Benchmark Electronics Earnings 2019-06-30

BHE 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

_______________

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to________________

Commission File Number: 1-10560

BENCHMARK ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

Texas	74-2211011
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
56 South Rockford Drive		85281
Tempe, Arizona		(Zip Code)
(Address of principal executive offices)

(623) 300-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.10 per share	BHE	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b–2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act). Yes ☐ No ☑

As of August 7, 2019, there were 37,627,463 shares of common stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

						June 30,		December 31,
(in thousands, except par value)						2019		2018

Assets
	Current assets:
		Cash and cash equivalents			$	396,613	$	458,102
		Accounts receivable, net of allowance for doubtful accounts of $69
			and $1,733, respectively			362,881		468,161
		Contract assets				155,546		140,082
		Inventories				316,237		309,975
		Prepaid expenses and other assets				25,730		27,024
		Income taxes receivable				803		206
				Total current assets		1,257,810		1,403,550
	Property, plant and equipment, net of accumulated depreciation of
				$464,244 and $460,708, respectively		202,665		210,954
	Operating lease right-of-use assets					83,985		—
	Goodwill					192,116		192,116
	Deferred income taxes					2,269		2,478
	Other, net					89,033		90,685
					$	1,827,878	$	1,899,783

Liabilities and Shareholders’ Equity
	Current liabilities:
		Current installments of long-term debt			$	8,744	$	6,793
		Accounts payable				372,106		422,053
		Income taxes payable				7,894		10,435
		Accrued liabilities				98,916		97,878
				Total current liabilities		487,660		537,159
	Long-term debt, less current installments					143,115		147,277
	Operating lease liabilities					73,878		—
	Other long-term liabilities					63,696		68,799
	Deferred income taxes					14,479		14,323
	Shareholders’ equity:
		Preferred stock, $5,000 shares authorized, none issued				—		—
		Common stock, $145,000 shares authorized; issued
			and outstanding – 37,679 and 41,357, respectively			3,768		4,136
		Additional paid-in capital				516,663		554,939
		Retained earnings				539,743		584,274
		Accumulated other comprehensive loss				(15,124)		(11,124)
				Total shareholders’ equity		1,045,050		1,132,225
		Commitments and contingencies
					$	1,827,878	$	1,899,783

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Loss)

(unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
(in thousands, except per share data)			2019		2018		2019		2018

Sales		$	601,602	$	660,591	$	1,204,422	$	1,268,727
Cost of sales			548,604		606,292		1,097,624		1,156,110
	Gross profit		52,998		54,299		106,798		112,617
Selling, general and administrative expenses			35,282		35,825		69,052		71,575
Amortization of intangible assets			2,361		2,367		4,728		4,733
Restructuring charges and other costs			3,414		1,758		4,990		3,993
	Income from operations		11,941		14,349		28,028		32,316
Interest expense			(1,718)		(2,293)		(3,327)		(4,721)
Interest income			1,053		1,645		2,350		3,578
Other income (expense)			808		(355)		2,412		(312)
	Income before income taxes		12,084		13,346		29,463		30,861
Income tax expense			2,637		2,403		6,243		43,559
	Net income (loss)	$	9,447	$	10,943	$	23,220	$	(12,698)

Earnings (loss) per share:
	Basic	$	0.25	$	0.23	$	0.59	$	(0.26)
	Diluted	$	0.24	$	0.23	$	0.58	$	(0.26)

Weighted-average number of shares outstanding:
	Basic		38,426		47,451		39,522		47,981
	Diluted		38,583		47,631		39,843		47,981

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
(in thousands)				2019		2018		2019		2018

Net income (loss)			$	9,447	$	10,943	$	23,220	$	(12,698)
Other comprehensive income (loss):
	Foreign currency translation adjustments			585		(2,652)		(248)		(1,320)
	Unrealized gain on investments, net of tax			—		41		—		41
	Unrealized gain (loss) on derivative, net of tax			(2,261)		244		(3,546)		1,077
	Other			(191)		—		(206)		—
Other comprehensive loss				(1,867)		(2,367)		(4,000)		(202)
		Comprehensive income (loss)	$	7,580	$	8,576	$	19,220	$	(12,900)

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

							Accumulated
		Common Stock		Additional			Other	Total
	Shares		Par	Paid-in	Retained	Comprehensive		Shareholders’
(in thousands)	Outstanding		Value	Capital	Earnings		Loss	Equity

Balances, December 31, 2018		41,357	$ 4,136	$ 554,939	$ 584,274		$ (11,124)	$ 1,132,225
Stock-based compensation expense		—	—	5,720	—		—	5,720
Shares repurchased and retired		(3,908)	(391)	(43,424)	(56,224)		—	(100,039)
Stock options exercised		33	3	690	—		—	693
Vesting of restricted stock units		242	24	(24)	—		—	—
Shares withheld for taxes		(45)	(4)	(1,238)	—		—	(1,242)
Dividends declared		—	—	—	(11,527)		—	(11,527)
Net income		—	—	—	23,220		—	23,220
Other comprehensive loss		—	—	—	—		(4,000)	(4,000)
Balances, June 30, 2019		37,679	$ 3,768	$ 516,663	$ 539,743		$ (15,124)	$ 1,045,050

