Benchmark
Benchmark Electronics
Company Overview
Forward-Looking Statements
This document includes certain financial measures that exclude items and therefore are not in accordance with U.S. generally accepted accounting principles (“GAAP”). A detailed reconciliation between GAAP results and results excluding special items (“GAAP”) is included in the Appendix of this document. In situations where a non-GAAP reconciliation has not been provided, the company was unable to provide such a reconciliation without unreasonable effort due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact and the periods in which the non-GAAP adjustments may be recognized. Management discloses non‐GAAP information to provide investors with additional information to analyze the Company’s performance and underlying trends. Management uses non‐GAAP measures that exclude certain items in order to better assess operating performance and help investors compare results with our previous guidance. This document also references “free cash flow”, which the Company defines as cash flow from operations less additions to property, plant and equipment and purchased software. The Company’s non‐GAAP information is not necessarily comparable to the non‐GAAP information used by other companies. Non‐GAAP information should not be viewed as a substitute for, or superior to, net income or other data prepared in accordance with GAAP as a measure of the Company’s profitability or liquidity. Readers should consider the types of events and transactions for which adjustments have been made.
Non-GAAP Financial Information
This document contains forward-looking statements within the meaning of Section 27A ofBenchmark is an outsourcing provider of
innovative technology, engineering design and
world-class manufacturing services to higher
value markets.
Our Vision: We positively impact lives by solving complex challenges with our
Benchmark at a Glance (NYSE: BHE)
Profile
Results
Services
Talent
Founded in 1979
40+ Years
Serving Global Customers
8 Countries
Fortune 1000
No. 930
Revenue in 2020
$2.05B
Higher Value Market
Revenue in 2020
+80%
Revenue Mix in the
USA in 2020
48%
Manufacturing Locations
18 Global
Solutions Centers
3 Technology
Design Centers
5 Global
Global Team Members
11,000+
Product Design Engineers
400+
Our Services Location
>50% CAPACITY IN THE U.S. | DESIGN ENGINEERING SERVICES ON 3 CONTINENTS
1. Concord, CA 2. Fremont, CA 3. Moorpark, CA 4. Santa Ana, CA 5. Phoenix, AZ 6. Tempe, AZ
United States:
7. Winona, MN 8. Rochester, MN 9. Nashua, NH 10. Huntsville, AL 1. Ayudhaya, Thailand 2. Korat, Thailand 3. Suzhou, China 4. Penang, Malaysia 5. Singapore IPOAsia:
1. Almelo, The Netherlands
2. Brasov, Romania
Europe:
1. Guadalajara, Mexico
2. Tijuana, Mexico
Mexico:
EMS Market Summary
SOURCE: NEW VENTURE RESEARCH – WORLDWIDE EMS MARKET
SEMI-CAP OPPORTUNITY IS INCLUDED IN THE INDUSTRIALS MARKET
2019 EMS
Market Size:
$443B
EMS Revenue
CAGR
2019 – 2024
~5 %
Higher Value Sector
Outsourcing Penetration
Medical
Our Evolution to Higher Value Sectors
$1,983 $1,384 $846 $656 $389 68% 50% 35% 29% 19% 10.0% 60.0% 110.0% 160.0% 0 500 1,000 1,500 2,000 2007 2014 2017 2019 2020 TargetTraditional Market Revenue ($M)
Higher Value Market Revenue ($M)
$933 $1,413 $1,608 $1,612 $1,664 32% 50% 65% 71% 81% 10.0% 60.0% 110.0% 160.0% 0 500 1,000 1,500 2,000 2,500 3,000 2007 2014 2017 2019 2020 Target
Shifted away from larger, more commoditized programs, less
differentiation
Less engineering services opportunities
Rationalized Lower Margin Traditional Programs
Enhanced Go-to-Market team
that can sell solutions
High-mix/lower-volume
complex programs
Increased Higher Value Programs
Engineering-led
engagements
Higher value-added
services and solutions
Expanded Non-GAAP Gross Margins
2007 Gross
Margins
6.8%
8.4%
2020 Gross
Margins
>9.3%
Mid-term
Model
~80%Benchmark Industry Diversification
A Leader in the Highly Regulated and Complex Industries We Serve
Fluid Management Radiological Imaging Optical Imaging Medical Robotics
Connected & Handheld Devices Diagnostic Devices
