EX-99.2 3 ex992.htm EXHIBIT 99.2
Exhibit 99.2
Benchmark Q3-20 Earnings Call October 28, 2020 Benchmark 1 2020 Benchmark
Electronics, Inc. 1
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, the 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 upon 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 it 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 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 special items (“non-GAAP”) is included in the
Appendix of 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 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. 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 2 2020 Benchmark Electronics, Inc. 2
Third Quarter 2020 Overview Achieved revenue of $526 million Realized
Non-GAAP gross margin of 8.7% and Non-GAAP operating margin
of 3.0% Global facilities returned to normal operating capacity; employee
safety remains a priority Non-GAAP earnings per share of $0.32
Cash conversion cycle of 81 days Benchmark 3 2020 Benchmark
Electronics, Inc. 3
New Business Wins Continue Medical Rapid COVID-19 diagnostic
device manufacturing (mfg) Pulmonary pharmaceutical device
(process design, & mfg) Optical diagnostic product for renal applications
(design) Semi-Cap Control box for Semi-Cap tools (design)
Lithography device (manufacturing) Aerospace & Defense
Secure communication radio modules (design solutions & mfg) Fighter
aircraft electronics (mfg) Industrials Lidar electronics and full system
build (mfg) Oscilloscopes (design and mfg) Computing & Telco
Hyper Scale Computing (mfg prototyping) Network control
and monitoring electronics (mfg) dnanudge DNANUDGE selects
benchmark for volume manufacturing of rapid, lab-free
covid-19 testing system Awarded to Benchmark’s engineering and
manufacturing facility in The Netherlands Partnering with DnaNudge
to provide design for excellence and high reliability manufacturing
for rapid launch in the European market ZOLL Benchmark helpED
zoll meet heightened demand for ventilator production created
by covid-19 pandemic Awarded to Benchmark’s engineering
and manufacturing facility in New Hampshire Benchmark established
production Line for the ZOLL EMV+ Ventilators and
ramped to full capacity in nearly six weeks Benchmark 4 2020 Benchmark
Electronics, Inc. 4
Roop Lakkaraju Chief Financial Officer Benchmark 5 2020 Benchmark
Electronics, Inc. 5
Revenue by Mix and Market Sector For the Three Months Ended Sept.
30, 2020 June 30, 2020 Sept. 30, 2019 Higher-Value Markets
Mix % Revenue Mix % Revenue Q/Q Mix % Revenue Y/Y
Medical 26% $134 27% $135 0% 23% $128 5% Semi-Cap 19%
$99 18% $87 14% 12% $68 45% Aerospace & Defense 20%
$105 18% $88 18% 21% $115 (9%) Industrials 16% $86 18% $87 (1%)
21% $115 (25%) Total Mix and Revenue 81% $424 81% $397
7% 77% $426 (1%) Traditional Markets Mix % Revenue Mix
% Revenue Q/Q Mix % Revenue Y/Y Computing 8% $44 9%
$44 1% 11% $59 (26%) Telecommunications 11% $58 10%
$50 16% 12% $70 (17%) Total Mix and Revenue 19% $102 19%
$94 9% 23% $129 (21%) Dollars in millions Benchmark 6 2020
Benchmark Electronics, Inc. 6
Third Quarter 2020 Financial Summary (GAAP) For the Three Months
Ended (In millions, except EPS) Sept. 30, 2020 June 30, 2020 Q/Q
Sept. 30, 2019 Y/Y Net Sales $526 $491 7% $555 (5%) GAAP Gross
Margin 8.8% 7.1% 170 bps 8.8% -- GAAP SG&A $29.7 $28.5 4%
$30.9 (4%) GAAP Operating Margin 1.6% (0.4%) 200 bps 1.8%
(20 bps) GAAP Diluted EPS $0.16 ($0.09) 278% $0.19 (16%) GAAP
ROIC 0.6% 0.7% (10 bps) 5.2% (460 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)
Benchmark 7 2020 Benchmark Electronics, Inc. 7
Third Quarter 2020 Financial Summary (Non-GAAP) For the Three
Months Ended (In millions, except EPS) Sept. 30, 2020 June 30,
2020 Q/Q Sept. 30, 2019 Y/Y Net Sales $526 $491 7% $555 (5%)
Non-GAAP Gross Margin 8.7% 7.0% 170 bps 8.8% (10 bps) Non-GAAP
SG&A $29.7 $28.5 4% $30.9 (4%) Non-GAAP Operating Margin
3.0% 1.2% 180 bps 3.2% (20 bps) Non-GAAP Diluted EPS
$0.32 $0.07 357% $0.36 (11%) Non-GAAP ROIC 5.8% 5.9% (10 bps)
8.2% (240 bps) See APPENDIX 1 for a reconciliation of GAAP
to non-GAAP Financial Results Non-GAAP ROIC = (Non-GAAP
TTM income from operations + Stock-based compensation –
Non-GAAP Tax Impact) ÷ [Average Invested Capital for
last 5 quarters] Benchmark 8 2020 Benchmark Electronics, Inc.
