UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 19, 2017
BENCHMARK ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Texas (State or other jurisdiction of incorporation) |
1-10560 (Commission File Number) |
74-2211011 (I.R.S. Employer Identification No.) |
4141 N. Scottsdale Road, Ste. 300, Scottsdale, Arizona 85251
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (480) 372-4365
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 (see General Instruction A.2. below):
[ ] 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))
Indicate by check mark whether the registrant is an emerging growth company as defned 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 19, 2017, we issued a press release announcing our results of operations for the quarter ended June 30, 2017 and held an earnings conference call. Copies of the press release and presentation slides used in connection with the conference call are attached as Exhibit 99.1 and Exhibit 99.2 to this report and are hereby incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit 99.1 Press release
Exhibit 99.2 Presentation slides
SIGNATURE
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. |
Dated: July 19, 2017 |
By: /s/ Donald F. Adam |
|
Donald F. Adam |
|
Chief Financial Officer |
|
|
EXHIBIT INDEX |
||
|
|
|
Exhibit Number |
|
Description |
|
|
|
99.1 |
|
Press release |
99.2 |
|
Presentation slides |
|
|
|
-1-
· Quarterly revenue of $617 million
· Quarterly operating margin of 3.6% (4.1% non-GAAP)
· Quarterly EPS of $0.34 ($0.38 non-GAAP)
· Improved cash conversion cycle to 65 days
· Operating cash flow of $15 million
SCOTTSDALE, AZ, July 19, 2017 – Benchmark Electronics, Inc. (NYSE: BHE) today announced financial results for the second quarter ended June 30, 2017.
|
|
|
Three Months Ended |
|
||||||
|
|
|
Jun 30, |
|
|
Mar 31, |
|
|
Jun 30, |
|
In millions, except EPS |
|
2017 |
|
|
2017 |
|
|
2016 |
|
|
Net sales |
|
$617 |
|
|
$567 |
|
|
$579 |
|
|
Net income |
|
$17 |
|
|
$10 |
|
|
$13 |
|
|
Net income – non-GAAP |
|
$19 |
|
|
$17 |
|
|
$17 |
|
|
Diluted EPS |
|
$0.34 |
|
|
$0.19 |
|
|
$0.26 |
|
|
Diluted EPS – non-GAAP |
|
$0.38 |
|
|
$0.34 |
|
|
$0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
3.6% |
|
|
2.2% |
|
|
3.1% |
|
|
Operating margin – non-GAAP |
|
4.1% |
|
|
3.8% |
|
|
4.2% |
|
A reconciliation of GAAP and non-GAAP results is included below.
“I am very pleased with our second quarter performance; the Company delivered on its commitments and posted strong operational results for the quarter. Revenue exceeded guidance and reflected year-on-year growth for the second consecutive quarter. Non-GAAP EPS of $0.38 exceeded the high end of our guidance by $0.03; cash cycle days ended at 65 days, well below our 70 day target; and we achieved 9.5% ROIC, a 50 bps quarter-over-quarter improvement,” said Paul Tufano, Benchmark’s President and CEO.
“We remain focused on the key initiatives to transform and reposition the Company to achieve our long-term business model objectives, namely the optimization of our global network, the implementation of our market-sector sales organization and the expansion of our engineering solutions capability,” added Tufano. “We are in the process of relocating our corporate headquarters to Arizona and anticipate that the majority of this move will be completed in the third quarter. I am also very pleased to have Mike Buseman join us as our new head of Global Operations. Under Mike’s leadership, we will look to accelerate our initiatives related to operational excellence and customer experience. Additionally, our market-sector sales focus is beginning to yield new customer growth, especially in our targeted higher-value markets, as reflected in our bookings for the quarter. We continue to emphasize engineering-led customer
1
engagements and are aggressively expanding our offerings to provide higher-value propositions to current and potential customers.”
Second Quarter 2017 Financial Highlights
· Operating margin was 3.6% (non-GAAP 4.1%).
· Cash flows from operating activities were $15 million.