Balances, March 31, 2019		39,169	$ 3,917	$ 530,261	$ 557,804		$ (13,257)	$ 1,078,725
Stock-based compensation expense		—	—	2,948	—		—	2,948
Shares repurchased and retired		(1,525)	(152)	(16,951)	(21,856)		—	(38,959)
Stock options exercised		20	2	412	—		—	414
Vesting of restricted stock units		15	1	(1)	—		—	—
Shares withheld for taxes		—	—	(6)	—		—	(6)
Dividends declared		—	—	—	(5,652)		—	(5,652)
Net income		—	—	—	9,447		—	9,447
Other comprehensive loss		—	—	—	—		(1,867)	(1,867)
Balances, June 30, 2019		37,679	$ 3,768	$ 516,663	$ 539,743		$ (15,124)	$ 1,045,050

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

							Accumulated
		Common Stock		Additional			Other	Total
	Shares		Par	Paid-in	Retained	Comprehensive		Shareholders’
(in thousands)	Outstanding		Value	Capital	Earnings		Loss	Equity

Balances, December 31, 2017		49,143	$ 4,914	$ 634,192	$ 708,181		$ (8,149)	$ 1,339,138
Stock-based compensation expense		—	—	5,405	—		—	5,405
Shares repurchased and retired		(2,174)	(217)	(34,183)	(41,468)		—	(75,868)
Stock options exercised		182	18	3,359	—		—	3,377
Vesting of restricted stock units		209	21	(21)	—		—	—
Shares withheld for taxes		(26)	(3)	(768)	—		—	(771)
Dividends declared		—	—	—	(14,236)		—	(14,236)
Net loss		—	—	—	(12,698)		—	(12,698)
Other comprehensive loss		—	—	—	—		(202)	(202)
Balances, June 30, 2018		47,334	$ 4,733	$ 607,984	$ 639,779		$ (8,351)	$ 1,244,145

Balances, March 31, 2018		47,572	$ 4,757	$ 608,092	$ 640,466		$ (5,984)	$ 1,247,331
Stock-based compensation expense		—	—	2,535	—		—	2,535
Shares repurchased and retired		(263)	(26)	(2,931)	(4,530)		—	(7,487)
Stock options exercised		14	1	297	—		—	298
Vesting of restricted stock units		11	1	(1)	—		—	—
Shares withheld for taxes		—	—	(8)	—		—	(8)
Dividends declared		—	—	—	(7,100)		—	(7,100)
Net income		—	—	—	10,943		—	10,943
Other comprehensive loss		—	—	—	—		(2,367)	(2,367)
Balances, June 30, 2018		47,334	$ 4,733	$ 607,984	$ 639,779		$ (8,351)	$ 1,244,145

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

					Six Months Ended
					June 30,
(in thousands)						2019		2018


Cash flows from operating activities:
	Net income (loss)				$	23,220	$	(12,698)
	Adjustments to reconcile net income (loss) to net cash provided by
		operating activities:
			Depreciation			18,420		19,373
			Amortization			5,705		5,710
			Provision for doubtful accounts			(1,462)		—
			Deferred income taxes			1,555		10,936
			Gain on the sale of property, plant and equipment			(25)		(116)
			Asset impairments			834		96
			Stock-based compensation expense			5,720		5,405
			Leases			574		—
	Changes in operating assets and liabilities:
			Accounts receivable			106,749		(8,980)
			Contract assets			(15,464)		(1,735)
			Inventories			(6,327)		(52,063)
			Prepaid expenses and other assets			1,559		1,966
			Accounts payable			(49,428)		23,103
			Accrued liabilities			(13,243)		(16,025)
			Income taxes			(9,615)		8,846
				Net cash provided by (used in) operations		68,772		(16,182)
Cash flows from investing activities:
	Proceeds from sales of investments at par					50		522
	Additions to property, plant and equipment					(14,163)		(36,708)
	Proceeds from the sale of property, plant and equipment					28		137
	Additions to purchased software					(1,332)		(1,655)
	Business acquisition, net of cash acquired					—		(2,731)
	Other					(29)		(129)
				Net cash used in investing activities		(15,446)		(40,564)
Cash flows from financing activities:
	Proceeds from stock options exercised					693		3,377
	Employee taxes paid for shares withheld					(1,242)		(771)
	Dividends paid					(12,079)		(7,136)
	Borrowings under credit agreement					—		50,000
	Principal payments on long-term debt					(2,441)		(59,121)
	Share repurchases					(100,039)		(65,868)
	Equity forward contract related to accelerated share repurchase					—		(10,000)
				Net cash used in financing activities		(115,108)		(89,519)
Effect of exchange rate changes						293		(642)
Net decrease in cash and cash equivalents						(61,489)		(146,907)
	Cash and cash equivalents at beginning of year					458,102		742,546
	Cash and cash equivalents at end of period				$	396,613	$	595,639

