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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 March 31, 2024

or

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

 

85288

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

The New York Stock Exchange

 

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 Exchange Act).

Yes ☐ No

As of May 1, 2024, there were 36,045,777 shares of common stock of Benchmark Electronics, Inc., par value $0.10 per share, outstanding.


 

TABLE OF CONTENTS

 

 

Page

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Income

2

 

Condensed Consolidated Statements of Comprehensive Income

3

 

Condensed Consolidated Statements of Shareholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to the Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 5.

Other Information

 

Item 6.

Exhibits

33

 

 

 

 

SIGNATURES

34

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

(in thousands, except par value)

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

296,055

 

 

$

277,391

 

Restricted cash

 

 

 

 

 

5,822

 

Accounts receivable, net of allowance for doubtful accounts of
   $
390 and $470, respectively

 

 

417,396

 

 

 

449,404

 

Contract assets

 

 

180,814

 

 

 

174,979

 

Inventories

 

 

637,675

 

 

 

683,801

 

Prepaid expenses and other current assets

 

 

46,673

 

 

 

44,350

 

Total current assets

 

 

1,578,613

 

 

 

1,635,747

 

Property, plant and equipment, net

 

 

223,992

 

 

 

227,698

 

Operating lease right-of-use assets

 

 

128,395

 

 

 

130,830

 

Goodwill

 

 

192,116

 

 

 

192,116

 

Deferred income taxes

 

 

27,873

 

 

 

26,943

 

Other long-term assets

 

 

61,821

 

 

 

61,421

 

Total assets

 

$

2,212,810

 

 

$

2,274,755

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current installments of long-term debt

 

$

5,105

 

 

$

4,283

 

Accounts payable

 

 

348,374

 

 

 

367,480

 

Advance payments from customers

 

 

189,153

 

 

 

204,883

 

Income taxes payable

 

 

24,400

 

 

 

22,225

 

Accrued liabilities

 

 

100,787

 

 

 

114,676

 

Total current liabilities

 

 

667,819

 

 

 

713,547

 

Long-term debt, net of current installments

 

 

310,117

 

 

 

326,674

 

Operating lease liabilities

 

 

119,958

 

 

 

123,385

 

Other long-term liabilities

 

 

29,749

 

 

 

32,064

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.10 par value; 5,000 shares authorized,
   
none issued

 

 

 

 

 

 

Common stock, $0.10 par value; 145,000 shares authorized;
   issued and outstanding –
36,014 and 35,664, respectively

 

 

3,601

 

 

 

3,566

 

Additional paid-in capital

 

 

525,596

 

 

 

528,842

 

Retained earnings

 

 

568,590

 

 

 

560,537

 

Accumulated other comprehensive loss

 

 

(12,620

)

 

 

(13,860

)

Total shareholders’ equity

 

 

1,085,167

 

 

 

1,079,085

 

Total liabilities and shareholders’ equity

 

$

2,212,810

 

 

$

2,274,755

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

1


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(unaudited)

 

 

 

Three Months Ended
March 31,

 

(in thousands, except per share data)

 

2024

 

 

2023

 

Sales

 

$

675,575

 

 

$

694,695

 

Cost of sales

 

 

608,167

 

 

 

630,737

 

Gross profit

 

 

67,408

 

 

 

63,958

 

Selling, general and administrative expenses

 

 

37,332

 

 

 

38,198

 

Amortization of intangible assets

 

 

1,204

 

 

 

1,592

 

Restructuring charges and other costs

 

 

3,343

 

 

 

1,426

 

Income from operations

 

 

25,529

 

 

 

22,742

 

Interest expense

 

 

(7,245

)

 

 

(6,450

)

Interest income

 

 

1,992

 

 

 

1,258

 

Other expense, net

 

 

(1,177

)

 

 

(2,165

)

Income before income taxes

 

 

19,099

 

 

 

15,385

 

Income tax expense

 

 

5,097

 

 

 

3,025

 

Net income

 

$

14,002

 

 

$

12,360

 

Earnings per share:

 

 

 

 

 

 