· Cash conversion cycle improved 18 days from 83 at June 30, 2016 to 65 days at June 30, 2017.
· Cash was $749 million at June 30, of which $92 million was available in the U.S.
Cash Conversion Cycle
|
|
Jun 30, |
|
|
|
Mar 31, |
|
|
|
Jun 30, |
|
|
|
2017 |
|
|
|
2017 |
|
|
|
2016 |
|
Accounts receivable days |
|
57 |
|
|
|
61 |
|
|
|
66 |
|
Inventory days |
|
67 |
|
|
|
70 |
|
|
|
64 |
|
Accounts payable days |
|
(55) |
|
|
|
(60) |
|
|
|
(47) |
|
Customer deposits |
|
(4) |
|
|
|
(4) |
|
|
|
- |
|
|
|
65 |
|
|
|
67 |
|
|
|
83 |
|
Second Quarter 2017 Industry Sector Update
Revenue by industry sector (dollars in millions) was as follows.
|
|
|
Jun 30, |
|
|
|
Mar 31, |
|
|
|
Jun 30, |
|
||||||
|
Higher-Value Markets |
|
2017 |
|
|
|
2017 |
|
|
|
2016 |
|
||||||
Industrials |
$ |
124 |
|
20 |
% |
|
$ |
118 |
|
21 |
% |
|
$ |
144 |
|
25 |
% |
|
A&D |
|
100 |
|
16 |
|
|
|
104 |
|
18 |
|
|
|
86 |
|
15 |
|
|
Medical |
|
86 |
|
14 |
|
|
|
86 |
|
15 |
|
|
|
92 |
|
16 |
|
|
Test & Instrumentation |
|
89 |
|
15 |
|
|
|
77 |
|
14 |
|
|
|
60 |
|
10 |
|
|
|
|
$ |
399 |
|
65 |
% |
|
$ |
385 |
|
68 |
% |
|
$ |
382 |
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30, |
|
|
|
Mar 31, |
|
|
|
Jun 30, |
|
||||||
|
Traditional Markets |
|
2017 |
|
|
|
2017 |
|
|
|
2016 |
|
||||||
Computing |
$ |
142 |
|
23 |
% |
|
$ |
101 |
|
18 |
% |
|
$ |
110 |
|
19 |
% |
|
Telecommunications |
|
76 |
|
12 |
|
|
|
81 |
|
14 |
|
|
|
87 |
|
15 |
|
|
|
|
$ |
218 |
|
35 |
% |
|
$ |
182 |
|
32 |
% |
|
$ |
197 |
|
34 |
% |
|
Total |
$ |
617 |
|
100 |
% |
|
$ |
567 |
|
100 |
% |
|
$ |
579 |
|
100 |
% |
Overall revenue increased 6% year-over-year driven by continued strong demand in Test & Instrumentation serving the semi-capital equipment market, Computing growth from existing storage and new security customers, and Aerospace and Defense (A&D) growth from defense programs. Industrials and Medical growth remained muted year-over-year from softness across several of our top customers.
2
Second Quarter 2017 Bookings Update
· New program bookings of $129 to $155 million.
· 14 engineering awards supporting early engagement opportunities.
· 25 manufacturing wins across all market sectors.
The Company projects that new program bookings for the second quarter will result in annualized revenue of $129 to $155 million when fully launched in the next 12-18 months. The new program bookings align with Benchmark’s strategic focus on higher-value markets.
Third Quarter 2017 Outlook
· Revenue between $575 - $595 million.
· Diluted GAAP earnings per share between $0.29 - $0.33.
· Diluted non-GAAP earnings per share between $0.32 - $0.36 (excluding restructuring charges and amortization of intangibles expected to approximate $0.03 per share). The income tax impact of the non-GAAP adjustments using the applicable effective tax rates is $0.03 per share.
