2020 | |||||||
| Accounts receivable days | 48 | 49 | 55 | ||||||
| Contract asset days | 26 | 26 | 28 | ||||||
| Inventory days | 75 | 69 | 72 | ||||||
| Accounts payable days | (69 | ) | (64 | ) | (61 | ) | |||
| Advance payments from customers days | (16 | ) | (15 | ) | (10 | ) | |||
| Cash Conversion Cycle days | 64 | 65 | 84 |
Second Quarter 2021 Industry Sector Update
Revenue and percentage of sales by industry sector (in millions) was as follows.
| Jun 30, | Mar 31, | Jun 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Higher-Value Markets | 2021 | 2021 | 2020 | |||||||||
| Medical | $ | 109 | 20 | % | $ | 109 | 21 | % | $ | 135 | 27 | % |
| Semi-Cap | 139 | 26 | 113 | 22 | 87 | 18 | ||||||
| A&D | 97 | 18 | 89 | 18 | 88 | 18 | ||||||
| Industrials | 100 | 18 | 95 | 19 | 87 | 18 | ||||||
| $ | 445 | 82 | % | $ | 406 | 80 | % | $ | 397 | 81 | % | |
| Jun 30, | Mar 31, | Jun 30, | ||||||||||
| Traditional Markets | 2021 | 2021 | 2020 | |||||||||
| Computing | $ | 40 | 7 | % | $ | 44 | 9 | % | $ | 44 | 9 | % |
| Telecommunications | 60 | 11 | 56 | 11 | 50 | 10 | ||||||
| $ | 100 | 18 | % | $ | 100 | 20 | % | $ | 94 | 19 | % | |
| Total | $ | 545 | 100 | % | $ | 506 | 100 | % | $ | 491 | 100 | % |
Overall, higher-value market revenues were up 9% quarter-over-quarter and 12% year-over-year from growth in semi-cap, industrials and A&D. Traditional market revenues were flat quarter-over-quarter and up 7% year-over-year primarily from growth in the telecommunications sector.
Third Quarter 2021 Outlook
Revenue between $555 - $595 million
Diluted GAAP earnings per share between $0.27 - $0.35
Diluted non-GAAP earnings per share between $0.33 - $0.41 (excluding restructuring charges and other costs and amortization of intangibles)
This guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base, operations or customers. Guidance also assumes no material changes to end market conditions due to COVID-19.
Restructuring charges are expected to range between $0.8 million and $1.2 million in the third quarter and the amortization of intangibles is expected to be $1.7 million in the third quarter.
Second Quarter 2021 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, August 4, 2021 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.
For More Information, Please Contact:
Lisa K. Weeks, Senior Vice President, Chief Strategy Officer
623-300-7052 or lisa.weeks@bench.com
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 (Exchange Act). 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 or the negative or other variations thereof. In particular, statements, express or implied, concerning future operating results, our ability to generate sales, income or cash flow, the anticipated impact of the COVID-19 pandemic, the outlook and guidance for third quarter 2021 results, our anticipated plans and responses to the COVID-19 pandemic, our expected revenue mix, our business strategy and strategic initiatives, our repurchases of shares of our common stock and our intentions concerning the payment of dividends, among others, are forward-looking statements. Although we believe these statements are based upon reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond our 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, 2020 and in any of our subsequent reports filed with the Securities and Exchange Commission (SEC). In particular, these statements also depend on the duration, severity and evolution of the COVID-19 pandemic and related risks, including the emergence and severity of its variants, the availability of vaccines and potential hesitancy to utilize them, government and other third-party responses to it and the consequences for the global economy, our business and the businesses of our suppliers and customers, as well as our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of our 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 us as of the date of this document, and we assume no obligation to update.
