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Text: For today's call, Jeff will begin by covering a summary of our first quarter results, including new program wins.
Roop will then discuss our detailed first quarter results, including a cash and balance sheet summary and second quarter 2021 guidance.
Jeff will wrap up with an outlook by market sector and progress to-date on our strategic initiatives, including ESG and sustainability.
We will then conclude the call today with Q&A.
Overall, we delivered a solid start to 2021.
Our first quarter results reinforce our commitment to executing the strategy we have laid out and continuing to demonstrate operational excellence.
In Q1 revenues of $506 million were above the midpoint of our guidance for the quarter led by continued global strength in our semi-cap sector, which grew 37% year-over-year.
Our non-GAAP gross margins of 8.3%, non-GAAP operating margins of 2.3% and earnings per share of $0.21 were all in line with our forecast guidance.
We had another strong quarter of working capital results as the cash conversion cycle was in 65 days, which enabled $37 million of operating cash flow and $30 million of free cash flow for the quarter.
Despite some significant disruptions due to COVID that temporarily shut down two of our facilities in Malaysia, our teams did an amazing job of caring for our people, recovering in the quarter, and delivering for our customers.
Our leadership and COVID task force continue to navigate our organization through the challenges of the pandemic, and we are taking actions to encourage vaccinations across our employee population; first here in the US and in other countries as the vaccine is available.
I'm really proud of our team around the world who continue to deliver solid results, while successfully navigating COVID.
In addition to positive results, we had another strong quarter of bookings where the outsourcing and new deal opportunity environment remains strong even in the pandemic.
Our pipeline continues to grow, and our trailing four quarter wins are over $800 million, which is a new record for our organization.
Now I'd like to highlight a few key wins in the quarter.
In the Medical sector, we were awarded new manufacturing programs for insulin infusion pumps, a bacterial diagnostic instrument and a mobile MRI device.
In the A&D sector, we were awarded new programs for RF satellite control electronics, advanced optical manufacturing for night vision applications and a precision machining program for a military application.
We are excited to further expand our world-class machining capabilities into the A&D sector.
In Industrials, I wanted to highlight two customer case studies.
The first is with our customer, Ouster, a leading provider of high-resolution digital LiDAR sensors used in industrial automation, smart infrastructure, robotics and automotive applications.
In our Thailand facility, we are providing complex microelectronics, optics and printed circuit board assemblies for Ouster.
After completion of certifications in 2019, we are now scaling capacity to meet full volume production.
Our team has done an outstanding job meeting the rigorous quality requirements to bring these programs to market, and we look forward to fulfilling volume demands in support of Ouster in the coming years.
The second is with our new customer, Geophysical Technology, Inc., which utilizes seismic systems for measuring the Earth's subsurface for resource extraction, earthquake monitoring, construction and hydrothermal projects.
Benchmark was selected based on our strong reputation for quality and reliability and to assist in near-shoring manufacturing to North America for the next-generation of products.
We're excited to be GTI's manufacturing partner.
In Computing and Telco, we were awarded design services for a new hyperscale Computing product and manufacturing services for new broadband products.
Our new business pipeline remains strong across all of our sectors, and we expect to grow bookings year-over-year.
Roop, over to you.
Total Benchmark revenue was $506 million in Q1, which was slightly above the midpoint of our guidance.
As expected, decreased revenues primarily from A&D were partially offset by increases in Semi-Cap and Telecom.
Medical revenues for the first quarter were relatively flat sequentially from continued lower demand for products involved in COVID therapies and softer demand related to cardio care and other elective surgery devices.
As Jeff will comment later, we do expect an uptick in the second half from new programs.
Semi-Cap revenues were up 12% in the first quarter and up 37% year-over-year from continued demand strength from our wafer fab equipment customers, who are continuing to boost capacity to support greater chip output.
As a reminder, we provide primarily non-electronic precision machining, and electromechanical assembly to these customers.
A&D revenues for the first quarter decreased 19% sequentially from further deterioration in demand from our commercial aerospace customers, with no signs of demand recovery in the near future.
As a reminder, revenues to commercial aerospace customers was approximately 25% of our 2020 A&D sector revenue.
Industrial revenues for the first quarter were slightly down from continued softness in oil and gas infrastructure, primarily building in transportation and new program ramp delays.
Overall, the higher value markets represented 80% for our first quarter revenue.
Revenues from computing and telco sectors, our traditional markets was flat quarter-over-quarter.
Revenue increases in testing products were offset by continued softness in commercial satellite programs.
Our traditional markets represented 20% of first quarter revenues.
Our top 10 customers represented 44% of sales in the first quarter.
Turning to slide seven.
Our GAAP earnings per share for the quarter was $0.22.
Our GAAP results included restructuring and other one-time costs, totaling $1.6 million related to reductions in force and other restructuring activities around our network of sites, $3.4 million of insurance recovery.
For Q1, our non-GAAP gross margin was 8.3%.
