Benchmark Electronics, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Benchmark provides design, engineering, technology and manufacturing services to OEMs, with operations across the Americas, Asia and Europe.
Financial performance
Unless otherwise noted, amounts are in millions of U.S. dollars.
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $2,255.3 | $2,053.1 |
| Gross profit / margin | $205.9 / 9.1% | $175.0 / 8.5% |
| Operating income / margin | $53.1 / 2.4% | $25.1 / 1.2% |
| Net income | $35.8 | $14.1 |
| Diluted earnings per share | $0.99 | $0.38 |
| Cash from operating activities | $(2.6) | $120.4 |
| Capital expenditures | $38.8 | $34.6 |
- Sales increased 10% year over year, but remained slightly below 2019 sales of $2,268.1 million. Gross profit rose 18%; management attributed the improvement mainly to higher revenue, revenue mix and better utilization.
- Cash from operations turned negative despite higher earnings, principally reflecting a $197.9 million inventory increase and a $47.0 million increase in accounts receivable. These uses were partly offset by increases in accounts payable and customer advances.
- At year-end, cash and cash equivalents were $271.7 million; total debt under the term loan was $131.3 million, and $246.1 million remained available on the revolving facility, subject to covenants. Working capital was approximately $0.7 billion. The company reported compliance with its debt covenants.
- Cash returned to shareholders included $40.2 million of share repurchases and $23.3 million of dividends. The quarterly dividend was raised to $0.165 per share in 2021.
Changes and business mix
- Sector sales rose 49% in semiconductor capital equipment, 16% in computing, 15% in industrials and 8% in telecommunications. Aerospace and defense fell 10%, and medical fell 7%.
- Higher-value markets accounted for 81% of sales, unchanged from 2020. Applied Materials represented 16% of total sales, up from 12%; the ten largest customers accounted for 47%, versus 41% in 2020.
- Operating income improved from $25.1 million to $53.1 million. SG&A increased to $136.7 million from $122.2 million, while restructuring and other costs were $13.7 million versus $20.0 million.
- The effective tax rate increased to 21.2% from 18.3%. 2021 tax expense included an $8.9 million increase in the reserve for uncertain tax benefits, partly offset by a $7.3 million tax benefit tied to a foreign tax refund claim.
Outlook, risks and unusual items
- Management said end-market demand was recovering but component shortages, extended lead times, supplier allocations and labor constraints limited production against customer forecasts and were expected to persist into 2022. These conditions also contributed to operational inefficiencies and higher inventory.
- Management expected 2022 capital expenditures of approximately $50–$60 million, mainly for machinery and equipment to support capacity and anticipated growth. It believed cash, operating cash flows and revolving-credit availability would meet liquidity needs over the next 12 months; no quantified revenue or earnings guidance was provided.
- COVID-related facility disruption, higher labor and protective-equipment costs, and under-absorption of fixed costs affected 2020 and 2021. The extent of continuing effects remained uncertain.
- 2021 included $9.3 million of restructuring charges and $4.4 million of Americas asset impairment costs. The company also received $3.9 million of additional insurance recoveries related to a 2019 ransomware incident; cumulative recoveries reached $10.5 million, with no further recoveries expected.
- Key risks include component availability and cost, customer concentration and short-term order visibility, international and foreign-exchange exposure, variable-rate debt, cybersecurity, regulatory compliance and potential disruptions at specialized facilities. Management said ordinary-course legal matters were not expected to materially affect consolidated financial position or results.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Income tax expense was identified as a critical audit matter.
Important facts for investors to verify
- Whether supply constraints ease and Benchmark converts customer demand and elevated inventory into shipments and operating cash flow.
- Whether semiconductor capital equipment growth and the recovery of medical and aerospace demand continue, and how the customer and sector mix affects margins.
- Whether the company sustains its improved operating margin while managing restructuring, labor, freight and component costs.
- Whether customer concentration, including Applied Materials’ 16% sales share and 15% of gross receivables, changes materially.
- Whether the Malaysia tax-holiday extension is obtained, and how uncertain tax positions and remaining transition-tax payments affect cash taxes.
- Whether capital spending, dividends and repurchases remain supportable given negative 2021 operating cash flow, debt covenants and planned investment.