Benchmark Electronics, Inc.

Good afternoon and welcome to the Benchmark Electronics Incorporated fourth quarter 2021 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to send the conference over to Lisa Weeks, Chief Strategy Officer and Head of Investor Relations. Please go ahead.

Thank you, Operator, and thanks, everyone, for joining us today for Benchmark's fourth quarter and fiscal year 2021 earnings call. Joining me this afternoon are Jeff Banks, CEO and President, and Rupalakaraji, CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the fourth quarter of 2021, and we've 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 GAAP to non-GAAP 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 today, we will discuss forward-looking information. And as a reminder, any of today's remarks that are not statements of historical fact 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 global supply chain constraints and COVID pandemic. 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, new program wins, and a recap of 2021 objective progress. Ruth will then discuss our detailed financial results, including a cash and balance sheet summary and our first quarter 2022 guidance. Jeff will wrap up with an outlook by market sector for the full year and a progress update on our financial model and our strategic initiatives for the year 2022 before we 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. Hopefully by now you've seen our press release and the great results we delivered for the fourth quarter and for the full year. We've made tremendous progress on many fronts in support of our long-term strategy. Even with ongoing supply chain challenges and intermittent COVID disruptions, we delivered both revenue and EPS, which exceeded the high end of our guidance range in the fourth quarter. We achieved revenue of $633 million, which was $48 million above the midpoint of our guidance and was up 21% year-over-year, driven by strong demand and execution in our semi-cap, industrial, and computing sectors. With higher revenue, the right sector revenue mix, and better utilization across our network, we achieved non-gap gross margins of 9.8% and operating margins of 3.8%. As a reminder, our non-GAAP operating margins include stock-based compensation expenses, which were approximately 70 basis points in the fourth quarter. We delivered earnings per share of 48 cents, which was also above the high end of our guidance, and up 23% sequentially and 41% from the fourth quarter of last year. Our cash conversion cycle results were 69 days. an improvement of two days over Q3, despite higher inventory levels as we received increased prepayment support from our customers. As mentioned previously, these results were achieved with a backdrop of ongoing supply chain challenges. In the third quarter, we estimated that, again, we were unable to fulfill over 100 million of demand in the quarter requested by our customers, which is similar to the unfulfilled demand we experienced last quarter. Furthermore, on behalf of our customers, we've been absorbing inefficiencies, increasing labor costs, and additional expenses driven by the constrained supply chain environment. While we always strive for good balance, given the prolonged length of this constrained environment, some of these increased overhead costs are being passed on to our customers. Thanks to the diligent efforts of our supply chain and operations team, we were able to fulfill a meaningful amount of the tremendous backlog we've experienced, enabling our fourth quarter upside. However, demand is continuing to increase. So while a large amount of our demand was filled in the quarter, new orders came in, and this has served to keep demand levels and corresponding backlog elevated. Unfortunately, We don't see broad recovery in the constrained supply chain market in 2022. Our operation teams are managing through re-planning based on inconsistent supply deliveries and are really doing a great job of maximizing throughput in our operations when components do arrive. Despite the challenges with supply chain inefficiencies and the ongoing disruption still caused by COVID, we delivered strong Q4 results. Please turn to slide four. Our go-to-market organization working closely with our engineering and operations teams continues to secure new wins with our existing customers while bringing in a large number of new accounts across our targeted sectors. When I joined the company almost three years ago, we set an internal goal of consistently achieving over 200 million in new bookings per quarter. In 2020, we accomplished that and achieved over $800 million in new bookings. I'm proud to share that 2021 was even stronger, where we accomplished greater than $900 million in new bookings for the year. These bookings and the ability of our teams to ramp new programs are key ingredients for driving sustainable revenue growth. Their consistent performance has contributed to our growth in 2021 and will contribute to our future growth in 2022 and beyond. Let me highlight a few of the exciting wins for Q4. In medical, we were awarded new design and manufacturing programs for a point-of-care diagnostic instrument and a state-of-the-art cell therapy system. We were also awarded the manufacturing of a robotic surgical system, which was announced by our customer, Titan Medical. Benchmark was selected for our differentiation in the design and manufacture of visualization systems and complex electromechanical capabilities. We're proud to be a partner of Titan Medical, where we will continue to build on our deep medical expertise to scale their new Enos robotic system into production. In SEMICAP, we continue to win new design awards for wafer handling and processing equipment in support of next generation SEMICAP tools. The tools in this space represent some of the most complex engineering projects in the industry, and we're excited to be an extension of our customer's development team, helping them innovate. In the A&D sector, we were awarded the design and manufacturing of an advanced RF signal processing system for a new customer. We were awarded this program based on the depth of our experience and continued investments in our RF capabilities. We also won a program for manufacturing the electronics for a leading-edge drone with collision avoidance capability targeted at defense and industrial applications. In industrials, we were awarded a manufacturing program for smart recycling. This new award is closely aligned with our commitment to sustainability as the objective of these connected devices is to manage waste operations in a sustainable way while reducing CO2 emissions. We were also awarded a first-time outsourcing program with a new warehouse automation customer to help them scale faster. In computing and telco, we were awarded new manufacturing programs for broadband products with an existing customer and the design and manufacture of a new mobile satellite communication systems for a new customer. Our new business pipeline continues to grow across our targeted sectors, and we remain very encouraged about the prospects for continued wins, where more OEMs are looking for strategic outsourcing partners that can take on both manufacturing and engineering projects to help them get to market and scale faster. If you'll please turn to slide five. I would characterize 2021 as a year where we shared our key objectives going into the year and then subsequently over-delivered with our results. One year ago, we outlined strategic initiatives and three focus areas that were critical to achieving our mid-term model, and I'm happy to report good progress on all three. First, we said we would grow revenue. We've been investing for growth in the verticals where we have a strong, differentiated value proposition and strategic positions with industry-leading customers. A great example of this strategy in action is the incremental capital investment we are making in support of the semiconductor industry, which subsequently grew 49% for us last year. While these investments in our install base have begun to pay off, we also believe new program bookings from new customer logos will further accelerate our revenue growth. Benchmark is the right partner for highly complex manufacturing, and our engineering capabilities are a differentiator to win new deals. We then execute to bring programs to volume production on a global basis, and we are doing so with a high attach rate of engineering projects. In fact, the team has been so successful in this regard that we're increasing our attach rate goal of engineering to EMS wins from 50 to greater than 70% for 2022. These activities, along with operational execution, have enabled our 10% annual growth last year and set the stage for another growth year in 2022. Second, we said that we'd invest in sustainable infrastructure and talent. Over the past year, we've continued to make investments in shared services, such as human resource systems, employee development, and cybersecurity, to ensure that our shared infrastructure can scale with continued growth. We're also investing to add additional capabilities in engineering and manufacturing, as requested by our customers, while effectively managing our SG&A expenses. In parallel, we've made meaningful progress on our ESG and sustainability initiatives, which we will detail in our upcoming sustainability report. I will also provide an update on our journey after ROOP's financial update. And third, We said we would grow earnings faster than revenue. Our new bookings and new program ramp achievement this year enables better leverage of our fixed costs in the business. This leverage coupled with our intense focus on operational excellence enabled 9.1% non-GAAP gross margins for 2021 and earnings per share growth of 42% year over year. I am proud of the way we wrapped up 2021 And I'm confident that with our backlog of demand and strong performance momentum, we will continue to execute against our strategic plan in 2022. And with that, I'll turn the call over to Rup to discuss the fourth quarter and full year 2021 financial results. Before I come back to provide some additional color on our revenue outlook by sector and key objectives for the new year.