Second Quarter 2017 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 provides worldwide integrated electronics manufacturing services (EMS), engineering and design services, and precision machining services to original equipment manufacturers in the following industries: industrial controls, aerospace and defense, telecommunications, computers and related products for business enterprises, medical devices, and test and instrumentation. 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, VP of Strategy & Investor Relations
480-372-4304 or lisa.weeks@bench.com
Non-GAAP Financial Measures
This press release includes financial measures that exclude certain items and therefore do not follow U.S. generally accepted accounting principles (GAAP). A detailed reconciliation between the GAAP results and results excluding special items (non-GAAP) is included at the end of this press release. 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. Benchmark’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
3
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.
Forward-Looking Statements
This press release contains certain forward-looking statements within the scope of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “expect,” “estimate,” “plan,” “anticipate,” “project,” “predict,” “goals,” “targeting” and similar terms, and the negatives thereof, often identify forward-looking statements, which are not limited to historical facts. The Company’s forward-looking statements include, among other things, projections relating to the future value of bookings and third quarter 2017 revenues and diluted earnings per share. Although Benchmark believes these statements are based upon reasonable assumptions, they involve risks and uncertainties relating to operations, markets and 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.
All forward-looking statements included in this release are based upon information available to Benchmark as of the date hereof, and the Company assumes no obligation to update them. Readers are advised to consult further disclosures on related subjects, particularly in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, in its other filings with the Securities and Exchange Commission and in its press releases.
###
4
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, |
|
|
June 30, |
||
|
|
|
2017 |
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations (GAAP) |
$ |
22,227 |
$ |
12,417 |
$ |
17,740 |
|
$ |
34,644 |
$ |
34,008 |
|
Restructuring charges and other costs |
|
1,544 |
|
1,511 |
|
3,602 |
|
|
3,055 |
|
6,391 |
|
Customer insolvency (recovery) |
|
(710) |
|
5,120 |
|
- |
|
|
4,410 |
|
- |
|
Amortization of intangible assets |
|
2,481 |
|
2,481 |
|
2,972 |
|
|
4,962 |
|
5,775 |
|
Non-GAAP income from operations |
$ |
25,542 |
$ |
21,529 |
$ |
24,314 |
|
$ |
47,071 |
$ |
46,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (GAAP) |
$ |
17,176 |
$ |
9,687 |
$ |
12,685 |
|
$ |
26,863 |
$ |
23,737 |
|
Restructuring charges and other costs |
|
1,544 |
|
1,511 |
|
3,602 |
|
|
3,055 |
|
6,391 |
|
Customer insolvency (recovery) |
|
(710) |
|
5,120 |
|
- |
|
|
4,410 |
|
- |
|
Amortization of intangible assets |
|
2,481 |
|
2,481 |
|
2,972 |
|
|
4,962 |
|
5,775 |
|
Income tax adjustments(1) |
|
(1,265) |
|
(1,580) |
|
(2,087) |
|
|
(2,845) |
|
(3,729) |
|
Non-GAAP net income |
$ |
19,226 |
$ |
17,219 |
$ |
17,172 |
|
$ |
36,445 |
$ |
32,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: (GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.35 |
$ |
0.20 |
$ |
0.26 |
|
$ |
0.54 |
$ |
0.48 |
|
Diluted |
$ |
0.34 |
$ |
0.19 |
$ |
0.26 |
|
$ |
0.54 |
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: (Non-GAAP) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.39 |
$ |
0.35 |
$ |
0.35 |
|
$ |
0.73 |
$ |
0.65 |
|
Diluted |
$ |
0.38 |
$ |
0.34 |
$ |
0.35 |
|
$ |
0.73 |
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in |
|
|
|
|
|
|
|
|
|
|
||
calculating earnings per share: |
|
|
|
|
|
|
|
|
|
|
||
|
Basic |
|
49,766 |
|
49,511 |
|
49,323 |
|
|
49,640 |
|
49,586 |
|
Diluted |
|
50,239 |
|
50,080 |
|
49,667 |
|
|
50,209 |
|
50,042 |
(1) This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates.