See accompanying notes to condensed consolidated financial statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share data, unless otherwise noted)

(unaudited)

Note 1 – Basis of Presentation

Benchmark Electronics, Inc. (the Company) is a Texas corporation that provides innovative product design, engineering services, technology solutions and advanced manufacturing services. From initial product concept to volume production, including direct order fulfillment and aftermarket services, the Company has been providing integrated services and solutions to original equipment manufacturers (OEMs) since 1979. The Company serves the following industries: aerospace and defense (A&D), medical technologies, complex industrials, semiconductor capital equipment (Semi-Cap), next-generation telecommunications and advanced computing. The Company has manufacturing operations located in the United States and Mexico (the Americas), Asia and Europe.

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The financial statements reflect all normal and recurring adjustments necessary in the opinion of management for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2018 (the 2018 10-K).

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Actual results could differ from those estimates and assumptions.

Note 2 – New Accounting Pronouncements

Adopted in 2019

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), amended by ASU 2018-01, Land Easement Practical Expedient for Transition to ASU 842, ASU No. 2018-10, Codification Improvements to ASU 842 and ASU No. 2018-11, Targeted Improvements. The new standard established a right-to-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The Company adopted this standard on its effective date of January 1, 2019 using the effective date as its date of initial application under the modified retrospective approach. Therefore, financial information for prior periods were not restated. Management elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, which permits the Company to carry forward its original assessment about lease identification, lease classification and initial directs costs. For all new and modified leases after adoption, management elected the short-term lease recognition exemption for all of the Company’s leases that qualify, in addition to the practical expedient to not separate lease and nonlease components.

Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and exclude lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Leases are classified as finance or operating, with classification affecting the pattern and

classification of expense recognition in the income statement. See Note 19.

Not Yet Adopted

In June 2016, the FASB issued an accounting standards update, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for annual reporting periods beginning after December 15, 2019. The Company does not expect the implementation of this update to have a material impact on its consolidated financial position, results of operations or cash flows, and will adopt this update effective January 1, 2020.

The Company has determined that other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations.

Note 3 – Revenue

The Company’s revenues are generated primarily from the sale of manufactured products built to customer specifications. The Company also generates revenue from design, development and engineering services, in addition to the sale of other inventory.

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a manufactured product to a customer. The Company’s contracts with customers are generally short-term in nature. Customers are generally billed when the product is shipped or as services are performed. Under the majority of the Company’s manuf

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$26.28	38	$1,010

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-24	Earnings, Exhibits
8-K	2019-07-22	Other Events, Exhibits
8-K	2019-07-08	Other Events, Exhibits
8-K	2019-06-13	Other Events, Exhibits
8-K	2019-05-15	Shareholder Vote
8-K	2019-04-24	Earnings, Exhibits
8-K	2019-03-15	Other Events, Exhibits
8-K	2019-02-07	Earnings, Officers, Exhibits
8-K	2019-01-07	Officers
8-K	2018-12-17	Other Events, Exhibits
8-K	2018-10-30	Earnings, Exhibits
8-K	2018-10-26	Other Events, Exhibits
8-K	2018-09-17	Other Events, Exhibits
8-K	2018-08-06	Other Events, Exhibits
8-K	2018-07-24	Earnings, Exhibits
8-K	2018-07-20	Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K	2018-07-18	Other Events
8-K	2018-06-08	Other Events, Exhibits
8-K	2018-05-18	Officers, Other Events, Exhibits
8-K	2018-05-16	Shareholder Vote
8-K	2018-04-25	Earnings, Regulation FD, Exhibits
8-K	2018-03-07	Other Events, Exhibits
8-K	2018-02-22	Enter Agreement, Officers, Exhibits
8-K	2018-02-07	Earnings, Regulation FD, Exhibits

BBL	BHP Billiton	115,170
AMRX	Amneal Pharmaceuticals	3,300
HUBG	Hub Group	1,500
CRK	Comstock Resources	642
HCKT	Hackett Group	480
LARK	Landmark Bancorp	110
SBPH	Spring Bank Pharmaceuticals	110
DGLY	Digital Ally	54
MKGI	Monaker Group	36
EGC	Energy XXI Gulf Coast	0

EX-10.2	ex102.htm
EX-31.1	ex311.htm
EX-31.2	ex312.htm
EX-32.1	ex321.htm
EX-32.2	ex322.htm

		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income (Loss)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Shareholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and	25
	Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37

SIGNATURES		38