Basic

 

$

0.39

 

 

$

0.35

 

Diluted

 

$

0.38

 

 

$

0.35

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

Basic

 

 

35,810

 

 

 

35,336

 

Diluted

 

 

36,401

 

 

 

35,592

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

2


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Net income

 

$

14,002

 

 

$

12,360

 

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1,537

)

 

 

1,050

 

Unrealized gain on derivatives, net of tax

 

 

2,734

 

 

 

1,148

 

Other

 

 

43

 

 

 

226

 

Total other comprehensive income

 

 

1,240

 

 

 

2,424

 

Comprehensive income

 

$

15,242

 

 

$

14,784

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

3


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

 

(in thousands)

 

Shares

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Shareholders'
Equity

 

Balances, December 31, 2023

 

 

35,664

 

 

$

3,566

 

 

$

528,842

 

 

$

560,537

 

 

$

(13,860

)

 

$

1,079,085

 

Net income

 

 

 

 

 

 

 

 

 

 

 

14,002

 

 

 

 

 

 

14,002

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,240

 

 

 

1,240

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(5,949

)

 

 

 

 

 

(5,949

)

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

2,176

 

 

 

 

 

 

 

 

 

2,176

 

Stock options exercised

 

 

18

 

 

 

2

 

 

 

369

 

 

 

 

 

 

 

 

 

371

 

Vesting of restricted stock
   units

 

 

527

 

 

 

53

 

 

 

(53

)

 

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

 

(195

)

 

 

(20

)

 

 

(5,738

)

 

 

 

 

 

 

 

 

(5,758

)

Balances, March 31, 2024

 

 

36,014

 

 

$

3,601

 

 

$

525,596

 

 

$

568,590

 

 

$

(12,620

)

 

$

1,085,167

 

 

(in thousands)

 

Shares

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Shareholders’
Equity

 

Balances, December 31, 2022

 

 

35,164

 

 

$

3,516

 

 

$

519,238

 

 

$

519,895

 

 

$

(16,233

)

 

$

1,026,416

 

Net income

 

 

 

 

 

 

 

 

 

 

 

12,360

 

 

 

 

 

 

12,360

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,424

 

 

 

2,424

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

(5,878

)

 

 

 

 

 

(5,878

)

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

4,790

 

 

 

 

 

 

 

 

 

4,790

 

Stock options exercised

 

 

5

 

 

 

1

 

 

 

67

 

 

 

 

 

 

 

 

 

68

 

Vesting of restricted stock
   units

 

 

651

 

 

 

65

 

 

 

(65

)

 

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

 

(231

)

 

 

(23

)

 

 

(5,531

)

 

 

 

 

 

 

 

 

(5,554

)

Balances, March 31, 2023

 

 

35,589

 

 

$

3,559

 

 

$

518,499

 

 

$

526,377

 

 

$

(13,809

)

 

$

1,034,626

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

4


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

14,002

 

 

$

12,360

 

Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation

 

 

9,054

 

 

 

8,320

 

Amortization

 

 

2,540

 

 

 

2,780

 

Stock-based compensation expense

 

 

2,176

 

 

 

4,790

 

Provision for doubtful accounts

 

 

390

 

 

 

 

Deferred income taxes

 

 

(1,847

)

 

 

(1,010

)

Loss on the sale of property, plant and equipment

 

 

15

 

 

 

11

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

30,960

 

 

 

30,398

 

Contract assets

 

 

(5,835

)

 

 

(10,521

)

Inventories

 

 

45,222

 

 

 

(49,864

)

Prepaid expenses and other assets

 

 

(2,957

)

 

 

(3,712

)

Accounts payable

 

 

(20,259

)

 

 

15,375

 

Advance payments from customers

 

 

(15,730

)

 

 

(12,129

)

Accrued liabilities

 

 

(11,833

)

 

 

(21,348

)

Operating leases

 

 

121

 

 

 

9

 

Income taxes

 

 

2,438

 

 

 

(365

)

Net cash provided by (used in) operating activities

 

 

48,457

 

 

 