5
Benchmark Electronics, Inc. and Subsidiaries |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Income |
||||||||||
(Amounts in Thousands, Except Per Share Data) |
||||||||||
(UNAUDITED) |
||||||||||
|
||||||||||
|
|
|
Three Months Ended |
|
|
Six Months Ended |
||||
|
|
|
June 30, |
|
|
June 30, |
||||
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
Sales |
$ |
616,904 |
$ |
579,342 |
|
$ |
1,183,405 |
$ |
1,128,567 |
|
Cost of sales |
|
558,317 |
|
526,488 |
|
|
1,075,758 |
|
1,025,396 |
|
|
Gross profit |
|
58,587 |
|
52,854 |
|
|
107,647 |
|
103,171 |
Selling, general and administrative expenses |
|
32,335 |
|
28,540 |
|
|
64,986 |
|
56,997 |
|
Amortization of intangible assets |
|
2,481 |
|
2,972 |
|
|
4,962 |
|
5,775 |
|
Restructuring charges and other costs |
|
1,544 |
|
3,602 |
|
|
3,055 |
|
6,391 |
|
|
Income from operations |
|
22,227 |
|
17,740 |
|
|
34,644 |
|
34,008 |
Interest expense |
|
(2,312) |
|
(2,299) |
|
|
(4,537) |
|
(4,633) |
|
Interest income |
|
1,213 |
|
329 |
|
|
2,287 |
|
593 |
|
Other income (expense), net |
|
(830) |
|
71 |
|
|
(911) |
|
(152) |
|
|
Income before income taxes |
|
20,298 |
|
15,841 |
|
|
31,483 |
|
29,816 |
Income tax expense |
|
3,122 |
|
3,156 |
|
|
4,620 |
|
6,079 |
|
|
Net income |
$ |
17,176 |
$ |
12,685 |
|
$ |
26,863 |
$ |
23,737 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.35 |
$ |
0.26 |
|
$ |
0.54 |
$ |
0.48 |
|
Diluted |
$ |
0.34 |
$ |
0.26 |
|
$ |
0.54 |
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in calculating |
|
|
|
|
|
|
|
|
||
earnings per share: |
|
|
|
|
|
|
|
|
||
|
Basic |
|
49,766 |
|
49,323 |
|
|
49,640 |
|
49,586 |
|
Diluted |
|
50,239 |
|
49,667 |
|
|
50,209 |
|
50,042 |
6
Benchmark Electronics, Inc. and Subsidiaries |
||||||||
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets |
||||||||
(UNAUDITED) |
||||||||
(in thousands) |
||||||||
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
|
|
|
2017 |
|
2016 |
Assets |
|
|
|
|
||||
|
Current assets: |
|
|
|
|
|||
|
|
Cash and cash equivalents |
$ |
749,311 |
$ |
681,433 |
||
|
|
Accounts receivable, net |
|
391,830 |
|
440,692 |
||
|
|
Inventories |
|
416,030 |
|
381,334 |
||
|
|
Other current assets |
|
40,473 |
|
28,203 |
||
|
|
|
|
Total current assets |
|
1,597,644 |
|
1,531,662 |
|
Property, plant and equipment, net |
|
172,080 |
|
166,148 |
|||
|
Goodwill and other, net |
|
294,716 |
|
300,858 |
|||
|
|
|
|
Total assets |
$ |
2,064,440 |
$ |
1,998,668 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
||||
|
Current liabilities: |
|
|
|
|
|||
|
|
Current installments of long-term debt and capital lease obligations |
$ |
15,333 |
$ |
12,396 |
||
|
|
Accounts payable |
|
343,241 |
|
326,249 |
||
|
|
Accrued liabilities |
|
87,548 |
|
73,736 |
||
|
|
|
|
Total current liabilities |
|
446,122 |
|
412,381 |
|
Long-term debt and capital lease obligations, less current installments |
|
202,122 |
|
211,252 |
|||
|
Other long-term liabilities |
|
10,359 |
|
9,570 |
|||
|
Shareholders’ equity |
|
1,405,837 |
|
1,365,465 |
|||
|
|
|
|
Total liabilities and shareholders’ equity |
$ |
2,064,440 |
$ |
1,998,668 |
7
Benchmark Electronics, Inc. and Subsidiaries |
||||||||
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows |
||||||||
(in thousands) |
||||||||
(UNAUDITED) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||
|
|
|
|
|
|
June 30, |
||
|
|
|
|
|
|
2017 |
|
2016 |
Cash flows from operating activities:
|
|
|
|
|
||||
|
Net income |
$ |
26,863 |
$ |
23,737 |
|||
|
Depreciation and amortization |
