Benchmark Electronics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Benchmark provides product design, engineering, technology solutions and advanced manufacturing services to OEMs across aerospace and defense, medical, industrial, semiconductor capital equipment, computing and telecommunications markets. Financial statements are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Sales | $505.7 million | $515.0 million | Down 2% |
| Gross profit / margin | $42.2 million / 8.3% | $43.4 million / 8.4% | Margin down 0.1 percentage point |
| Income from operations / margin | $11.9 million / 2.4% | $6.5 million / 1.2% | Operating income up 84% |
| Net income | $7.9 million | $3.9 million | Up $4.1 million |
| Diluted EPS | $0.22 | $0.10 | Up $0.12 |
| Cash from operations | $36.6 million | $(3.1) million | Improved $39.7 million |
| Cash and cash equivalents | $400.4 million | $390.8 million at Dec. 31, 2020 | Up $9.6 million |
Gross margin edged lower, primarily reflecting lower revenue. Higher operating income and net income included a $3.4 million net benefit from ransomware-related insurance recoveries. SG&A declined to $30.5 million from $31.6 million, while restructuring charges were $1.6 million versus $2.9 million, including $1.0 million of asset impairment costs in Q1 2020. Interest expense increased to $2.1 million from $1.7 million.
Liquidity, debt and capital allocation
Current assets were $1.21 billion and current liabilities $505.1 million at March 31, 2021; working capital was approximately $708 million, which management described as $0.7 billion. The company reported $135.0 million outstanding on its term loan and $3.9 million in letters of credit; $496.1 million remained available under its revolving facility, subject to covenant compliance. The balance sheet reports $138.1 million of current and long-term debt, including finance lease amounts. The term loan matures in 2023; an interest-rate swap fixes the rate on $135.0 million of borrowings at 2.928% plus the applicable margin. Benchmark reported compliance with debt covenants.
Operating cash flow benefited from lower receivables and higher accounts payable, partly offset by a $28.7 million inventory increase and other working-capital uses. Investing cash outflow was $6.4 million, including $5.8 million of capital expenditures. Financing cash outflow was $23.8 million, including $13.1 million of share repurchases and $5.8 million of dividends. Management expects 2021 capital expenditures of approximately $50–$55 million and believes cash and operating cash flow will meet liquidity needs over the next 12 months. The quarterly dividend was $0.16 per share; $191.2 million remained under the repurchase authorization.
Material changes and business trends
- Sales by market sector: Semi-Cap rose 37% to $113.1 million and computing rose 19% to $43.7 million. Aerospace and defense fell 25% to $89.4 million, medical fell 8% to $108.2 million, and industrials fell 7% to $95.5 million; telecommunications was approximately flat at $55.9 million.
- Geographically, Americas segment sales declined to $276.8 million from $314.4 million; Asia increased to $188.3 million from $171.6 million; and Europe increased to $60.9 million from $47.0 million.
- Sales to the ten largest customers represented 44% of sales, compared with 42% a year earlier. International operations accounted for 55% of sales versus 49%.
- Inventory increased to $355.2 million from $327.4 million at year-end, while accounts receivable declined to $276.3 million from $309.3 million.
Outlook, risks and unusual items
The filing refers to second-quarter 2021 guidance in its forward-looking-statement discussion, but the supplied filing text does not provide a clear numerical guidance value. Management said demand was strengthening, while electronic-component supply lagged demand. Semiconductor shortages, longer lead times and increased transit times were affecting operations; the company was coordinating with suppliers and customers, including considering product redesigns and alternate sourcing.
COVID-19 continued to affect operations and creates uncertainty around demand, supply chains, workforce availability and economic recovery. Management noted that operations had largely returned to pre-pandemic productivity levels but that future impacts remained uncertain. Customer concentration, component availability, program ramps and margin pressure, international operations, currency and interest-rate exposure, and dependence on continued customer demand are material risks.
The company collected an additional $3.4 million of insurance recoveries related to a 2019 ransomware incident during Q1 2021, bringing cumulative collections to $10.0 million. It reported no evidence that customer or employee data had been exfiltrated; any further recovery will be recognized when realized or realizable. Malaysia’s tax holiday expired April 1, 2021, and the company was applying for a new one; Thailand incentives extend through 2028. Management said ordinary-course legal matters were not expected to have a material adverse effect, and there were no material changes to previously disclosed risk factors. Disclosure controls were deemed effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether component shortages, allocation and longer lead times constrain shipments, revenue and working capital.
- Whether Semi-Cap and computing growth can offset weakness in aerospace and defense, medical and industrial markets.
- How much Q1 earnings improvement reflects the nonrecurring $3.4 million ransomware insurance recovery, and whether additional recoveries occur.
- Whether Malaysia secures a replacement tax holiday and how its expiration affects the effective tax rate.
- Whether planned capital expenditures, dividends and repurchases remain consistent with cash generation, debt covenants and management’s liquidity outlook.
- Any numerical Q2 2021 guidance, which is referenced but not clearly stated in the supplied filing text.