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 certain 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 also uses non‐GAAP measures in order to better assess operating performance and help investors compare results with our previous guidance. 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. 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 (Loss)
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Sales | $ | 544,662 | $ | 490,966 | $ | 1,050,383 | $ | 1,005,930 | ||||
| Cost of sales | 496,749 | 456,294 | 960,243 | 927,897 | ||||||||
| Gross profit | 47,913 | 34,672 | 90,140 | 78,033 | ||||||||
| Selling, general and administrative expenses | 34,034 | 28,516 | 64,582 | 60,091 | ||||||||
| Amortization of intangible assets | 1,599 | 2,371 | 3,197 | 4,752 | ||||||||
| Restructuring charges and other costs | 1,581 | 5,657 | 3,172 | 8,572 | ||||||||
| Ransomware incident related costs (recovery), net | — | — | (3,444 | ) | — | |||||||
| Income (loss) from operations | 10,699 | (1,872 | ) | 22,633 | 4,618 | |||||||
| Interest expense | (2,079 | ) | (2,351 | ) | (4,228 | ) | (4,053 | ) | ||||
| Interest income | 164 | 287 | 329 | 886 | ||||||||
| Other income (expense), net | 440 | 32 | 164 | (630 | ) | |||||||
| Income (loss) before income taxes | 9,224 | (3,904 | ) | 18,898 | 821 | |||||||
| Income tax expense (benefit) | 1,855 | (497 | ) | 3,612 | 376 | |||||||
| Net income (loss) | $ | 7,369 | $ | (3,407 | ) | $ | 15,286 | $ | 445 | |||
| Earnings (loss) per share: | ||||||||||||
| Basic | $ | 0.21 | $ | (0.09 | ) | $ | 0.42 | $ | 0.01 | |||
| Diluted | $ | 0.20 | $ | (0.09 | ) | $ | 0.42 | $ | 0.01 | |||
| Weighted-average number of shares used in calculating<br> earnings (loss) per share: | ||||||||||||
| Basic | 35,753 | 36,439 | 36,000 | 36,614 | ||||||||
| Diluted | 36,061 | 36,439 | 36,474 | 36,863 |
Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(UNAUDITED)
(in thousands)
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 369,301 | $ | 390,808 |
| Restricted cash | 1,142 | 5,182 | ||
| Accounts receivable, net | 290,073 | 309,331 | ||
| Contract assets | 154,629 | 142,779 | ||
| Inventories | 415,322 | 327,377 | ||
| Other current assets | 36,510 | 26,874 | ||
| Total current assets | 1,266,977 | 1,202,351 | ||
| Property, plant and equipment, net | 188,318 | 185,272 | ||
| Operating lease right-of-use assets | 89,567 | 79,966 | ||
| Goodwill and other, net | 273,929 | 276,646 | ||
| Total assets | $ | 1,818,791 | $ | 1,744,235 |
| Liabilities and Shareholders’ Equity | ||||
| Current liabilities: | ||||
| Current installments of long-term debt and finance lease obligations | $ | 9,259 | $ | 9,161 |
| Accounts payable | 380,164 | 282,208 | ||
| Advance payments from customers | 88,686 | 84,122 | ||
| Accrued liabilities | 103,300 | 105,645 | ||
| Total current liabilities | 581,409 | 481,136 | ||
| Long-term debt and finance lease obligations, less current installments | 126,639 | 131,051 | ||
| Operating lease liabilities | 80,580 | 72,120 | ||
| Other long-term liabilities | 62,885 | 70,340 | ||
| Shareholders’ equity | 967,278 | 989,588 | ||
| Total liabilities and shareholders’ equity | $ | 1,818,791 | $ | 1,744,235 |
Benchmark Electronics, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(in thousands)
(UNAUDITED)
| Six Months Ended | ||||||
|---|---|---|---|---|---|---|
| June 30, | ||||||
