Benchmark Electronics(BHE) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2022, including balance sheets, income, comprehensive income, equity, and cash flow statements with explanatory notes Condensed Consolidated Balance Sheets Total assets increased to $2.00 billion from $1.90 billion at year-end 2021, driven by higher inventories and long-term debt growth Condensed Consolidated Balance Sheets Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $244,935 | $271,749 | | Inventories | $608,347 | $523,240 | | Total current assets | $1,451,018 | $1,348,144 | | Total assets | $2,002,556 | $1,903,880 | | Liabilities & Equity | | | | Accounts payable | $457,252 | $426,555 | | Long-term debt, less current installments | $201,510 | $129,289 | | Total current liabilities | $684,465 | $654,382 | | Total shareholders' equity | $976,405 | $973,802 | Condensed Consolidated Statements of Income Sales rose 25.8% year-over-year to $636.1 million, net income grew 38.4% to $11.0 million, and diluted EPS reached $0.31 Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Sales | $636,083 | $505,721 | | Gross profit | $57,602 | $42,227 | | Income from operations | $15,407 | $11,934 | | Net income | $10,960 | $7,917 | | Diluted EPS | $0.31 | $0.22 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2022 significantly increased to $12.2 million from $6.6 million in Q1 2021, driven by higher net income and unrealized derivative gains Comprehensive Income Summary (in thousands) | Component | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net income | $10,960 | $7,917 | | Other comprehensive income (loss) | $1,271 | $(1,336) | | Comprehensive income | $12,231 | $6,581 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $976.4 million, driven by net income, partially offset by share repurchases and dividend payments - Key changes in shareholders' equity for Q1 2022 included: - Net income: +$11.0 million - Dividends declared: -$5.8 million - Shares repurchased and retired: -$5.5 million[11] Condensed Consolidated Statements of Cash Flows Operating activities used $68.0 million cash, driven by an $85.8 million inventory increase, with financing providing $59.1 million from credit borrowings Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operations | $(68,025) | $36,613 | | Net cash used in investing activities | $(16,645) | $(6,409) | | Net cash provided by (used in) financing activities | $59,134 | $(23,760) | | Net (decrease) increase in cash | $(26,814) | $4,438 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue by sector and geography, debt, leases, stock compensation, restructuring, and segment performance Revenue by Market Sector (in thousands) | Market Sector | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Industrials | $137,146 | $95,452 | | A&D | $81,187 | $89,381 | | Medical | $116,873 | $108,190 | | Semi-Cap | $183,437 | $113,110 | | Computing | $55,056 | $43,686 | | Telecommunications | $62,384 | $55,902 | | Total | $636,083 | $505,721 | - The company recognized $2.3 million in restructuring charges in Q1 2022, primarily related to site closures in the Americas, and recorded an additional $2.0 million loss on assets held for sale[78][82] Segment Performance (in thousands) | Segment | Net Sales Q1 2022 | Income from Operations Q1 2022 | Net Sales Q1 2021 | Income from Operations Q1 2021 | | :--- | :--- | :--- | :--- | :--- | | Americas | $305,580 | $10,365 | $276,838 | $8,234 | | Asia | $287,246 | $27,806 | $188,304 | $17,352 | | Europe | $70,341 | $4,638 | $60,880 | $5,238 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial results, including a 26% revenue increase, COVID-19 impacts, supply chain constraints, segment performance, and liquidity COVID Pandemic Update The COVID-19 pandemic continues to negatively impact operations through supply chain constraints and inefficiencies, limiting customer demand fulfillment, while the company utilized CARES Act provisions - Revenue in 2021 and Q1 2022 was negatively impacted by operational inefficiencies and supply chain constraints, affecting the ability to support customer demand[121] - The company deferred employer social security tax payments under the CARES Act and determined it was entitled to employee retention credits for 2020[123] First Quarter 2022 Highlights Q1 2022 sales grew 26% to $636.1 million, driven by strong performance in Higher-Value markets, despite ongoing supply chain constraints Year-over-Year Sales Growth by Sector (Q1 2022) | Sector | Growth Rate | | :--- | :--- | | Higher-Value Markets | +28% | | Industrials | +44% | | A&D | -9% | | Medical | +8% | | Semi-Cap | +62% | | Traditional Markets | +18% | | Computing | +26% | | Telecommunications | +12% | - Sales to the ten largest customers represented 51% of total sales in Q1 2022, up from 44% in Q1 2021[128] Results of Operations Gross profit increased 36% to $57.6 million, operating income rose 29% to $15.4 million, and SG&A expenses grew due to compensation and IT investments - Gross profit increased 36% to $57.6 million in Q1 2022 from $42.2 million in Q1 2021, with gross margin improving due to higher revenues[143] - SG&A expenses increased to $36.3 million in Q1 2022 from $30.5 million in Q1 2021, driven by higher variable compensation, medical claims, and IT infrastructure investments[148] - The effective tax rate for Q1 2022 was 18.8%, slightly higher than 18.2% in Q1 2021, mainly due to the expiration of the Malaysia tax holiday[154] Liquidity and Capital Resources Liquidity is supported by cash and credit facility, with $68.0 million cash used in operations, and $5.5 million repurchases and $5.8 million dividends - Cash used in operating activities was $68.0 million in Q1 2022, primarily due to an $85.8 million increase in inventories and a $26.4 million increase in accounts receivable[159] - During Q1 2022, the company repurchased 0.2 million common shares for $5.5 million, with $158.5 million remaining under authorization as of March 31, 2022[169] - Cash dividends paid totaled $5.8 million in Q1 2022, with a quarterly dividend of $0.165 per share declared on March 15, 2022[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency fluctuations and variable-rate debt using forward currency exchange contracts and an interest rate swap agreement - The company uses forward currency exchange contracts to hedge transactional exposure related to foreign currency fluctuations[177] - An interest rate swap agreement with a notional amount of $127.5 million is used to convert a portion of floating-rate interest expense to a fixed rate, hedging against interest rate risk on borrowings[181] Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls were effective as of March 31, 2022, with no material changes to internal financial reporting controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[183] - No changes occurred in the company's internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[186] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary legal actions, which management believes will not materially adversely affect its financial position or operations - There have been no material changes to legal proceedings, and management does not expect them to have a material adverse effect[190] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K were reported - No material changes to the risk factors previously disclosed in the 2021 10-K were reported[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 214,000 shares for $5.5 million in Q1 2022, with $158.5 million remaining under authorization Share Repurchases for Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2022 | 0 | $— | | February 2022 | 91,000 | $25.24 | | March 2022 | 123,000 | $25.88 | - As of March 31, 2022, the total remaining authorization for share repurchases was $158.5 million[192] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate documents and CEO/CFO certifications under Sarbanes-Oxley Act - Exhibits filed include Section 302 and Section 1350 certifications from the CEO and CFO, along with Inline XBRL documents[194]