|
24,317 |
|
27,900 |
|||
|
Stock-based compensation expense |
|
4,505 |
|
3,981 |
|||
|
Accounts receivable, net |
|
49,394 |
|
57,044 |
|||
|
Inventories |
|
(34,218) |
|
37,034 |
|||
|
Accounts payable |
|
16,675 |
|
23,084 |
|||
|
Other changes in working capital and other |
|
4,993 |
|
(14,646) |
|||
|
|
Net cash provided by operations |
|
92,529 |
|
158,134 |
||
|
|
|
|
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
||||
|
Additions to property, plant and equipment and software |
|
(26,379) |
|
(16,203) |
|||
|
Other investing activities, net |
|
380 |
|
305 |
|||
|
|
Net cash used in investing activities |
|
(25,999) |
|
(15,898) |
||
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
||||
|
Share repurchases
|
|
(2,000) |
|
(29,315) |
|||
|
Net debt activity |
|
(6,185) |
|
(6,149) |
|||
|
Other financing activities, net |
|
7,282 |
|
409 |
|||
|
|
Net cash used in financing activities |
|
(903) |
|
(35,055) |
||
Effect of exchange rate changes
|
|
2,251 |
|
72 |
||||
Net increase in cash and cash equivalents |
|
67,878 |
|
107,253 |
||||
|
Cash and cash equivalents at beginning of year |
|
681,433 |
|
465,995 |
|||
|
Cash and cash equivalents at end of period |
$ |
749,311 |
$ |
573,248 |
8
Exhibit 99.2
design develop deliver advanced technology Q2 2017 Earnings Presentation July 19, 2017
design develop deliver advanced technology 2 Forward - Looking Statements This document contains forward - looking statements within the scope of the Securities Act of 1933 and 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. F orward - looking statements include, among other things: guidance for the third quarter of 2017 relating to sales; 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. 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. Readers are advised to consult further disclosures on related subjects, particularly in Item 1A, “Risk Factors”, of the Company’s annual report on Form 10 - K for the year ended December 31, 2016, in its other filings with the Securities and Exchange Commission and in its press releases. Non - GAAP Financial Information This document includes certain financial measures, such as operating margin, that exclude items and therefore are not in accordance with 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. 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 of net income and earnings per share 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 net cash provided by operations (GAAP) less capital expenditures.
design develop deliver advanced technology 3 CEO Update
design develop deliver advanced technology 4 Second Quarter 2017 Summary Revenue and non - GAAP operating margins exceeded the high end of guidance ▪ Revenues up 6%, second consecutive quarter of year - over - year growth ▪ Gross margins at 9.4%, a 3 0 bps year - over - year improvement ▪ Non - GAAP operating margins at 4.1% and EPS at $0.38 Exceeded working capital expectations ▪ Achieved cash conversion cycle of 65 days Quarter - over - quarter improvement of 2 days Year - over - year improvement of 18 days ▪ On track to remain below target of 70 days exiting 2017 Positive cash flow and improving ROIC ▪ Operating cash flow of $15 million in the quarter and $93 million year - to - date ▪ ROIC of 9.5%, up 50 bps quarter - over - quarter