| 2021 | 2020 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 15,286 | $ | 445 | ||
| Depreciation and amortization | 21,994 | 24,531 | ||||
| Stock-based compensation expense | 6,863 | 6,044 | ||||
| Accounts receivable, net | 18,959 | 20,356 | ||||
| Contract assets | (11,850 | ) | 7,420 | |||
| Inventories | (88,634 | ) | (48,668 | ) | ||
| Accounts payable | 92,677 | 6,980 | ||||
| Advance payments from customers | 4,563 | 15,267 | ||||
| Other changes in working capital and other, net | (19,585 | ) | (12,457 | ) | ||
| Net cash provided by operations | 40,273 | 19,918 | ||||
| Cash flows from investing activities: | ||||||
| Additions to property, plant and equipment and software | (18,619 | ) | (23,290 | ) | ||
| Other investing activities, net | 188 | 2,576 | ||||
| Net cash used in investing activities | (18,431 | ) | (20,714 | ) | ||
| Cash flows from financing activities: | ||||||
| Share repurchases | (30,319 | ) | (19,329 | ) | ||
| Net debt activity | (4,543 | ) | 25,608 | |||
| Other financing activities, net | (14,204 | ) | (12,802 | ) | ||
| Net cash used in financing activities | (49,066 | ) | (6,523 | ) | ||
| Effect of exchange rate changes | 1,677 | (218 | ) | |||
| Net increase in cash and cash equivalents and restricted cash | (25,547 | ) | (7,537 | ) | ||
| Cash and cash equivalents and restricted cash at beginning of year | 395,990 | 363,956 | ||||
| Cash and cash equivalents and restricted cash at end of period | $ | 370,443 | $ | 356,419 |
Benchmark Electronics, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Results
(Amounts in Thousands, Except Per Share Data)
(UNAUDITED)
| Three Months Ended | Six Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Jun 30, | Mar 31, | Jun 30, | Jun 30, | ||||||||||||
| 2021 | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Income (loss) from operations (GAAP) | $ | 10,699 | $ | 11,934 | $ | (1,872 | ) | $ | 22,633 | $ | 4,618 | ||||
| Restructuring charges and other costs | 1,581 | 1,591 | 5,657 | 3,172 | 7,565 | ||||||||||
| Ransomware incident related costs (recovery), net | — | (3,444 | ) | — | (3,444 | ) | — | ||||||||
| Impairment | — | — | — | — | 1,007 | ||||||||||
| Customer insolvency (recovery) | (153 | ) | (32 | ) | (353 | ) | (185 | ) | (353 | ) | |||||
| Amortization of intangible assets | 1,599 | 1,598 | 2,371 | 3,197 | 4,752 | ||||||||||
| Non-GAAP income from operations | $ | 13,726 | $ | 11,647 | $ | 5,803 | $ | 25,373 | $ | 17,589 | |||||
| Gross Profit (GAAP) | $ | 47,913 | $ | 42,227 | $ | 34,672 | $ | 90,140 | $ | 78,033 | |||||
| Customer insolvency (recovery) | (153 | ) | (32 | ) | (353 | ) | (185 | ) | (353 | ) | |||||
| Non-GAAP gross profit | $ | 47,760 | $ | 42,195 | $ | 34,319 | $ | 89,955 | $ | 77,680 | |||||
| Selling, general and administrative expenses (GAAP) | $ | 34,034 | $ | 30,548 | $ | 28,516 | $ | 64,582 | $ | 60,091 | |||||
| Non-GAAP selling, general and administrative expenses | $ | 34,034 | $ | 30,548 | $ | 28,516 | $ | 64,582 | $ | 60,091 | |||||
| Net income (loss) (GAAP) | $ | 7,369 | $ | 7,917 | $ | (3,407 | ) | $ | 15,286 | $ | 445 | ||||
| Restructuring charges and other costs | 1,581 | 1,591 | 5,657 | 3,172 | 7,565 | ||||||||||
| Ransomware incident related costs (recovery), net | — | (3,444 | ) | — | (3,444 | ) | — | ||||||||
| Customer insolvency (recovery) | (153 | ) | (32 | ) | (353 | ) | (185 | ) | (353 | ) | |||||
| Amortization of intangible assets | 1,599 | 1,598 | 2,371 | 3,197 | 4,752 | ||||||||||
| Impairment | — | — | — | — | 1,007 | ||||||||||
| Income tax adjustments(1) | (633 | ) | 169 | (1,584 | ) | (464 | ) | (2,623 | ) | ||||||
| Non-GAAP net income | $ | 9,763 | $ | 7,799 | $ | 2,684 | $ | 17,562 | $ | 10,793 | |||||
| Diluted earnings (loss) per share: | |||||||||||||||
| Diluted (GAAP) | $ | 0.20 | $ | 0.22 | $ | (0.09 | ) | $ | 0.42 | $ | 0.01 | ||||
| Diluted (Non-GAAP) | $ | 0.27 | $ | 0.21 | $ | 0.07 | $ | 0.48 | $ | 0.29 | |||||
| Weighted-average number of shares used in | |||||||||||||||
| calculating diluted earnings (loss) per share: | |||||||||||||||
| Diluted (GAAP) | 36,061 | 36,711 | 36,439 | 36,474 | 36,863 | ||||||||||
| Diluted (Non-GAAP) | 36,061 | 36,711 | 36,689 | 36,474 | 36,863 | ||||||||||
| Net cash provided by operations | $ | 3,660 | $ | 36,613 | $ | 23,027 | $ | 40,273 | $ | 19,918 | |||||
| Additions to property, plant and equipment and software | (12,197 | ) | (6,422 | ) | (10,394 | ) | (18,619 | ) | (23,290 | ) | |||||
| Free cash flow (free cash flow used) | $ | (8,537 | ) | $ | 30,191 | $ | 12,633 | $ | 21,654 | $ | (3,372 | ) |
(1) This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates.
Benchmark Electronics Q2-21 Earnings Results July 28, 2021
Forward-Looking Statements This document 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 (Exchange Act). 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 or the negative or other variations thereof. In particular, statements, express or implied, concerning future operating results, our ability to generate sales, income or cash flow, the anticipated impact of the COVID-19 pandemic, the outlook and guidance for third quarter 2021 results, our anticipated plans and responses to the COVID-19 pandemic, our expected revenue mix, our business strategy and strategic initiatives, our repurchases of shares of our common stock and our intentions concerning the payment of dividends, among others, are forward-looking statements. Although we believe these statements are based upon reasonable assumptions, they involve risks, uncertainties and assumptions that are beyond our 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, 2020 and in any of our subsequent reports filed with the Securities and Exchange Commission (SEC). In particular, these statements also depend on the duration, severity and evolution of the COVID-19 pandemic and related risks, including the emergence and severity of its variants, the availability of vaccines and potential hesitancy to utilize them, government and other third-party responses to it and the consequences for the global economy, our business and the businesses of our suppliers and customers, as well as our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes, including the future results of our 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 us as of the date of this document, and we assume no obligation to update. Non-GAAP Financial Information 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 certain 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 also uses non‐GAAP measures in order to better assess operating performance and help investors compare results with our previous guidance. 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. 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.
Q2-21 Overview Achieved revenue of $545 million (11% year-over-year growth) - Strength from SemiCap, Industrials, and Telco sectors Realized Non-GAAP gross margin of 8.8% and Non-GAAP operating margin of 2.5% Overcame facility disruptions in Malaysia due to government restrictions related to COVID Non-GAAP earnings per share of $0.27 Cash conversion cycle of 64 days
Q2-21 New Business Wins Medical Cardiac monitoring (process design & manufacturing) Blood transfusion (process design & manufacturing) Invitro Diagnostics (design) Semi-Cap Process controller for coating equipment (manufacturing) Work cell handler (design) Power rack electronics (manufacturing) Aerospace & Defense Electronic warfare assemblies (process design & mfg) Satellite electronics (process design & manufacturing) Land communication electronics (design) Industrials Solar energy storage solutions (manufacturing) Ruggedized power electronics (manufacturing) Test & measurement devices (manufacturing) Computing & Telco High performance computing (manufacturing) Control panel electronics (design)
Roop Lakkaraju Chief Financial Officer
Second Quarter Revenue by Market Sector Q2-21 June 30, 2021 Revenue by Mix and Market Sector Mar. 31, 2021 June 30, 2020 For the Three Months Ended Dollars in Millions Higher-Value Markets Mix % Revenue Mix % Revenue Q/Q Mix % Revenue Y/Y Medical 20% $109 21% $109 - 27% $135 (19%) Semi-Cap 26% $139 22% $113 23% 18% $87 60% Aerospace & Defense 18% $97 18% $89 8% 18% $88 9% Industrials 18% $100 19% $95 5% 18% $87 15% Higher-Value Subtotal 82% $445 80% $406 9% 81% $397 12% Traditional Markets Mix % Revenue Mix % Revenue Q/Q Mix % Revenue Y/Y Computing 7% $40 9% $44 (9%) 9% $44 (10%) Telecommunications 11% $60 11% $56 8% 10% $50 21% Traditional Subtotal 18% $100 20% $100 - 19% $94 7% Total Revenue $545 $506 8% $491 11%
Second Quarter 2021 Financial Summary (In millions, except EPS) June 30, 2021 Mar. 31, 2021 Q/Q June 30, 2020 Y/Y Net Sales $545 $506 8% $491 11% GAAP Gross Margin 8.8% 8.3% 50 bps 7.1% 170 bps GAAP SG&A $34.0 $30.5 11% $28.5 19% GAAP Operating Margin 2.0% 2.4% (40 bps) (0.4%) 240 bps GAAP Diluted EPS $0.20 $0.22 (9%) ($0.09) 322% GAAP ROIC 4.6% 3.2% 140 bps 0.7% 390 bps Net Sales $545 $506 8% $491 11% Non-GAAP Gross Margin 8.8% 8.3% 50 bps 7.0% 180 bps Non-GAAP SG&A $34.0 $30.5 11% $28.5 19% Non-GAAP Operating Margin 2.5% 2.3% 20 bps 1.2% 130 bps Non-GAAP Diluted EPS $0.27 $0.21 29% $0.07 286% Non-GAAP ROIC 7.5% 6.4% 110 bps 5.9% 160 bps See APPENDIX 1 for a reconciliation of GAAP to non-GAAP Financial Results GAAP ROIC = (GAAP TTM income from operations – GAAP Tax Impact) / (Average Invested Capital for last 5 quarters) Non-GAAP ROIC = (Non-GAAP TTM income from operations + Stock-based compensation – Non-GAAP Tax Impact) ÷ [Average Invested Capital for last 5 quarters]
Cash Conversion Cycle Update Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Accounts Receivable Days 56 55 52 53 49 48 Contract Asset Days 28 28 28 25 26 26 Inventory Days 65 72 66 63 69 75 Accounts Payable Days (61) (61) (54) (54) (64) (69) Advance Payments from Customers Days (7) (10) (11) (16) (15) (16) Cash Conversion Cycle 81 84 81 71 65 64
Liquidity and Capital Resources For the Three Months Ended Cash (In millions) June 30, 2021 Mar. 31, 2021 June 30, 2020 Cash Flows from (used in) Operations $4 $37 $23 FCF (1) $(9) $30 $13 Cash $370 $400 $356 International $235 $247 $162 US $135 $153 $194 (1) Free cash flow (FCF) defined as net cash provided by (used in) operations less capex Debt Structure (In millions) Senior Secured Term Loan $133 Revolving Credit Facility Drawn Amount $0 * Leverage ratio is Net debt/LTM adjusted EBITDA, as defined in the credit facility, which are non-GAAP measures Strong balance sheet and appropriate debt structure Credit facility matures July 2023 Current leverage ratio* in compliance with debt covenants Focused and prudent cash management