(24,906

)

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(5,183

)

 

 

(35,926

)

Additions to capitalized purchased software

 

 

(720

)

 

 

(2,805

)

Proceeds from the sale of property, plant and equipment

 

 

 

 

 

19

 

Other, net

 

 

(251

)

 

 

 

Net cash used in investing activities

 

 

(6,154

)

 

 

(38,712

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under credit agreement

 

 

175,000

 

 

 

230,000

 

Principal payments on credit agreement

 

 

(190,820

)

 

 

(151,641

)

Dividends paid

 

 

(5,889

)

 

 

(5,806

)

Employee taxes paid with shares withheld

 

 

(5,758

)

 

 

(5,554

)

Proceeds from stock options exercised

 

 

371

 

 

 

68

 

Principal payments on finance leases

 

 

(45

)

 

 

(43

)

Net cash (used in) provided by financing activities

 

 

(27,141

)

 

 

67,024

 

Effect of exchange rate changes on cash, cash equivalents
   and restricted cash

 

 

(2,320

)

 

 

854

 

Net increase in cash, cash equivalents and restricted cash

 

 

12,842

 

 

 

4,260

 

Cash, cash equivalents and restricted cash at the beginning of the year

 

 

283,213

 

 

 

207,430

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

296,055

 

 

$

211,690

 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

5


 

BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES

Notes to the 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 advanced manufacturing services, which include design and engineering services and technology solutions. 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 market sectors: complex industrials, aerospace and defense (A&D), medical technologies, semiconductor capital equipment (semi-cap), advanced computing and next-generation communications. 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) relating to interim financial statements. The condensed consolidated 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. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023 (the 2023 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 unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial statements. However, actual results could differ materially from these estimates.

 

Note 2 – New Accounting Pronouncements

 

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the guidance and its impact to the financial statements.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires public entities disclose information about their reportable segments' oversight and significant expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the guidance and its impact to the financial statements.

 

The Company does not believe that any other recently issued accounting standards will have a material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations.
 

Note 3 – Inventories

Inventory costs are summarized as follows:

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

Raw materials

 

$

614,382

 

 

$

659,210

 

Work in process

 

 

20,735

 

 

 

22,088

 

Finished goods

 

 

2,558

 

 

 

2,503

 

Total inventories

 

$

637,675

 

 

$

683,801

 

 

 

6


 

 

Note 4 – Goodwill and Other Intangible Assets

Goodwill allocated to the Company’s reportable operating segments follows:

 

(in thousands)

 

Americas

 

 

Asia

 

 

Total

 

Goodwill as of March 31, 2024 and December 31, 2023

 

$

154,014

 

 

$

38,102

 

 

$

192,116

 

 

A summary of the Company’s acquired identifiable intangible assets and capitalized purchased software costs follows:

 

(in thousands)

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

Customer relationships

 

$

100,081

 

 

$

(73,121

)

 

$

26,960

 

Capitalized purchased software costs

 

 

46,097

 

 

 

(30,842

)

 

 

15,255

 

Technology licenses

 

 

15,500

 

 

 

(15,500

)

 

 

 

Trade names and trademarks

 

 

7,800

 

 

 

 

 

 

7,800

 

Other

 

 

868

 

 

 

(410

)

 

 

458

 

Total intangible assets as of March 31, 2024

 

$

170,346

 

 

$

(119,873

)

 

$

50,473

 

 

(in thousands)

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

Customer relationships

 

$

100,105

 

 

$

(71,947

)

 

$

28,158

 

Capitalized purchased software costs

 

 

45,062

 

 

 

(30,463

)

 

 

14,599

 

Technology licenses

 

 

15,500

 

 

 

(15,500

)

 

 

 

Trade names and trademarks

 

 

7,800

 

 

 

 

 

 

7,800

 

Other

 

 

869

 

 

 

(404

)

 

 

465

 

Total intangible assets as of December 31, 2023

 

$

169,336

 

 

$

(118,314

)

 

$

51,022

 

 

A summary of the components of amortization expense, as presented in the consolidated statements of cash flows, follows:

