Benchmark Electronics, Inc.

Good day and welcome to the Benchmark Electronics, Inc. Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Lisa Weeks, Vice President of Strategy and Investor Relations. Please go ahead.

Thank you, Operator, and thanks, everyone, for joining us today for Benchmark's fourth quarter and full year 2019 earnings call. With me this afternoon, I have Jeff Banks, CEO and President, and Roop Lakharaju, CFO. Jeff will provide introductory comments and thoughts on the coming year, and Ruth will provide a detailed review of our fourth quarter and 2019 results, and provide an outlook for the first quarter of 2020. We will conclude our call today with a Q&A session. After the market closed today, we issued an earnings release highlighting our financial performance for the first quarter of 2019, and we have prepared a presentation that we will reference on this call. The press release and presentation are available online under the investor relations section of our website at www.bench.com. This call is being webcast live and a replay will be available online following the call. Please take a moment to review the forward-looking statements advice on slide two in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today's remarks that are not statements of historical fact are forward-looking statements which involve risks and uncertainties described in our press releases and SEC filings. Actual results may differ materially from these statements, and Benchmark undertakes no obligation to update any forward-looking statements. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the presentation. With that, I will now turn the call over to our CEO, Jeff Banks.

Thanks, Lisa, and welcome to everyone joining us for this afternoon's call. During today's call, I will first provide a brief overview of our fourth quarter and 2019 full-year results, review some key business wins, and Rup will then take you through the financial updates and our guidance for the first quarter. I will then close with a review of our 2020 expectations and key initiatives. Please turn to slide four. During 2019, we continued to see momentum in our targeted higher value markets. Medical revenues were up over 14% and aerospace and defense was up 6% annually. In the fourth quarter, SEMICAP results were higher than expected as new order load has continued to grow in this sector across our customer base signaling a start to the market recovery. Semicap results were up 19% sequentially and 17% year-over-year. These results reflect our continued go-to-market progress. Our sector strategies are driving disciplined customer and program selection, and our new key wins reflect customers engaging with Benchmark for the full breadth of our capabilities. We continue to make progress on operational efficiencies, which include includes rationalizing our global site footprint. As a result, we announced last summer the planned closure of our San Jose, California and Guaymas, Mexico locations. The San Jose closure plan remains on track with customer transitions in process. For our Guaymas, Mexico location, we are pleased to announce that we successfully sold the assets of this location to Libra Industries. which will continue operations and provide services to their customers. While this transaction was not financially significant, it does allow us to save jobs and avoid severance, as well as mitigate other shutdown costs. I really appreciate the support and dedication of our employees at both locations during these transitions. In the fourth quarter, we successfully reached a pivotal milestone and delivered the first production microelectronic units from our LARC facility in Phoenix. As we have discussed, this is a greenfield location with critical expertise in liquid crystal polymer substrates, RF, and micro E. These capabilities, combined with advanced SMT manufacturing and assembly, provide a differentiated value proposition to the market. We look forward to the continued scale of production in this location in the coming year. 2019 was a strong year in free cash flow generation, and we returned over $140 million in capital to shareholders through share repurchases and our quarterly dividends. Please turn to slide five. I'm extremely pleased with the progress of our go-to-market organization and the close collaboration with our operations and engineering teams to win a number of critical new programs during the quarter. In our medical sector, we were awarded an advanced DNA testing platform and a defibrillator product with two new global customers to benchmark. Also, we were awarded a new fetal monitoring program with an existing customer. Each of these deals includes engineering services, which played a crucial role in closing these wins in this vertical. In aerospace and defense, we received additional awards for satellite communication device, an F-16 aircraft cockpit electronics, and electronics for munitions program. In industrial, we are making progress with our new sector leader and received awards for a new customer building a facial imaging instrument. Also in the industrial sector, we were pleased to announce that we were selected by Roden Schwartz, an international electronics and test instrumentation provider, to be their first externally outsourced manufacturing partner. Roden Schwartz has been a longtime engineering and product design services customer, and we were able to leverage this relationship into this new manufacturing services agreement. The excellent work provided by our global engineering team, along with our global manufacturing footprint and technical expertise in the industrial space, were pivotal to Roden Schwartz trusting Benchmark to deliver their complex products with the same high quality their customers expect from their own internal organization. All around, excellent work by the benchmark team to secure this strategic win. In SEMICAP, we were awarded a precision machining program for a next generation in-chamber tool, along with a manufacturing award for an electronic sensor device. Lastly, in computing and telco, we were awarded the second phase of a high-performance computing program, which features some of the most complicated electronics manufacturing in the industry, and a design program for a new customer who is developing a 3D holographic display device. We had solid design and manufacturing wind momentum in Q4, and I look forward to reporting on the continued progress on bringing in new programs that will support our future revenue growth. Before I turn the call over to Ruth to discuss our financial results and the impacts from the ransomware incident in Q4, I just want to express thanks to our customers for their incredible partnership and our teams who work diligently to quickly restore operations. As you might expect, we have further increased our spending in IT security, including both hardware and software investments guided by third-party consultants. This additional spend is reflected in our full year SG&A guidance. With this incident behind us, we're looking forward to continuing to serve our existing customers, ramp a number of new customers, and execute on our growth strategy and the corresponding initiatives to build a better benchmark.