Medical
Primarily front-end wafer fabrication
equipment Control systems
Semi Conductor
Capital Equipment
Communications Connectivity Digital Subsystems Mechanical Subsystems Displays & Sensors NavigationAerospace & Defense (A&D)
Automation & Robotics Control, Measurement & Test Capital Equipment
Transportation Sensory
Surveillance & Detection
Complex Industrials
Hyperscale/High Value Datacenter High Performance Computing Secure Computing
Computing
Smart City
Antenna Infrastructure
Wireless/Satellite/Free Space Optics Next-Gen Networking Infrastructure
Telecommunications
CY-20 Revenue by Sector
Benchmark Industry Diversification
Blue Chip and Industry Leading Customer Base
Our Differentiated Capabilities
•
Big enough to provide global scale yet agile enough to provide unique customer solutions•
Over 20 global locations to support expansion or transition to other geographies over time•
Local focus with global enterprise backingBalanced Scale
and Agility
•
Consolidated leverage for global spend on common components•
Global infrastructure to support regional sourcing as required•
Preferred supply chain & suppliers established•
Supply chain design and management for complex, regulated marketsStrategic Global
Supply Chain
Leveraging
Regional Centers
•
Years of experience in a variety of technically diverse market sectors (>80% higher value markets)•
High customer retention rate•
Medical (FDA Class III) and A&D (classified) market experienceDiversified
Market Insight
and Regulated
Market Expertise
•
Over 40 years ofexperience in Design for Excellence
•
Full product lifecycle support with tightly integrated Design & Manufacturing Teams•
Ability to take product idea from concept through design to volume manufacturing•
Technically rich mechanical capabilities complement electronic strengthsDesign
Engineering and
Manufacturing
Experience
Innovative Technology | Global Scale | Trusted Partnerships
Investing in Capabilities to Support Growth
Leading Global Provider of Services & Solutions
OUR GOAL IS TO SELL THE FULL BREADTH OF CAPABILITIES TO OUR TARGETED CUSTOMERS
Technology Solutions
Design & Engineering
Services
Manufacturing Services
IP Building Block Design
RF, Photonics and Secure
Communication Technologies
Full Product Design
Services
Process / Test
Development
Manufacturing
Electronics
Precision Technologies
Customer Success Stories
Microelectronics Process
Improvement for
Commercial Satellites
Customer Challenge:
Product must operate in a harsh space environment
many years without failure
Existing EMS customer could not achieve first pass
yields above 50%
Benchmark Solution:
Controlled experiments for microelectronics
assembly and functional test improvements
First pass yields now exceed 90%
Customer now leveraging greater design and
technology capabilities
New Product Introduction
for Rapid COVID Testing
Customer Challenge:
New customer needed design cost reduction and
manufacturability inputs to meet price points
State of the art process needed for steep volume
ramp tor production
Benchmark Solution:
Executed Design for Excellence project with
process improvements and material cost reductions
Ramped to volume in one quarter to meet customer
deployment targets
Key Strategic Initiatives
Grow Revenue
Optimize the customer experience
and enhance strategic relationships
Expand account management to
align Benchmark capabilities to
customer technology roadmaps
Improve attach rate of Design/
Solutions to EMS deals by selling
the full breadth of services and
capabilities
Continue competitive win
differentiation and successfully ramp
new programs
Grow Earnings Faster
Than Revenue
Drive growth that enables higher
utilization and better leverage
against fixed costs
Align portfolio to customers that
value our advanced technologies
and leverage our breadth of
services
Improve margins through focused
operational excellence activities
Manage inventory to improve
cash flow
Invest in a Sustainable
Infrastructure and Talent
Expand and accelerate
ESG/Sustainability initiatives
Advance Diversity and Inclusion
initiatives
