Benchmark Electronics, Inc.

Good evening and welcome to the Benchmark Electronics Inc. Fourth Quarter 2020 Earnings Call. All participants will be in a 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 a 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. Please go ahead.

Thank you, Operator, and thanks, everyone, for joining us today for Benchmark's fourth quarter and full year 2020 earnings call. Joining me this afternoon are Jeff Banks, CEO and President, and Roop Lakharaju, CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the fourth quarter and for 2020, 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. The company has provided a reconciliation of our gap to non-gap measures in the earnings release as well as in the appendix of the presentation. 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 facts are forward-looking statements, which involve risks, and uncertainties as described in our press releases and SEC filings. Actual results may differ materially from these statements, most notably from the ongoing impact of the COVID-19 pandemic, and benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will begin by covering a summary of our fourth quarter results and a summary of initiatives progress in 2020. Ruth will then discuss our detailed fourth quarter and 2020 results, including a cash and balance sheet summary and first quarter 2021 guidance. Jeff will wrap up with an outlook by market sector and an update on our strategic initiatives for the year 2021, including ESG and sustainability. We will then conclude the call with Q&A. If you will please turn to slide three, I will turn the call over to our CEO, Jeff Bank.

Thank you, Lisa. Good afternoon, and thanks to everyone for joining our call today. We hope all of you are remaining safe and healthy during these times. In Q4, we delivered revenue of $521 million, which was at the midpoint of our guidance for the quarter. With improving higher value sector revenue mix and better operational efficiency, we achieved non-GAAP gross margins of 9.6%, which was above our target of 9%. Even with slightly higher SG&A expenses in the quarter due to higher variable compensation and higher than anticipated COVID-related expenses at $1.6 million, or about $0.04 per share, the resulting non-GAAP operating margin was 3.4%, and non-GAAP earnings were $0.34 per share. Our team's effort to bring down inventory and better manage working capital are bearing fruit, with cash conversion cycles coming in at 71 days, which enabled $84 million of free cash flow for the quarter. We delivered these results in the fourth quarter amidst continued challenges, including increasing COVID infection rates in our communities around the world, particularly impacting our North America operations. Our employees, operations leadership, and COVID task force are continuing to do everything possible to provide a safe work environment at our sites around the world. I cannot say thank you enough to our team for all of their hard work to deliver for our customers. Please turn to slide four. Our go-to-market team continues to do a great job, and we had another strong quarter of bookings across all business areas of Benchmark. When I joined the company, we set a goal of consistently achieving over 200 million of new bookings per quarter. And I'm proud to report that even in the face of the global pandemic, we achieved over 800 million in new bookings for the 2020 calendar year. As I've shared before, many elements contribute to driving revenue growth, such as reducing regrettable losses in our business, which we also made progress on in 2020. More importantly, this achievement in new bookings bodes well for our future growth when coupled with our high customer satisfaction and progress on our other go-to-market initiative. In the medical sector, we were awarded new manufacturing programs for a state-of-the-art DNA sequencing analyzer and surgical device electronics. We were also awarded design services for a low temperature pharmaceutical storage freezer for which we expect to compete and win future manufacturing revenue. In the A&D sector, we were awarded new programs for soldier training systems and flight control electronics. I want to briefly highlight the flight control system win referenced on this slide. We competed with the largest companies in our peer group for this program. We were successful because of our technical depth in aerospace technologies and our innovative approach to solving their most advanced engineering challenges. Similar to what I've shared previously, we offered the customer a solution that included differentiated product engineering services coupled with a robust global manufacturing proposal. Our successful plan to scale with a commitment to a one benchmark solution provided the winning formula. In industrials, we were awarded new outsource programs for power controls, electronics destined for a low-cost manufacturing solution in North America, and a full system box build for a LIDAR control box application. In computing and telco, we were awarded new fixed broadband products and new programs for our benchmark solutions technology team. Similar to last quarter, our new business pipeline continues to be strong across our targeted sectors and subsectors. and we remain very encouraged about the prospect for continued wins, where the outsourcing environment for both engineering and manufacturing projects remains favorable. If you'll please turn to slide five. Despite all the challenges associated with 2020, we made steady progress on our key strategic initiatives that we laid out for the year. We exited the year with customer satisfaction at an all-time high, as a result of our customer focus initiative. We also made progress on making it easier to do business with Benchmark, along with improvements in deepening our strategic relationships and growing our position with existing accounts. Our regrettable loss measure has improved significantly in the last 18 months. While we have room to improve customer satisfaction further, I'm pleased with the positive trends and the impact this is having on increasing business with our customer base. This customer-centric approach is an important foundation in growing our business. As part of our sector strategies, we align processes to invest in technology to increase win rates. As previously mentioned, we had a record year of new bookings in which we sold the full breadth of services to our customers. We are focused on ensuring bookings convert to revenue. To that end, we experienced annual revenue growth of more than 33% in SEMICAP and 11% in medical sector. Turning to enterprise efficiencies, we made solid progress on this initiative in the past year. We continue working on optimizing our global footprint, including completing previously announced closures in some locations and ramping up new capabilities in others. We had announced in Q3 of last year, our intent to close our aerospace turbine machining facility, given a lack of alignment with our long-term strategy and the downturn in the market. Ultimately, and fortunately for our customers and employees, we were able to divest of these assets versus shutting down the site. And we transferred the majority of personnel and assets to the acquiring company. In parallel, We have been working on the Angleton site closure and executing the transition plans, which remains on target. In addition, we maintain our focus on expense management. Through improved processes, G&A centralization activities, and investment prioritization, we manage our SG&A expense to $122 million for the year, which was lower than forecasted. Lastly, improving margins and effective working capital management allowed us to exceed our cash flow targets for the year. Finally, as I will reference in our ESG update later in the call, we have made strides in engaging talent and shifting our culture. As I shared previously, Benchmark has a great partnership attitude, engages with integrity in all endeavors, and a foundation centered on our customers. We've continued to invest in new diverse skills and talent across our organization. Our ongoing commitment to advancing diversity and inclusion efforts at all levels in the company through our ESG processes will make Benchmark a more technologically rich and innovative organization. Now, I will turn the call over to Rup to discuss fourth quarter financial results.