This is 10 basis points better than the midpoint of our Q1 2021 guidance and 10 basis points less than our year-over-year comparison, which has stronger higher value market mix.
On a sequential basis, we were lower by 130 basis points, as a result of our lower revenue, reduced absorption, higher discrete medical claims activity and higher variable compensation.
Our SG&A was $30.5 million, a decrease of $1.9 million sequentially due to lower variable compensation costs.
Non-GAAP operating margin was 2.3%.
In Q1 2021, our non-GAAP effective tax rate was 16.9%, as a result of a mix of profits between the US and foreign jurisdictions, Non-GAAP earnings per share was $0.21 for the quarter, which is a $0.01 higher than the midpoint of our Q1 guidance and non-GAAP ROIC was 6.4%.
Turning to slide eight to review our cash conversion cycle performance.
Our cash conversion cycle days were 65 in the first quarter, an improvement of six days from the fourth quarter from the timing of inventory receipts, shipments to customers and collections within the quarter.
Turning to slide nine for an update on liquidity and capital resources.
Our cash balance was $400 million at March 31 with $153 million available in the US.
Our cash balances grew $4 million sequentially because of our strong cash conversion cycle performance, even while we have invested in inventory for future ramps.
We generated $37 million cash flow from operations in Q1 and our free cash flow was $30 million.
At March 31, we had $135 million outstanding on our term loan with no borrowings outstanding on our available revolver.
Turning to slide 10 to review our capital allocation activity.
In Q1, we can pay cash dividends of $5.8 million and use $13.1 million to repurchase 441,600 shares.
As of March 31, we had approximately 191 million remaining in our existing share repurchase authorization.
In Q2, we expect to repurchase shares opportunistically, while considering market conditions.
We expect revenue to range from $515 million to $555 million, which at the midpoint, represents a 9% year-over-year improvement.
We expect that our gross margins will be 8.5% to 8.7% for Q2 and SG&A will range between $31 million and $32 million.
The sequential increase in gross margins is expected due to higher revenues and improved absorption.
We still expect gross margins for the full year to be at least 9%.
Implied in our guidance is a 2.5% to 2.9% non-GAAP operating margin range for modeling purposes.
The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs.
We expect to incur restructuring and other non-recurring costs in Q2 of approximately $0.8 million to $1.2 million.
Our non-GAAP diluted earnings per share is expected to be in the range of $0.23 to $0.29 for a midpoint of $0.26.
Based on the strength of new bookings, execution of new program ramps and continued growth in our Semi-Cap sector, we are increasing our capex plans for the year to be between $50 million to $60 million.
We estimate that we will generate approximately $80 million to $100 million of cash flow from operations for the fiscal year 2021.
This range contemplates increased working capital investments and inventory to support growth for our customers through the year.
Other expenses net is expected to be $2.5 million, which is primarily interest expense related to our outstanding debt.
We expect that for Q2, our non-GAAP effective tax rate will be between 19% and 21% because of the distribution of income around our global network.
The expected weighted average shares for Q2 are $36.5 million.
As you're aware, the overall demand environment is gaining strength from the macroeconomic recovery, which has outpaced electronic component supply.
Lead times are extending as more components are going on allocation, primarily in semiconductors.
We are maintaining close alignment with our suppliers and distributors to minimize disruptions to existing orders and working to secure supply to support customer demand increases.
In some cases, we are actively working with customers to replan, mix and redesign some products to enable alternate component sourcing.
These actions still give us confidence that we will grow revenue in 2021.
In summary, our guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base, operations or customers.
Guidance also assumes no material changes to end market conditions due to COVID.
Following Roop's comments on our second quarter guidance, I wanted to provide some additional color on our view of demand by sector for the remainder of 2021.
This is on slide 13.
For the second quarter, we expect revenue to be up sequentially by about $30 million.
This strength is led by expected sequential growth in Semi-Cap, A&D and Computing.
In Semi-Cap, the demand outlook continues to build for semiconductor capital equipment and is strengthening in Q2 over our Q1 results.
The strong demand for semiconductors due to the accelerating pace of digital transformation is fueling this growth and we remain well positioned with the industry leaders in this sector.
We believe this wafer fab equipment growth cycle has the potential to continue for several years, not only due to the current severe semiconductor shortages but also driven by government investment to address concerns about supply chain security and overall competitiveness.
With this current demand strength and signals from our customers, we are revising our outlook for this sector upward from 10% growth to greater than 20% revenue growth over 2020 levels.
In A&D, growth in the second quarter is led by increased demand for defense-related communications, radar and security products.
Growth is expected in Q2, even though demand for commercial aerospace programs, which was about 25% of the sector demand in 2020, continues to deteriorate.
As such, we expect the A&D sector will still be flat for 2021.
In the Computing sector, we expect strong revenue growth in 2021 from high-performance computing projects, with expected ramps starting in Q2 and continuing through second half 2021.