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Amortization of intangible assets

 

$

1,204

 

 

$

1,592

 

Amortization of capitalized purchased software costs

 

 

1,207

 

 

 

1,074

 

Amortization of debt costs

 

 

129

 

 

 

114

 

Total amortization expense

 

$

2,540

 

 

$

2,780

 

 

A summary of the future amortization expense related to the Companys intangible assets held as of March 31, 2024 for each of the next five years follows:

 

Year ending December 31,

 

Amortization
Expense

 

Remaining nine months of 2024

 

$

3,613

 

2025

 

 

4,817

 

2026

 

 

4,817

 

2027

 

 

4,817

 

2028

 

 

4,817

 

2029

 

 

4,216

 

 

7


 

Note 5 – Borrowing Facilities

Long-term debt consists of the following:

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

Revolving credit facility

 

$

190,000

 

 

$

205,000

 

Term loan

 

 

126,328

 

 

 

127,148

 

Less: Unamortized debt issuance costs

 

 

(1,417

)

 

 

(1,546

)

Total long-term debt, including current installments

 

$

314,911

 

 

$

330,602

 

 

On July 20, 2018, the Company entered into a $650 million credit agreement (the Prior Credit Agreement) by and among the Company, certain of its subsidiaries, the lenders party thereto and Bank of America, N.A., as Administrative Agent, Swingline Lender and an L/C Issuer. The Prior Credit Agreement was comprised of a five-year $500 million revolving credit facility and a five-year $151 million term loan facility, both of which had a maturity date of July 20, 2023. The term loan facility proceeds were used to (i) refinance a portion of existing indebtedness and terminate all commitments under the Company’s prior $430 million credit agreement and (ii) pay the fees, costs and expenses associated with the foregoing and the negotiation, execution and delivery of the Prior Credit Agreement.

On December 21, 2021, the Company amended and restated the Prior Credit Agreement by entering into a $381 million amended and restated credit agreement (the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement is comprised of a five-year $250 million revolving credit facility (the Revolving Credit Facility) and a five-year $131.3 million term loan facility (the Term Loan Facility), and the maturity date of the original revolving credit facility and term loan facility was extended from July 20, 2023 to December 21, 2026.

On May 20, 2022, the Company entered into Amendment No. 1 (the Amendment) to the Amended and Restated Credit Agreement (as amended, the Credit Agreement). The Amendment increased the Revolving Credit Facility commitments from $250 million to $450 million. The Amendment also established that the interest on outstanding borrowings starting on the next reset date and any new borrowings under the Amendment (other than swingline loans) will accrue, at the Company’s option, at (a) the Bloomberg Short Term Bank Yield Index (BSBY) plus the Applicable Rate (as defined in the Credit Agreement, approximately 1.00% to 2.00% per annum depending on various factors) or (b) for U.S. dollar denominated loans, the base rate (which is the highest of (i) the federal funds rate plus 0.50%, (ii) the Bank of America, N.A. prime rate, (iii) the one month BSBY adjusted daily rate plus 1.00% and (iv) 1.00%).

On February 3, 2023, the Company entered into Amendment No. 2 to the Credit Agreement, which increased the maximum amount of trade accounts receivable that the Company may elect to sell at any one time to $200.0 million.

On May 1, 2023, the Company entered into Amendment No. 3 to the Credit Agreement (Amendment No. 3), which increased the Revolving Credit Facility commitments from $450 million to $550 million. Amendment No. 3 also established that the interest on outstanding borrowings starting on the next reset date and any new borrowings under Amendment No. 3 (other than swingline loans) will accrue, at the Company’s option, at (a) the Term Secured Overnight Financing Rate (SOFR) plus 0.10% plus the Applicable Rate (as defined in the Credit Agreement, approximately 1.00% to 2.00% per annum depending on various factors) or (b) for U.S. dollar denominated loans, the base rate (which is the highest of (i) the federal funds rate plus 0.50%, (ii) the Bank of America, N.A. prime rate, (iii) Term SOFR plus 1.00% and (iv) 1.00%).

