Benchmark Electronics(BHE) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2022, covering balance sheets, income, equity, and cash flow statements with explanatory notes Condensed Consolidated Balance Sheets Total assets increased to $2.17 billion by June 30, 2022, driven by inventories and receivables, with liabilities and equity also rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,601,272 | $1,348,144 | | Inventories | $666,742 | $523,240 | | Total Assets | $2,166,785 | $1,903,880 | | Total current liabilities | $785,078 | $654,382 | | Long-term debt, less current installments | $262,185 | $129,289 | | Total Liabilities | $1,180,928 | $925,074 | | Total shareholders' equity | $985,773 | $973,802 | Condensed Consolidated Statements of Income The company reported significant year-over-year growth in Q2 2022 sales, up 33.7% to $728.0 million, with net income more than doubling to $17.2 million Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YoY Change | Six Months 2022 | Six Months 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $728,029 | $544,662 | +33.7% | $1,364,112 | $1,050,383 | +29.9% | | Gross Profit | $58,756 | $47,913 | +22.6% | $116,358 | $90,140 | +29.1% | | Income from Operations | $22,432 | $10,699 | +109.7% | $37,839 | $22,633 | +67.2% | | Net Income | $17,221 | $7,369 | +133.7% | $28,181 | $15,286 | +84.3% | | Diluted EPS | $0.49 | $0.20 | +145.0% | $0.79 | $0.42 | +88.1% | Condensed Consolidated Statements of Cash Flows Net cash outflow from operations reached $93.5 million in H1 2022, driven by working capital investments, while financing activities provided $110.8 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operations | $(93,510) | $40,273 | | Net cash used in investing activities | $(19,314) | $(18,431) | | Net cash provided by (used in) financing activities | $110,789 | $(49,066) | | Net decrease in cash | $(7,830) | $(25,547) | - The significant use of cash in operations was mainly due to changes in operating assets and liabilities, including a $146.2 million increase in inventories and a $91.2 million increase in accounts receivable, reflecting investments to support growth amid supply chain challenges[14] Notes to Condensed Consolidated Financial Statements Detailed notes cover revenue recognition, credit agreement amendments, share repurchases, dividend payments, restructuring charges, and segment performance, highlighting Asia's growth - In May 2022, the company amended its credit agreement, increasing the Revolving Credit Facility from $250 million to $450 million. As of June 30, 2022, $135.0 million was outstanding under the revolver, with $311.1 million available for future borrowings[29][35] - During the first six months of 2022, the company repurchased 0.4 million common shares for $9.4 million and paid cash dividends totaling $11.6 million[43][44] - Restructuring charges of $3.6 million were recognized in the first half of 2022, primarily related to the closures of sites in San Jose, Angleton, and Moorpark, California[80] Revenue by Reportable Segment for Six Months Ended June 30 (in thousands) | Segment | 2022 | 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Americas | $665,855 | $569,108 | +17.0% | | Asia | $607,708 | $410,843 | +47.9% | | Europe | $140,191 | $112,500 | +24.6% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022's strong 34% revenue growth, driven by robust demand across sectors, while addressing supply chain challenges, liquidity, and capital return programs Second Quarter 2022 Highlights Q2 2022 sales surged 34% year-over-year to $728.0 million, driven by broad-based growth across Higher-Value and Traditional markets, with Industrials, Medical, and Computing leading Q2 2022 Sales Growth by Market Sector (YoY) | Market Sector | YoY Growth | | :--- | :--- | | Higher-Value Markets | +33% | | Industrials | +59% | | A&D | -7% | | Medical | +53% | | Semi-Cap | +26% | | Traditional Markets | +38% | | Computing | +73% | | Telecommunications | +15% | - Component supply chain constraints continue to limit the company's ability to meet full customer demand, leading to operational inefficiencies and increased inventory levels[131] Results of Operations Q2 2022 sales increased 34%, driving gross profit up 23% to $58.8 million, despite gross margin contraction, leading to a 110% rise in operating income to $22.4 million - Gross margin decreased in Q2 2022 primarily due to the mix of revenue, operational inefficiencies from supply chain challenges, and the dilutive impact of passing through supply chain premium costs with no margin[148] - Operating income for Q2 2022 increased by 110% to $22.4 million from $10.7 million in Q2 2021, driven by higher revenue and gross profit[149] - Net income for Q2 2022 was $17.2 million ($0.49 per diluted share), a significant increase from $7.4 million ($0.20 per diluted share) in Q2 2021[163] Liquidity and Capital Resources The company maintained strong liquidity with $263.9 million cash and $311.1 million credit facility availability, despite $93.5 million negative operating cash flow due to inventory investment - Working capital increased from $0.7 billion at year-end 2021 to $0.8 billion at June 30, 2022, reflecting proactive investment in inventory to support revenue growth[166] - The company's credit facility was amended to increase the revolving credit commitment to $450 million. As of June 30, 2022, total debt outstanding was $266.3 million[170] - As of June 30, 2022, $154.6 million remained under the share repurchase authorization[176] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rate fluctuations through hedging strategies, including forward contracts and an interest rate swap - The company uses forward currency contracts to hedge transactional exposure in currencies other than the functional currency of its operating entities[184] - An interest rate swap with a notional amount of $125.6 million is in place to convert a portion of floating-rate interest expense on the term loan to a fixed rate[188] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls, while an ERP system upgrade continues - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[190] - The company is in the process of a phased, multi-year upgrade of its enterprise resource planning (ERP) system, which has been completed at certain locations[194] PART II—OTHER INFORMATION Item 1. Legal Proceedings No material changes to legal proceedings were reported from the 2021 10-K, with ongoing actions not expected to materially affect financial position or results - There have been no material changes to the legal proceedings previously reported, and management does not expect the outcomes to have a material adverse effect on the company[197] 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[198] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2022, the company repurchased 162,000 shares for $3.9 million, with $154.6 million remaining under its share repurchase authorization Share Repurchases for Quarter Ended June 30, 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 147,000 | $24.14 | | May 2022 | 15,000 | $24.14 | | June 2022 | — | — | | Total | 162,000 | $24.11 | - As of June 30, 2022, the company had $154.6 million remaining under its stock repurchase authorization[199] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreement amendments, and CEO/CFO certifications - Key exhibits filed include Amendment No. 1 to the Amended and Restated Credit Agreement, and the Section 302 and 1350 certifications by the Chief Executive Officer and Chief Financial Officer[201]