In the Medical sector, we're expecting revenue to remain relatively flat in the first half as elective surgery and demand for cardiac related products have not yet returned to pre-pandemic levels.
We are receiving some early indications from our customers that elective surgery demand is strengthening, and this, coupled with a number of new program ramps starting in Q3, point to stronger Medical sector growth in the second half of this year.
We expect 2021 will be another growth year for the Medical sector.
In the Telco market, where we remain highly selective in our engagements, overall demand is stable in Q2 and is improving through second half '21 from broadband infrastructure product growth.
In Industrials, we have yet to see significant demand recovery in our oil and gas, and our building and transportation infrastructure customers.
We are excited about a tremendous number of new program ramps in the industrial space.
Many of these programs are new designs and technologically advanced programs.
And as such, we are experiencing some program delays.
Based on these dynamics, we believe Industrials will now be flat for the year.
Since the February call, our ESG Council has successfully worked to deliver our first SASB fact sheet, which can be found on the sustainability page of our website.
This document highlights our current performance against the technical requirements for the EMS, ODM industry within the SASB framework.
The objective of releasing this fact sheet is to provide continued transparency as we further enhance our performance within the framework of our five key ESG tenets.
Beyond the SASB report, we have also provided further updates on our progress in both our most recent annual report and proxy.
At Benchmark, we value diversity and expect our leaders to embrace all people regardless of gender, race, class or creed, recognizing that greater inclusion fosters better decision-making and increased innovation.
We are strengthening our diversity equity and inclusion programs through a planned set of actions around training, policies and through a revitalized recruiting strategy.
As such, we have engaged a consultant who is leading a DEI perception study to establish a framework for how we listen, learn and act to achieve our goals.
We are very proud to have been awarded a 2021 silver medal from EcoVadis in recognition of our sustainability progress.
EcoVadis is one of the world's most trusted providers of business sustainability ratings, and their assessment covers a broad range of non-financial management systems, including environmental labor and human rights, ethics and sustainable procurement.
This recognition puts us in the top 25% of companies rated.
Looking ahead, we have started both quantitative and qualitative data collection to align reporting to the Global Reporting Initiative or GRI standards.
As we have announced previously, we are a committed partner with Applied Materials and other strategic customers as part of the electronic supply chain ecosystem.
There is tremendous momentum at Benchmark surrounding ESG and sustainability, and I look forward to providing further updates as we continue our journey.
I now want to wrap up the call today with a summary of our progress toward our three strategic initiatives for 2021, on slide 15.
Growing revenue is the top priority at Benchmark.
Through the efforts of the entire Benchmark organization and led by our go-to-market team, we are continuing to see strong new bookings, both with existing accounts and targeted new customers with innovative products aligned to our sector strategies.
We are very focused on helping our customers accelerate their time to market, providing more of the complete solution, which includes both engineering and manufacturing services.
This is reflected in our increased attach rate of design engagements to manufacturing wins and vice versa.
To that point, in Q1, about 50% of our new wins have an engineering component.
Our differentiated offerings in support of the Semi-Cap market and our new program wins have enabled significant growth in the Semi-Cap vertical, which we expect will now grow over 20% this year.
This strength, coupled with new programs and high-performance computing in mid-2021 and additional new program ramps in the higher value markets, gives us confidence that we can achieve greater than 5% growth in 2021.
In order to support our long-term growth and scale objectives, we must also invest in sustainable infrastructure and talent, needed to support our long-term business.
As I discussed earlier, ESGs and sustainability initiatives and advancing diversity and inclusion underpin the foundational imperative.
But they are not our only areas of investment as we are also investing in tools, processes and manufacturing assets to drive further operational effectiveness.
As we evaluate how to best serve our customers, including exploring advances in technology, we are also contemplating incremental capital investments aligned to our strategy, as Roop referenced earlier.
Even though we continue to invest in our business, we are committed to driving an efficient shared services organization and continuing our focus on expense management to maintain our SG&A spend at or below 6% of revenue.
Finally, we expect to grow earnings faster than revenue.
Our model is predicated on revenue growth that enables higher utilization to better leverage our fixed costs.
With revenue growth from increasing demand in new ramps, we still expect to achieve 9% gross margin for the full year.
Given the current supply chain environment, we do expect inventory growth in support of securing component supply for our customers.
While we are still forecasting cash flows from operations for the full year between $80 million and $100 million.
In support of efficient use of capital and returning value to our shareholders, we plan to continue buybacks and our recurring dividend.
All-in-all, 2021 is off to a good start.
I remain energized and excited about our capabilities and the progress we are making in developing our strategic customer relationships.
I look forward to providing further updates on our call in July.

user
benchmark sees q2 revenue between $515 million to $555 million.
q1 non-gaap earnings per share $0.21.
q1 gaap earnings per share $0.22.
sees q2 non-gaap earnings per share $0.23 to $0.29 excluding items.
sees q2 revenue $515 million to $555 million.
q1 revenue $506 million.

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