The Revolving Credit Facility is available for general corporate purposes. The Credit Agreement includes an accordion feature pursuant to which the Company is permitted to add one or more incremental term loans and/or increase commitments under the Revolving Credit Facility in an aggregate amount of $100 million or a higher amount, subject to the satisfaction of certain conditions and exceptions.

The Term Loan Facility is subject to quarterly principal installments equal to 0.625% of the initial aggregate term loan advances to be paid. On December 31, 2024, the quarterly principal installments on the Term Loan Facility increased to 1.25% of the initial aggregate term loan advances to be paid.

As of March 31, 2024, a portion of the $126.3 million outstanding debt under the Credit Agreement is effectively at a fixed interest rate of 4.039% as a result of a $126.3 million notional interest rate swap contract, which is discussed in Note 14. A commitment fee of 0.20% to 0.30% per annum (based on the debt to EBITDA ratio) on the unused portion of the Revolving Credit Facility is payable quarterly in arrears.

8


 

The Credit Agreement is generally secured by a pledge of (a) all the capital stock of the Company’s domestic subsidiaries and 65% of the capital stock of its directly owned foreign subsidiaries, (b) all or substantially all other personal property of the Company and its domestic subsidiaries (including, but not limited to, accounts receivable, contract assets, inventory, intellectual property and fixed assets of the Company and its domestic subsidiaries), in each case, subject to customary exceptions and limitations, and (c) all proceeds and products of the property and assets described in (a) and (b) above.

The Credit Agreement contains certain financial covenants related to interest coverage and debt leverage, and certain customary affirmative and negative covenants, including restrictions on the Company’s ability to incur additional debt and liens, pay dividends, repurchase shares, sell assets and merge or consolidate with other persons. Amounts due under the Credit Agreement could be accelerated upon specified events of default, including a failure to pay amounts due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject, in some cases, to cure periods.

As of March 31, 2024, the Company had $126.3 million in borrowings outstanding under the Term Loan Facility, $190.0 million in borrowings outstanding under the Revolving Credit Facility, and $4.4 million in letters of credit outstanding under the Revolving Credit Facility. As of March 31, 2024, the Company had $355.6 million available for future borrowings under the Revolving Credit Facility subject to compliance with financial covenants as to interest coverage and debt leverage, in addition to other debt covenant restrictions.

 

Note 6 – Leases

The Company determines if a contract is or contains a lease at inception. The Company leases certain facilities, vehicles and other equipment. The Company’s leases primarily consist of operating leases which expire at various dates through 2036. Variable lease payments are generally expensed as incurred and primarily include certain index-based changes in rent and certain non-lease components, such as maintenance and other services provided by the lessor.

The components of lease expense were as follows:

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Finance lease costs:

 

 

 

 

 

 

Amortization of right-of-use assets (included in depreciation expense)

 

$

 

 

$

24

 

Interest on lease liabilities

 

 

4

 

 

 

6

 

Operating lease costs

 

 

5,510

 

 

 

4,571

 

Short-term lease costs

 

 

226

 

 

 

140

 

Variable lease costs

 

 

473

 

 

 

456

 

Total lease costs

 

$

6,213

 

 

$

5,197

 

 

A summary of cash flow information related to leases follows:

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows used for operating leases

 

$

5,199

 

 

$

4,435

 

Operating cash flows used for finance leases

 

 

4

 

 

 

6

 

Financing cash flows used for finance leases

 

 

45

 

 

 

43

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

2,059

 

 

 

5,406

 

 

9


 

A summary of other information about the Company's leases follows:

 

 

 

March 31,

 

 

December 31,

 

(dollars in thousands)

 

2024

 

 

2023

 

Operating lease right-of-use assets

 

$

128,395

 

 

$

130,830

 

Finance lease liabilities, current (included in current installments of long-term debt)

 

$

184

 

 

$

181

 

Finance lease liabilities, noncurrent (included in long-term debt)

 

$

127

 

 

$

174

 

Operating lease liabilities, current (included in accrued liabilities)

 