design develop deliver advanced technology 5 2017 New Business Wins by Segment ▪ 25 manufacturing and 14 engineering project awards ▪ Estimated annual revenue run rate between $129 – 155 million ▪ Continued new business wins in target markets Estimated Annual Revenue from New Business Wins New Business Wins Q2 New Business Wins Highlights : $120 $125 $125 $118 $123 $128 $134 $142 $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 $ (USD M)
design develop deliver advanced technology 6 2017 Transition Year: Update on Priorities Optimization of our n etwork for elevated e xecution ▪ C orporate headquarters relocation to Arizona substantially completed in Q3 ▪ New EVP of Operations, Mike Buseman , begins in August ▪ Continued focus on network optimization and asset velocity Implementation of market - sector sales organization ▪ Sales organization build - out nearly complete ▪ Increasing number of new customer acquisitions aligned to target markets ▪ Engineering solutions driving higher - value engagements Expansion of engineering solutions and capabilities ▪ Initial staffing of the new Arizona RF and IoT design centers ▪ Expanding our offerings to provide higher - value propositions to current and potential customers
design develop deliver advanced technology 7 Current Progress Milestones $29* * Waypoint represent LTM target
design develop deliver advanced technology 8 Q2 2017 Financial Highlights
design develop deliver advanced technology 9 (In millions, except EPS) Jun 30 , 2017 Mar 31 , 2017 Q/Q Jun 30 , 2016 Y/Y Net Sales $617 $567 9% $579 6% Non - GAAP Operating Margin 4.1% 3.8% 30 bps 4.2% (10 bps) Non - GAAP Diluted EPS $0.38 $0.34 12% $0.35 9% GAAP Operating Margin 3.6% 2.2% 140 bps 3.1% 50 bps GAAP Diluted EPS $0.34 $0.19 79% $0.26 31% ROIC 9.5% 9.0% 50 bps 9.1% 40 bps For the Three Months Ended Our Guidance for the Second Quarter : ▪ Revenue (in millions) $565 – $585 ▪ Diluted EPS – non - GAAP $0.31 – $0.35 Second Quarter 2017 Financial Summary See APPENDIX 1 for a reconciliation of GAAP to non - GAAP Financial Results
design develop deliver advanced technology 10 Higher - Value Markets Jun 30 , 2017 Mar 31 , 2017 Q/Q Industrials 20% $124 21% $118 5% Aerospace & Defense 16% $100 18% $104 (4%) Medical 14% $86 15% $86 -- Test & Instrument. 15% $89 14% $77 16% Total Revenue $399 $385 4% Traditional Markets Jun 30 , 2017 Mar 31 , 2017 Q/Q Computing 23% $142 18% $101 40% Telecommunication s 12% $76 14% $81 (6%) Total Revenue $218 $182 20% Revenue by Market Sector For the Three Months Ended Industrials, Test & Instrumentation, and Computing u p in Q2 - 17 (1) (1) (1) In millions (1) (1) Jun 30 , 2016 Y/Y 25% $144 (14%) 15% $86 16% 16% $92 (6%) 10% $60 47% $382 4% Jun 30 , 2016 Y/Y 19% $110 29% 15% $87 (12%) $197 11% (1) (1)
design develop deliver advanced technology 11 24.3 24.7 29.1 21.5 25.5 4.2% 4.3% 4.8% 3.8% 4.1% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 579 574 608 567 617 9.1% 9.2% 9.5% 9.3% 9.4% 1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 0 200 400 600 800 1,000 1,200 1,400 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 9.1% 8.6% 8.4% 9.0% 9.5% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 968 974 986 938 906 Revenue & Gross Margin ($ M ) Key Business Trends Return on Invested Capital (LTM) ROIC = [(Non - GAAP income from operations plus stock compensation )*( 1 - Tax Rate )] ÷ [ Average Invested Capital less Average Cash for last 5 quarters] Non - GAAP Operating Margin ($M) 28.5 28.1 28.4 31.0 32.3 4.9% 4.9% 4.7% 5.5% 5.2% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 SG&A ($M) (1) Excludes the impact of customer insolvency. (1) (1) (1) (1) (1) (1) (1) (1) 8 8 84 82 84 86