Enhance shared services and
streamline global delivery
Rationalized investments in
corporate infrastructure to support
sustainability and ability to scale
Effective SG&A expense
Environmental, Social & Governance (ESG) / Sustainability
Formation of the ESG/Sustainability Council at Benchmark
With our Board acting as sponsor, the ESG/Sustainability Council
includes a cross-functional team of leaders representing operations,
HR, supply chain, regulatory compliance, marketing communications,
finance, investor relations and facilities with responsibility for evolving
our ESG/Sustainability strategy and implementing and managing
strategic sustainability initiatives
Energy
Management
Waste & Hazardous
Material Mgt
Water Management Carbon Emissions
Diversity & Inclusion Human Rights Labor Relations Well-being Health & Safety Community Relations Business Ethics Risk Management Audit Management Management Structure Board Independence
Environmental
Social
Governance
Sustainability
Board of Directors (Nominating & Governance Committee)
ESG I Sustainability Steering Committee Benchmark Senior Leadership Team
ESG I Sustainability Council ESG I Sustainability Consultant
RBA I EcoVadis
Work Group EnvironmentalWork Group Social Work Group GovernanceWork Group
Change Mgt / Communication
Work Group
Benchmark’s ESG / Sustainability Status
• Released our SASB Matrix in March 2021 (located on the
Sustainability page of www.bench.com)
•
ESG updates in our 2020 Annual Report and 2021 Proxy
•
Increased emphasis and advancement of Diversity, Equity,
& Inclusion initiatives
ESG / SUSTAINABILITY IS A STRATEGIC IMPERATIVE FOR BENCHMARK
1. Environmental Responsibility 2. Our People
3. Our Community 4. Governance
5. Our COVID-19 Response
Five Key Tenets of our Strategy
Recent Status
Next Steps
•
Initiated data collection efforts for reporting aligned with the
Global Reporting Initiative (GRI)
•
Plans in flight to expand racial diversity on Board
•
Expect to release a stand-alone Sustainability Report in 2022
Recognition
• Recently awarded Silver Medal
status from
•
Silver status puts Benchmark in
the top 25% of companies rated
•
Rigorous assessment of criteria
including Environmental, Labor &
Human Rights, Ethics, and
Mid-Term Target Model (through 2022)
Annual Revenue Growth
~5%
Expand Non-GAAP Gross
Margins
9.3 – 9.7%
Manage SG&A Expenses
< 6%
Increase Non-GAAP
Operating Margins
3.4 – 3.8%
Targeted customer base for
strategic account growth
Strong bookings, increased
win rate with new and existing
customers through
technology differentiation
Improving customer
satisfaction and retention
Higher value add market mix
and expanded services
support increasing margins
and sustaining them
Operational excellence
programs in place for
optimizing throughput
Effective management of
SG&A expenses
Centralization of shared
services and new tools in
place for greater efficiency
Expect to grow earnings
faster than revenue
Resulting improvement to
Liquidity and Capital Resources
For the Twelve Months Ended
Cash (In millions)
Dec. 31,
2020
Dec. 31,
2019
Dec. 31,
2018
Cash Flows from (used in)
Operations
$120
$93
$77
FCF
(1)$81
$58
$10
Cash
$396
$364
$458
International
$207
$198
$154
US
$189
$166
$304
(1) Free cash flow (FCF) defined as net cash provided by (used in) operations less capex
Debt Structure (In millions)
Senior Secured Term Loan
$137
Revolving Credit Facility Drawn Amount
$0
* Leverage ratio is Net debt/LTM adjusted EBITDA, as defined in the credit facility, which are non-GAAP measures
•
Strong balance sheet and
appropriate debt structure
•
Credit facility matures July
2023
•
Current leverage ratio* in
compliance with debt
covenants
Capital Allocation Priorities
Capital Allocation Framework is Aligned to Business Strategy to Drive Value Creation for Shareholders
Cash Flow from Operations
Value Creation for Benchmark Shareholders
Capital Expenditures to support ongoing business & drive organic
growth
Dividends paid at an LTM
yield of 2% - 4%
Balance Sheet Optimization
in compliance with debt covenants
M&A aligned with our
