Benchmark Electronics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Benchmark provides product design, engineering, technology and advanced manufacturing services to customers in aerospace and defense, medical, industrial, semiconductor capital equipment, computing and telecommunications markets.
Financial performance
- Q2 sales: $544.7 million, up 11% from $491.0 million. Gross profit was $47.9 million versus $34.7 million; gross margin rose to 8.8% from 7.1%. Operating income was $10.7 million versus an operating loss of $1.9 million. Net income was $7.4 million, or $0.20 per diluted share, compared with a net loss of $3.4 million, or $0.09 per diluted share.
- First-half sales: $1,050.4 million, up 4% from $1,005.9 million. Gross profit was $90.1 million versus $78.0 million, and gross margin was 8.6% versus 7.8%. Operating income was $22.6 million versus $4.6 million. Net income was $15.3 million, or $0.42 per diluted share, versus $0.4 million, or $0.01 per diluted share.
- Cash flow: First-half operating cash flow was $40.3 million, compared with $19.9 million in 2020. Investing used $18.4 million, including $16.7 million of property, plant and equipment additions. Financing used $49.1 million, including $30.3 million of share repurchases and $11.6 million of dividends. Cash, including restricted cash, declined $25.5 million to $370.4 million.
- Liquidity and working capital: Current assets were $1,267.0 million and current liabilities $581.4 million at June 30, for working capital of about $685.6 million. Management said available cash and operating cash flows should meet liquidity needs over the next 12 months.
- Debt: Term-loan borrowings were $133.1 million; $496.1 million remained available on the revolving facility, subject to covenants, with $3.9 million of letters of credit outstanding. The company reported covenant compliance. A $133.1 million interest-rate swap fixed the rate at 2.928% plus the applicable margin.
Changes and business developments
- Q2 growth reflected stronger semiconductor capital equipment sales (+60%), industrials (+15%), telecommunications (+21%) and aerospace and defense (+9%). Medical sales fell 19%, reflecting lower demand for COVID-related programs and limited recovery for some customers; computing fell 10%, partly because a high-performance computing program ramp was delayed to the second half.
- For the first half, semiconductor capital equipment sales rose 49%, while medical fell 14% and aerospace and defense fell 10%. Asia and Europe segment sales increased, while Americas segment sales declined.
- Top ten customers generated 46% of first-half sales, up from 43% in the comparable 2020 period. International operations accounted for 56% of Q2 sales, versus 50% a year earlier.
- Inventory increased to $415.3 million from $327.4 million at year-end, while accounts payable rose to $380.2 million from $282.2 million. Management cited supply-chain constraints and increased component lead times.
Outlook, risks and unusual items
- Management expects 2021 capital expenditures of approximately $50–$60 million, principally for machinery and equipment to support capacity and anticipated growth. The filing text does not provide clear numerical Q3 revenue or earnings guidance.
- Management described improving end-market demand but continuing component shortages, longer lead times and supplier allocations, particularly for semiconductors. Constraints limit the company’s ability to meet upside demand; rising component prices may pressure margins. COVID-19 cases in Malaysia led to reduced staffing and intermittent work stoppages in Q2; restrictions had eased but operations were still managing the effects. The Delta variant added uncertainty.
- First-half restructuring charges and other costs were $3.2 million, mainly related to site closures, workforce reductions and other restructuring. The comparable 2020 period included $8.6 million of restructuring and other costs, as well as a $3.4 million net ransomware insurance recovery in 2021 that improved reported operating results.
- The Malaysia tax holiday expired April 1, 2021; the company is applying for a replacement. A $7.3 million benefit for prior-year foreign withholding taxes was offset by an equal reserve for uncertain tax benefits. Total uncertain-tax-benefit reserves, including interest and penalties, were $8.0 million.
- Material risks include supply shortages and price increases, customer concentration and demand fluctuations, pandemic-related disruption, international and foreign-exchange exposure, and debt-agreement covenants. Management said ordinary-course legal matters were not expected to materially affect financial position or results. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
- The company repurchased 1.0 million shares for $30.3 million in the first half, with $173.9 million remaining under the authorization. It declared a Q2 dividend of $0.165 per share; future dividends are not guaranteed.
Investor verification points
- Track component availability, Malaysia production levels and whether the delayed computing program ramps in the second half as expected.
- Assess whether gross-margin improvement persists as market mix, production volumes, restructuring and component costs change.
- Monitor inventory growth, working-capital cash needs and reliance on customer advances and receivables sales.
- Verify capital spending, repurchases and dividends against cash generation, debt covenants and the $496.1 million of stated revolver availability.
- Follow the Malaysia tax-holiday application, uncertain-tax-benefit reserves and any further ransomware insurance recoveries.