8
Cash Flow / Balance Sheet Summary For the Three Months Ended Cash
(In millions) Sept. 30, 2020 June 30, 2020 Sept. 30, 2019 Cash Flows
from (used in) Operations $6 $23 ($11) FCF (1) $0 $13 ($22) Cash
$335 $356 $348 International $174 $162 $180 US $161 $194 $168
(1) Free cash flow (FCF) defined as net cash provided by (used
in) operations less capex Debt Structure (In millions) Senior Secured
Term Loan $139 Revolving Credit Facility Drawn Amount $15
* Leverage ratio is Net debt/LTM adjusted EBITDA, as defined
in the credit facility, which are non-GAAP measures Flexible
and conservative capital structure CARES Act implementation;
deferral of social security tax payments until 2021/2022 Credit
facility matures July 2023
Current leverage ratio* in compliance with debt covenants Benchmark
9 2020 Benchmark Electronics, Inc. 9
Working Capital Update Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20
Accounts Receivable Days 54 56 57 56 55 52 Contract Asset
Days 23 26 29 28 28 28 Inventory Days 52 56 60 65 72 66 Deposits
3 7 7 7 10 11 Accounts Payable Days 60 52 58 61 61 54 Cash
Conversion Cycle 66 79 81 81 84 81 The updated CCC target is 78 to
83 days; excluding the legacy computing contract Continued Focused
Efforts on Demand Management Benchmark 10 2020 Benchmark
Electronics, Inc. 10
Capital Allocation Update Dividends Quarterly dividend of $0.16 per
share totaling $5.8 million paid in October 2020 Recurring quarterly
dividends to continue until further notice Share Repurchases
Remaining authorization to repurchase shares of $210 million as
of September 30, 2020 Will opportunistically consider share
repurchases going forward Benchmark 11 2020 Benchmark Electronics,
Inc. 11
Fourth Quarter 2020 Guidance Guidance Net Sales (in millions) $500
– $540 Diluted EPS – non-GAAP* $0.32 – $0.36 Q4-20 Model
Inputs Operating Margin - non-GAAP* 3.3 – 3.5% Other
Expenses, Net (in millions) $2.7 Effective Tax Rate 18 - 20%
Weighted Average Shares (in millions) ~36.5* The
above guidance excludes the impact of amortization of intangible assets
and estimated restructuring charges and other costs. 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. Benchmark 12 2020 Benchmark Electronics, Inc.