long-term strategy Share Repurchases to cover equity dilution at a minimum
Free Cash Flow
Capital Expenditures
Focus on growth capital in higher value markets Estimated recurring annual range ~$40M to $60M
Balance Sheet Optimization
Continue efficient use of working capital Maintain appropriate debt structure
Dividends
Continue dividend and evaluate future increases Current quarterly dividend of $0.165/share
Mergers & Acquisitions (M&A)
Increase core technology capabilities
Expand value of services for new and existing customers
Share Repurchases
Execute complementary repurchases where cash flow exceeds other
Cash Utilization
2020: $120M
Cash flow from
operations
2020: $81M
Free cash flow
$77 $93 $120 $0 $20 $40 $60 $80 $100 $120 $140
FY'18 FY'19 FY'20
Cash Flow from Operations
Free Cash Flow
$10 $58 $81 $0 $20 $40 $60 $80 $100
FY'18 FY'19 FY'20
…Successfully Executed 2018 to 2020
• Instituted a recurring cash dividend and increased share repurchases
• Strategic capital expenditures for future organic growth
• Opportunistic M&A to enhance technical capabilities
Updated Capital Allocation Strategy in February 2018
(in millions except percentages)
Capital Allocation
$141
$359
$67
Capital Allocation Update
Cash
Dividends
Share
Repurchases
FY'20: paid cash dividends of $23.0M
3 Years: paid cash dividends of $67.3M
Cash Dividend History:
‒ Instituted a recurring cash dividend in February 2018 of $0.15
‒ Dividend increased to $0.16 in February 2020
FY'20: repurchased 964K shares for
$25.2M
3 Years: 13.9M shares repurchased for
$359M
Approximately $204M remains available
under Board authorized program
$21 $23 $23 $20 $21 $22 $23 $24
FY'18 FY'19 FY'20
Cash Dividends Paid
(in millions) 8 5 1 0 2 4 6 8 10
FY'18 FY'19 FY'20
Shares Repurchased
Why Invest in Benchmark?
Leading EMS Business Uniquely
Positioned with an Engineering and
Technology Leadership Focus
High frequency RF solutions,
micro-electronics, miniaturization as “win”
differentiator
Precision machining capabilities
complement electronics capabilities
Engineering product design skills a key
differentiator and value driver
Value-added capabilities and improving
high value market mix increase gross
margins
Strong Balance Sheet to Support
Future Growth and Higher Returns
on Capital
Capacity to sustain capital investment in
our current asset base and fund growth
Continue to leverage current capital base
to grow earnings and maximize cash
generation
Prudently pursue M&A to enhance
capabilities aligned with our strategy
Committed to return capital to shareholders
through earnings growth, dividends and
share buybacks
Well Positioned to Benefit from
Demand Growth and Operational
Excellence
Outsourcing trends in targeted markets are
favorable – most segments less than 50%
Higher value market revenue mix at target
of ~80%
New leadership energized and focused on
driving growth
Earnings leverage with revenue growth and
Appendix 1:
GAAP to
Non-GAAP
Reconciliations
(in millions) 2018 2019 2020 Revenue (GAAP) $2,566.5 $2,268.1 $2,053.1Income from operations (GAAP) $58.5 $28.5 $25.1
Operating margin (GAAP)1 2.3% 1.3% 1.2%
Restructuring charges, integration and acquisition costs and other costs 9.4 13.1 13.2 Ransomware incident related costs (recovery), net - 7.7 (1.4) Amortization of intangibles 9.5 9.5 9.1 Asset impairment charge and other - - 6.7 Customer insolvency (recovery) 2.5 8.3 (1.7) Non-GAAP income from operations $79.9 $67.1 $51.2
Non-GAAP operating margin1 3.1% 3.0% 2.5%
Net income (GAAP) $22.8 $23.4 $14.1
Restructuring charges, integration costs and other costs 9.4 10.4 13.2 Ransomware incident related costs (recovery), net - 7.7 (1.4) Amortization of intangibles 9.5 9.5 9.1 Asset impairment charge and other - - 6.7 Refinancing of credit facilities 2.0 - -Customer insolvency (recovery) 2.5 8.3 (1.7) Tax cuts & Jobs Act 26.0 - -Income tax adjustments (4.6) (8.1) (5.2)
Non-GAAP net income $67.6 $51.2 $34.9
Net cash provided by operations (GAAP) $76.7 $93.1 $120.4 Additions to property, plant & equipment and software 66.7 35.1 39.5
Free Cash Flow $10.0 $58.0 $80.9