$

16,598

 

 

$

15,486

 

Operating lease liabilities, noncurrent

 

$

119,958

 

 

$

123,385

 

Weighted average remaining lease term – finance leases

 

1.7 years

 

 

1.9 years

 

Weighted average remaining lease term – operating leases

 

9.4 years

 

 

9.7 years

 

Weighted average discount rate – finance leases

 

 

4.8

%

 

 

4.8

%

Weighted average discount rate – operating leases

 

 

4.6

%

 

 

4.5

%

A summary of the Company's future annual minimum lease payments as of March 31, 2024 follows (in thousands):

 

Year ending December 31,

 

Operating
Leases

 

 

Finance
Leases

 

Remaining nine months of 2024

 

$

16,491

 

 

$

145

 

2025

 

 

21,139

 

 

 

178

 

2026

 

 

16,982

 

 

 

 

2027

 

 

15,698

 

 

 

 

2028

 

 

14,932

 

 

 

 

2029 and thereafter

 

 

84,152

 

 

 

 

Total minimum lease payments

 

 

169,394

 

 

 

323

 

Less: imputed interest

 

 

(32,838

)

 

 

(12

)

Total present value of lease liabilities

 

$

136,556

 

 

$

311

 

 

Note 7 – Common Stock and Stock-Based Awards

Dividends

On March 11, 2024, the Company declared a quarterly cash dividend of $0.165 per share of the Company’s common stock to shareholders of record as of March 29, 2024. The dividend of $5.9 million was paid on April 12, 2024.

The Board of Directors currently intends to continue paying quarterly dividends. However, the Company’s future dividend policy is subject to the Company’s compliance with applicable laws, and depends on, among other things, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in the Company’s debt agreements, and other factors that the Board of Directors may deem relevant. Dividend payments are not mandatory or guaranteed and no assurance is made that the Company will continue to pay a dividend in the future.

Share Repurchase Authorization

On March 6, 2018, the Board of Directors approved an expanded share repurchase authorization granting the Company authority to repurchase up to $250 million in common stock in addition to the $100 million previously approved on December 7, 2015. On October 26, 2018 and February 19, 2020, the Board of Directors authorized the repurchase of an additional $100 million and $150 million of the Company’s common stock, respectively.

Share purchases may be made in the open market, in privately negotiated transactions or block transactions, at the discretion of the Company’s management and as market conditions warrant. Purchases will be funded from available cash and may be commenced, suspended or discontinued at any time without prior notice. Shares repurchased under the program are retired.

The Company did not repurchase shares during the three months ended March 31, 2024. As of March 31, 2024, the Company had $154.6 million remaining under share repurchase authorizations.

10


 

Stock-Based Compensation

Under the 2019 Omnibus Incentive Compensation Plan (as amended, the 2019 Plan), the Company, upon approval of the Compensation Committee of the Board of Directors, may grant stock options, restricted shares, restricted stock units (both time-based and performance-based) and certain other forms of equity awards, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options (which have not been awarded since 2015) are granted to employees with an exercise price equal to the market price of the Company’s common stock on the date of grant, generally vest over a four-year period from the date of grant and typically have a term of 10 years. Time-based restricted stock units granted to employees generally vest over a three-year or four-year period from the date of grant and are subject to continued employment with the Company. Performance-based restricted stock units generally vest over a three-year performance cycle, which includes the year of the grant, and are based upon the Company’s achievement of specified performance metrics. Awards under the 2019 Plan to non-employee directors have historically been in the form of restricted stock units, which vest annually, starting on the grant date. As of March 31, 2024, the Company had 1.8 million common shares available for issuance under the 2019 Plan.

All share-based payments to employees of the Company, including grants of employee stock options (last awarded in 2015), are recognized in the consolidated financial statements based on their grant date fair values. The total compensation costs recognized for stock-based awards were $2.2 million and $4.8 million for the three months ended March 31, 2024 and 2023, respectively. The future tax benefit of these stock-based awards as of the grant date was $0.5 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively. The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The fair values of restricted stock units and performance-based restricted stock units are determined based on the closing market price of the Company’s common stock on the date of grant. For performance-based restricted stock units, compensation cost is calculated taking into consideration the probability that the underlying performance goals will be achieved, which is monitored by management throughout the requisite service period. When it becomes probable, based on management’s expectation of the Company’s performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to compensation cost is recognized as a change in accounting estimate in the period the change is determined.