12
Jeff Benck President & Chief Executive Officer Benchmark 13 2020 Benchmark
Electronics, Inc. 13
Revenue Trends by Market Sector Sector Q4-20 Market Demand
Q4-20 Revenue Outlook Comments Medical Softer demand as COVID-19
product build out abates Non-COVID devices recovering in first
half 2021 Semi-Cap Demand outlook for Q4 remains strong Expect
demand to remain strong through next year Defense Continued strong demand
in defense (~70% of sector revenues) Security, munitions, aircraft,
and satellite demand remains strong Aerospace Significant decline
in commercial aircraft related revenues No recovery expected
in Q4 and not anticipated in 2021 Industrial Limited recovery for
oil & gas, commercial building & transportation markets Higher revenue
in Q4 from engineering services projects Computing/ Telco High
performance computing strength; enterprise demand muted Network
infrastructure demand remains strong; commercial satellites stable
Benchmark 14 2020 Benchmark Electronics, Inc. 14
Key Strategic Initiatives Remain on Track Focus on the Customer
Optimize customer experience; customer satisfaction remains high Aligning
Benchmark capabilities to customer technology roadmaps Grow Our
Business Expand and scale strategic customers in target markets
Investing in technology innovations to increase win rates
Selling the full breadth of services and capabilities Drive Enterprise
Efficiencies Optimizing footprint around customer needs and for
greater efficiency Right sizing SG&A expenses Engage Talent
and Shift Culture Continuing to invest in critical skills, tools, and talent
development Advancing Diversity and Inclusion efforts as part
of ESG focus Benchmark 15 2020 Benchmark Electronics, Inc. 15
Mid-Term Target Model (through 2022) ~5% Annual Revenue
Growth 9.3 – 9.7% Expand Non-GAAP Gross Margins < 6% Manage
SG&A Expenses 3.4 – 3.8% Increase Non-GAAP Operating Margins
Highly selective and targeted customer base for strategic account
growth Effective management of SG&A expenses Expect to
grow earnings faster than revenue Resulting improvements to ROIC
Benchmark 16 2020 Benchmark Electronics, Inc. 16
Appendix Benchmark 17 2020 Benchmark Electronics, Inc. 17
APPENDIX 1 - Reconciliation of GAAP to non-GAAP Financial
Results (Amounts in Thousands, Except Per Share Data)
– (UNAUDITED) Three Months Ended Sep 30, Jun 30, Sep 30, 2020 2020
2019 Income (loss) from operations (GAAP) $ 8,659 $ (1,872)$
9,798 Restructuring charges and other costs 1,425 5,574 5,843 Ransomware
incident related costs (recovery), net (1,558) 83 — Settlement — —
— Impairment 5,736 — — Customer insolvency (recovery)
(796) (353) — Amortization of intangible assets 2,368 2,371 2,367 Non-GAAP
income from operations $ 15,834 $ 5,803 $ 18,008 Gross Profit
(GAAP) $ 46,354 $ 34,672 $ 48,955 Settlement — — — Customer
insolvency (recovery) (796) (353) — Non-GAAP gross profit
$ 45,558 $ 34,319 $ 48,955 Net income (loss) (GAAP) $ 5,915 $
(3,407)$ 7,136 Restructuring charges and other costs 1,425 5,574
6,168 Ransomware incident related costs (recovery),
net (1,558) 83 — Customer insolvency (recovery) (796) (353) — Amortization
of intangible assets 2,368 2,371 2,367 Settlements — — (83) Impairment
5,736 — — Income tax adjustments(1) (1,458) (1,584) (1,879)
Non-GAAP net income $ 11,632 $ 2,684 $ 13,709 Diluted earnings
(loss) per share: Diluted (GAAP) $ 0.16 $ (0.09)$ 0.19 Diluted
(Non-GAAP) $ 0.32 $ 0.07 $ 0.36 Weighted-average
number of shares used in calculating diluted earnings (loss) per share:
Diluted (GAAP) 36,544 36,439 37,645 Diluted (Non-GAAP)
36,544 36,689 37,645 (1) This amount represents the tax impact
of the non-GAAP adjustments using the applicable effective
tax rates. Benchmark 18 2020 Benchmark Electronics, Inc. 18
APPENDIX 2 - Reconciliation of GAAP to Non-GAAP Financial Measures
(Amounts in Thousands) – (UNAUDITED) Three Months Ended
Sep 30, 2020 June 30, 2020 Sep 30, 2019 GAAP Gross Profit $46,354
$34,672 $48,955 Customer insolvency (recovery) (796)
(353) - Non-GAAP Gross Profit $45,558 $34,319 $48,955 Benchmark 19 2020
Benchmark Electronics, Inc. 19
APPENDIX 3 - Reconciliation of Free Cash Flow (Amounts in Thousands)
– (UNAUDITED) Three Months Ended Sep 30, 2020 June
30, 2020 Sep 30, 2019 Net Cash Provided by (Used in) Operations
$5,697 $23,027 ($11,458) Additions to property, plant
and equipment and software (5,812) (10,394) (10,447) Free
Cash Flow (Free Cash Flow Used) ($115) $12,633 ($21,905) Benchmark
20 2020 Benchmark Electronics, Inc. 20