design develop deliver advanced technology 12 (In millions) Jun 30 , 2017 Mar 31 , 2017 Jun 30, 2016 Cash Flow from Operations $15 $78 $81 FCF ($4) $70 $73 Cash $749 $752 $573 International $657 $659 $535 US $92 $93 $38 Inventory $416 $404 $375 Accounts Receivable $392 $381 $422 Accounts Payable $343 $344 $273 Cash Flow / Working Capital Highlights For the Three Months Ended (1) Free cash flow (FCF) defined as net cash provided by operations (GAAP) less capex 1 Generated $15 million of Cash from Operations in Q2 2017
design develop deliver advanced technology 13 Working Capital Update Improved cash conversion cycle by 2 days 99 83 80 74 67 65 0 20 40 60 80 100 120 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Accounts Receivable Days Accounts Payable Days Inventory Days Deposits Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Accounts Receivable Days 68 66 65 65 61 57 Accounts Payable Days 39 47 53 53 60 55 Inventory Days 70 64 68 62 70 67 Deposits - - - - 4 4 Cash Conversion Cycle 99 83 80 74 67 65
design develop deliver advanced technology 14 Guidance Net Sales (in millions) $575 – $595 Operating Margin – non - GAAP* 3.7% – 4.0% Diluted EPS – non - GAAP* $0.32 – $0.36 * The above guidance excludes the impact of amortization of intangible assets and estimated restructuring charges Third Quarter 2017 Guidance
design develop deliver advanced technology 15 Higher - Value Markets Q3 - 17 Outlook (%) Industrials Aerospace & Defense Up Low - Singles Up Mid - Singles Medical Up ~10% Test & Instrumentation Down ~10% Traditional Markets Q3 - 17 Outlook (%) Computing Down > 20% Telecommunication s Down >10% Modeling Information Expected sequential growth in Higher - Value m arkets (1) Q3 - 17 Guidance Interest Expense (in millions) $2.3 Effective Tax Rate 19% - 20% Weighted Average Shares (m) 50.5
design develop deliver advanced technology 16 Appendix
design develop deliver advanced technology 17 APPENDIX 1 - Reconciliation of GAAP to non - GAAP Financial Results (Amounts in Thousands, Except Per Share Data) – (UNAUDITED) Jun 30, Mar 31, Jun 30, 2017 2017 2016 2017 2016 22,227$ 12,417$ 17,740$ 34,644$ 34,008$ 1,544 1,511 3,602 3,055 6,391 (710) 5,120 - 4,410 - 2,481 2,481 2,972 4,962 5,775 25,542$ 21,529$ 24,314$ 47,071$ 46,174$ 17,176$ 9,687$ 12,685$ 26,863$ 23,737$ 1,544 1,511 3,602 3,055 6,391 (710) 5,120 - 4,410 - 2,481 2,481 2,972 4,962 5,775 (1,265) (1,580) (2,087) (2,845) (3,729) 19,226$ 17,219$ 17,172$ 36,445$ 32,174$ Basic 0.35$ 0.20$ 0.26$ 0.54$ 0.48$ Diluted 0.34$ 0.19$ 0.26$ 0.54$ 0.47$ Basic 0.39$ 0.35$ 0.35$ 0.73$ 0.65$ Diluted 0.38$ 0.34$ 0.35$ 0.73$ 0.64$ (1) This amount represents the tax impact of the non-GAAP adjustments using the applicable effective tax rates. Income from operations (GAAP) Net income (GAAP) Six Months EndedThree Months Ended June 30, Restructuring charges and other costs Amortization of intangible assets Customer insolvency (recovery) Non-GAAP income from operations Non-GAAP net income Earnings per share: (GAAP) Earnings per share: (Non-GAAP) Restructuring charges and other costs Income tax adjustments (1) Amortization of intangible assets Customer insolvency (recovery)
design develop deliver advanced technology 18 APPENDIX 2 - Reconciliation of GAAP to non - GAAP Financial Measures (Amounts in Thousands, Except Per Share Data) – (UNAUDITED) Jun 30, 2017 June 30, 2016 GAAP gross profit 58,587 $ 52,854 $ Customer i nsolvency ( r ecovery) (710) - Non - GAAP gross profit 57,877 $ 52,854 $ Three Months Ended
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