Capital Allocation Update Dividends Quarterly dividend of $0.16 per share totaling $5.8 million paid in April 2021 Recurring quarterly dividend of $0.165 per share paid to shareholders on July 14, 2021 Recurring quarterly dividends to continue until further notice Share Repurchases Share repurchases of $17 million completed in Q2 2021 Share repurchase program remaining authorization of $174 million at June 30, 2021 Expect to continue share repurchases opportunistically in the quarter
Third Quarter 2021 Guidance * This guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base, operations or customers. Guidance also assumes no material changes to end market conditions and our operations due to COVID-19. Q3-21 Guidance Net Sales (in millions) $555 – $595 Diluted EPS - GAAP $0.27 - $0.35 Diluted EPS – non-GAAP* $0.33 – $0.41 Q3-21 Model Inputs Operating Margin - non-GAAP* 3.1% – 3.4% Other Expenses, Net (in millions) $2.1 Effective Tax Rate 19 – 21% Weighted Average Shares (in millions) ~35.7
2021 Revenue Trends and Key Initiatives Jeff Benck - CEO
Trends by Market Sector Sector Q3-21 Revenue Guidance CY2021 Revenue Outlook Comments Medical Overall 2H-21 revenue greater than 1H-21 revenue Some new program ramps moving from 2021 into early next year Semi-Cap Q3 revenue is limited due to constraints at mechanical sub-tiers Expect continued strong demand and >30% full year revenue growth Aerospace & Defense Defense programs remain strong Lack of commercial aircraft recovery in 2021 offsets defense growth Industrial Market demand improving in oil & gas, and building and transportation infrastructure Computing High Performance Computing ramps strong in 2H-21 Expecting stronger demand for the full year of 2021 Telco Overall telco demand is stable in 2H-21 from broadband infrastructure growth
2021 Key Strategic Initiatives Update 01 Grow Revenue Strong bookings continue in all sectors Achieved >50% attach rate of engineering projects to manufacturing services bookings in Q2 Continued strength in Semi-Cap through 2021 and 2022 Will exceed >5% annual growth in 2021 03 Grow Earnings Faster Than Revenue Drive growth that enables higher utilization and better leverage against fixed costs Anticipate gross margin improvements as revenues ramp – still targeting 9% for the full year Anticipating inventory growth as we navigate component constraints Expect to continue share buybacks and dividends 02 Invest in a Sustainable Infrastructure and Talent Expanding and accelerating ESG/Sustainability initiatives Focusing on data collection for Global Reporting Initiative (GRI) Advancing Diversity and Inclusion initiatives Incremental capital investments aligned to our strategy Effective SG&A expense management in support of the mid-term model <6% for the full year
Highlights and 2H-21 Outlook Revising revenue outlook to high single digit growth in 2021 Strong SemiCap demand continues (expect >30% annual revenue growth) Second half High Performance Computing program ramps Improving demand and revenue in Industrials In all sectors, demand outpacing component supply Sequential margin improvement throughout the second half of 2021 Targeting 9% gross margins for the full year Expect operating cash flow between $80-$100 million in 2021 Repurchased $30M of stock year-to-date
Appendix
(Amounts in Thousands, Except Per Share Data) – (UNAUDITED) APPENDIX 1 - Reconciliation of GAAP to non-GAAP Financial Results
(Amounts in Thousands) – (UNAUDITED) APPENDIX 2 - Reconciliation of Free Cash Flow Three Months Ended June 30, 2021 Mar. 31, 2021 June 30, 2020 Net Cash Provided by Operations $3,660 $36,613 $23,027 Additions to property, plant and equipment and software (12,197) (6,422) (10,394) Free Cash Flow (Free Cash Flow Used) ($8,537) $30,191 $12,633