As of March 31, 2024, the unrecognized compensation costs and remaining weighted-average amortization periods related to stock-based awards were as follows:

 

(in thousands)

 

Time-
Based Restricted
Stock Units

 

 

Performance-
Based Restricted
Stock Units

 

Unrecognized compensation cost

 

$

31,953

 

 

$

7,395

 

Remaining weighted-average amortization period

 

2.6 years

 

 

2.5 years

 

 

(1) Based on the probable achievement of the performance goals identified in each award.

The total cash received by the Company as a result of stock option exercises for the three months ended March 31, 2024 and 2023 was $0.4 million and $0.1 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards for the three months ended March 31, 2024 and 2023 were $2.6 million and $2.2 million, respectively. For the three months ended March 31, 2024 and 2023, the total intrinsic value of stock options exercised were less than $0.1 million and $0.1 million, respectively.

For performance-based restricted stock units granted during the three months ended March 31, 2024 and 2023, the number of performance-based restricted stock units that will ultimately be earned will not be determined until the end of the respective performance periods, and may vary from as low as zero to as high as 2.5 times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the financial results of the Company for the last full calendar year within the performance period. The performance goals consist of certain levels of achievement using the following financial metrics: revenue, operating income margin, and return on invested capital. If the performance goals are not met based on the Company’s financial results, the applicable performance-based restricted stock units will not vest and will be forfeited. Shares subject to forfeited performance-based restricted stock units will be available for re-issuance under the Company’s 2019 Plan.

11


 

The following table summarizes activities relating to the Company’s stock options:

 

(in thousands, except per share data and years)

 

Number of
Options

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term (Years)

 

 

Aggregate
Intrinsic
Value

 

Outstanding as of December 31, 2023

 

 

37

 

 

$

23.07

 

 

 

 

 

 

 

Exercised

 

 

(26

)

 

 

23.05

 

 

 

 

 

 

 

Forfeited or expired

 

 

(2

)

 

 

22.99

 

 

 

 

 

 

 

Outstanding and exercisable as of March 31, 2024

 

 

9

 

 

 

23.14

 

 

 

0.9

 

 

$

64

 

 

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company’s closing stock price as of the last business day of the period ended March 31, 2024 for options that had exercise prices that were below the closing price.

The following table summarizes the activities related to the Company’s time-based restricted stock units:

 

(in thousands, except per share data)

 

Number of
Units

 

 

Weighted-
Average
Grant Date
Fair Value

 

Non-vested awards outstanding as of December 31, 2023

 

 

1,246

 

 

$

25.43

 

Granted

 

 

539

 

 

 

29.62

 

Vested

 

 

(388

)

 

 

26.29

 

Forfeited

 

 

(102

)

 

 

26.51

 

Non-vested awards outstanding as of March 31, 2024

 

 

1,295

 

 

 

26.87

 

 

The following table summarizes the activities related to the Company’s performance-based restricted stock units:

 

(in thousands, except per share data)

 

Number of
Units

 

 

Weighted-
Average
Grant Date
Fair Value

 

Non-vested awards outstanding as of December 31, 2023

 

 

442

 

 

$

26.12

 

Granted(1)

 

 

198

 

 

 

29.62

 

Vested

 

 

(139

)

 

 

28.60

 

Forfeited

 

 

(77

)

 

 

26.61

 

Non-vested awards outstanding as of March 31, 2024

 

 

424

 

 

 

26.82

 

 

(1) Represents target number of units that can vest based on the achievement of the performance goals.

 

Note 8 – Income Taxes

Income tax expense consists of the following:

 

 

 

Three Months Ended
March 31,

 

(in thousands)

 

2024

 

 

2023

 

Current: