Benchmark Electronics(BHE) - 2021 Q1 - Quarterly Report

FORM 10-Q Filing Information - Benchmark Electronics, Inc. filed a Form 10-Q for the quarterly period ended March 31, 2021[1] - The registrant is classified as a large accelerated filer[1] - As of May 3, 2021, 35,816,399 shares of common stock were outstanding[1] Table of Contents - The report is structured into Part I (Financial Information) and Part II (Other Information)[2] - Key sections include Financial Statements, Management's Discussion and Analysis, Quantitative and Qualitative Disclosures About Market Risk, and Controls and Procedures[2] Part I – Financial Information This part contains the core financial data and management's analysis of the company's financial condition and results of operations for the quarter ended March 31, 2021, along with disclosures on market risk and internal controls - Part I includes unaudited condensed consolidated financial statements and related notes[3][5] - It also covers Management's Discussion and Analysis of Financial Condition and Results of Operations[2][94] Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Benchmark Electronics, Inc., including the balance sheets, statements of income, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets The balance sheet shows the company's financial position as of March 31, 2021, compared to December 31, 2020, indicating changes in assets, liabilities, and shareholders' equity, with total assets increasing slightly due to higher cash and inventories, and total liabilities rising primarily from accounts payable | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Assets | | | | | Cash and cash equivalents | $400,428 | $390,808 | $9,620 | | Restricted cash | $— | $5,182 | $(5,182) | | Accounts receivable, net | $276,287 | $309,331 | $(33,044) | | Inventories | $355,164 | $327,377 | $27,787 | | Total current assets | $1,213,440 | $1,202,351 | $11,089 | | Property, plant and equipment, net | $183,294 | $185,272 | $(1,978) | | Total assets | $1,760,753 | $1,744,235 | $16,518 | | Liabilities & Equity | | | | | Accounts payable | $325,226 | $282,208 | $43,018 | | Total current liabilities | $505,110 | $481,136 | $23,974 | | Total shareholders' equity | $977,547 | $989,588 | $(12,041) | Condensed Consolidated Statements of Income For the three months ended March 31, 2021, Benchmark Electronics, Inc. reported a decrease in sales but a significant increase in net income compared to the same period in 2020, driven by higher income from operations and recovery from ransomware incident costs | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | YoY Change | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :--------- | | Sales | $505,721 | $514,964 | $(9,243) | -1.8% | | Gross profit | $42,227 | $43,361 | $(1,134) | -2.6% | | Income from operations | $11,934 | $6,490 | $5,444 | +83.9% | | Income before income taxes | $9,674 | $4,725 | $4,949 | +104.7% | | Net income | $7,917 | $3,852 | $4,065 | +105.5% | | Basic EPS | $0.22 | $0.10 | $0.12 | +120.0% | | Diluted EPS | $0.22 | $0.10 | $0.12 | +120.0% | - Ransomware related incident costs showed a net recovery of $3.4 million in Q1 2021, compared to no recovery in Q1 2020, contributing to improved operating income[6] Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported comprehensive income of $6.6 million for the three months ended March 31, 2021, a significant improvement from a comprehensive loss of $1.4 million in the prior year, primarily driven by higher net income and a reduced foreign currency translation loss | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net income | $7,917 | $3,852 | $4,065 | | Foreign currency translation adjustments | $(2,420) | $(1,257) | $(1,163) | | Unrealized (gain) loss on derivative, net of tax | $945 | $(4,094) | $5,039 | | Other comprehensive income (loss) | $(1,336) | $(5,236) | $3,900 | | Comprehensive income (loss) | $6,581 | $(1,384) | $7,965 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from $989.6 million at December 31, 2020, to $977.5 million at March 31, 2021, primarily due to share repurchases and dividends, partially offset by net income and stock-based compensation | Metric | December 31, 2020 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :------------------------------- | :---------------------------- | :-------------------- | | Total shareholders' equity | $989,588 | $977,547 | $(12,041) | | Shares repurchased and retired | N/A | $(13,052) | N/A | | Dividends declared | N/A | $(5,772) | N/A | | Net income | N/A | $7,917 | N/A | - The company repurchased shares totaling $13.1 million and paid dividends of $5.8 million during the three months ended March 31, 2021[8] Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2021, Benchmark Electronics, Inc. generated significant cash from operating activities, a positive shift from a net cash outflow in the prior year, with cash primarily used in financing activities | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net cash provided by (used in) operations | $36,613 | $(3,109) | $39,722 | | Net cash used in investing activities | $(6,409) | $(11,491) | $5,082 | | Net cash provided by (used in) financing activities | $(23,760) | $66,538 | $(90,298) | | Net increase in cash and cash equivalents and restricted cash | $4,438 | $47,830 | $(43,392) | | Cash and cash equivalents and restricted cash at end of period | $400,428 | $411,786 | $(11,358) | - Operating cash flow improved significantly, driven by a decrease in accounts receivable and an increase in accounts payable, despite an increase in inventories[9] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, specific balance sheet and income statement items, and other relevant financial information - The financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP[11] - Management's estimates and assumptions consider the potential impacts of the COVID-19 pandemic[12] Note 1 – Basis of Presentation This note outlines the company's business, the basis for preparing the unaudited condensed consolidated financial statements, and the impact of COVID-19 on management's estimates - Benchmark Electronics, Inc. provides product design, engineering services, technology solutions, and advanced manufacturing services to OEMs since 1979[10] - The company serves industries such as aerospace & defense, medical technologies, complex industrials, semiconductor capital equipment, next-generation telecommunications, and advanced computing[10] - Financial statements are unaudited, prepared under SEC rules and U.S. GAAP, with management's estimates considering COVID-19 impacts[11][12] Note 2 – New Accounting Pronouncements This note discusses recently issued accounting standards, specifically ASU No. 2020-04 regarding reference rate reform, which is not expected to materially impact the company's financial statements - The FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848)," effective through December 31, 2022[13] - This update is currently not expected to have a material impact on the company's consolidated financial statements[13] Note 3 – Inventories The company's inventory costs increased to $355.2 million as of March 31, 2021, from $327.4 million at December 31, 2020, primarily driven by an increase in raw materials | Inventory Component | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Raw materials | $340,234 | $312,856 | $27,378 | | Work in process | $9,864 | $8,687 | $1,177 | | Finished goods | $5,066 | $5,834 | $(768) | | Total Inventories | $355,164 | $327,377 | $27,787 | Note 4 – Goodwill and Other Intangible Assets Goodwill remained stable at $192.1 million, allocated across Americas and Asia segments, while net carrying amount of other intangible assets slightly decreased to $68.7 million at March 31, 2021 | Asset Type | March 31, 2021 (Net Carrying Amount, in thousands) | December 31, 2020 (Net Carrying Amount, in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Goodwill | $192,116 | $192,116 | $0 | | Customer relationships | $45,213 | $46,799 | $(1,586) | | Purchased software costs | $13,159 | $12,876 | $283 | | Technology licenses | $1,961 | $1,967 | $(6) | | Trade names and trademarks | $7,800 | $7,800 | $0 | | Other intangible assets | $529 | $535 | $(6) | | Total Intangible Assets | $68,663 | $69,977 | $(1,314) | - Amortization expense for intangible assets was $1.6 million in Q1 2021, down from $2.4 million in Q1 2020, primarily due to a fully amortized intangible asset[19][132] Note 5 – Borrowing Facilities The company's long-term debt, primarily a term loan, decreased slightly to $134.0 million at March 31, 2021, with $496.1 million available under its revolving credit facility | Debt Component | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Term loan, due 2023 | $134,999 | $136,874 | $(1,875) | | Less unamortized debt issuance costs | $(1,040) | $(1,155) | $115 | | Long-term debt | $133,959 | $135,719 | $(1,760) | - As of March 31, 2021, the company had $135.0 million outstanding under the Term Loan Facility and $496.1 million available under the Revolving Credit Facility[27][146] - $135.0 million of the outstanding debt is effectively at a fixed interest rate of 2.928% due to an interest rate swap contract[24] Note 6 – Leases The company's total lease cost decreased to $4.6 million in Q1 2021 from $5.2 million in Q1 2020, while operating lease right-of-use assets increased to $88.9 million | Lease Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :-------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Total lease cost | $4,636 | $5,188 | $(552) | | Operating lease cost | $3,794 | $4,141 | $(347) | | Lease Asset/Liability | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Operating lease right-of-use assets | $88,915 | $79,966 | $8,949 | | Operating lease liabilities, noncurrent | $79,659 | $72,120 | $7,539 | | Weighted average remaining lease term – operating leases | 10.1 years | 10.0 years | 0.1 years | Note 7 – Common Stock and Stock-Based Awards Plans This note details the company's dividend policy, share repurchase program, and stock-based compensation plans, highlighting $13.1 million in share repurchases and $5.8 million in dividends during Q1 2021 Dividends Benchmark Electronics, Inc. continued its quarterly cash dividend policy, declaring $0.16 per share for Q1 2021, totaling $5.8 million, with future dividends subject to various factors - Cash dividends paid totaled $5.8 million for the three months ended March 31, 2021, up from $5.5 million in 2020[32] - A quarterly cash dividend of $0.16 per share was declared on March 15, 2021, paid on April 14, 2021[32] Share Repurchase Authorization The Board of Directors authorized a $150 million increase to its stock repurchase program in February 2020, with $13.1 million in shares repurchased during Q1 2021, leaving $191.2 million remaining - The Board authorized a $150 million increase to the stock repurchase program on February 19, 2020[33][152] - During Q1 2021, 0.4 million common shares were repurchased for $13.1 million at an average price of $29.52 per share[33][35][152] - As of March 31, 2021, $191.2 million remained available under the stock repurchase program[35][152] Stock-Based Compensation Total stock-based compensation expense increased to $2.9 million in Q1 2021 from $2.7 million in Q1 2020, with 2.2 million common shares available for issuance under its 2019 Plan | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Total compensation cost recognized | $2,850 | $2,739 | $111 | | Total income tax benefit recognized | $700 | $700 | $0 | - As of March 31, 2021, 2.2 million common shares were available for issuance under the 2019 Plan[37] | Award Type | Unrecognized Compensation Cost (in thousands) | Remaining Weighted-Average Amortization Period | | :-------------------------------- | :------------------------------------ | :--------------------------------------------- | | Restricted Stock Units | $28,561 | 3.0 years | | Performance-based Restricted Stock Units | $9,434 | 2.6 years | Note 8 – Income Taxes Income tax expense increased to $1.8 million in Q1 2021 from $0.9 million in Q1 2020, with an effective tax rate of 18.2%, benefiting from tax incentives in Malaysia and Thailand | Tax Component | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Federal - current | $(163) | $617 | $(780) | | Foreign - current | $2,258 | $986 | $1,272 | | State - current | $140 | $155 | $(15) | | Deferred | $(478) | $(885) | $407 | | Total Income Tax Expense | $1,757 | $873 | $884 | - Tax incentives in Malaysia and Thailand lowered foreign income tax expense by approximately $1.0 million ($0.03 per diluted share) in Q1 2021, up from $0.8 million ($0.02 per diluted share) in Q1 2020[51] - The tax holiday for Malaysia expired on April 1, 2021, and the company is applying for a new one[52] Note 9 – Revenue The company generates revenue primarily from manufactured products and engineering services, with 90% recognized over time, and contract assets increasing to $148.2 million - Revenue is primarily generated from the sale of manufactured products built to customer specifications and from design, development, and engineering services[55] - 90% of the company's revenue was recognized over time as products and services were transferred, for both Q1 2021 and Q1 2020[61] | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Contract assets | $148,205 | $142,779 | $5,426 | | Advance payments from customers | $76,833 | $84,122 | $(7,289) | Note 10 – Accounts Receivable Sale Program The company has an accounts receivable sale program, allowing it to sell up to $120.0 million of receivables, with $79.3 million sold in Q1 2021, generating $79.2 million in cash proceeds - The company can sell up to $120.0 million of specific accounts receivable at any one time under its trade accounts receivable sale program[67] - During Q1 2021, $79.3 million of accounts receivable were sold, yielding $79.2 million in cash proceeds (net of discount)[68] Note 11 – Contingencies The company is involved in various legal actions in the ordinary course of business, but management believes their ultimate disposition will not materially adversely affect its financial position or results of operations - The company is involved in various legal actions arising in the ordinary course of business[69] - Management believes these matters will not have a material adverse effect on the company's consolidated financial position or results of operations[69] Note 12 – Restructuring Charges The company recognized $1.6 million in restructuring charges during Q1 2021, primarily related to site closures, capacity reduction, and workforce reductions in the Americas, with accrued liabilities decreasing to $3.5 million - The company undertakes restructuring initiatives to improve utilization and realize cost savings, including changing production facility locations and reducing staff levels[70] - Restructuring charges of $1.6 million were recognized in Q1 2021, mainly for site closures, capacity reduction, and workforce reductions in the Americas[71][133] | Restructuring Component | December 31, 2020 (in thousands) | Restructuring Charges (in thousands) | Cash Payment (in thousands) | March 31, 2021 (in thousands) | | :-------------------- | :------------------------------- | :----------------------------------- | :-------------------------- | :---------------------------- | | Severance | $3,996 | $546 | $(1,913) | $2,600 | | Lease facility costs | $50 | $475 | $(512) | $0 | | Other exit costs | $408 | $570 | $(103) | $875 | | Total | $4,454 | $1,591 | $(2,528) | $3,475 | Note 13 – Ransomware Incident The company experienced a ransomware incident in Q4 2019, collecting an additional $3.4 million in insurance recoveries in Q1 2021, bringing the total to $10.0 million, with no evidence of data exfiltration - A ransomware incident occurred in Q4 2019, disrupting systems, but no evidence of customer or employee data exfiltration was found[73][74] - The company collected an additional $3.4 million in insurance recoveries during Q1 2021[76][134] - Total insurance recoveries collected as of March 31, 2021, amounted to $10.0 million[76][134] Note 14 – Earnings Per Share Basic and diluted earnings per share both increased to $0.22 for Q1 2021, up from $0.10 in Q1 2020, reflecting higher net income and a slightly lower weighted-average number of shares outstanding | Metric | Three Months Ended March 31, 2021 (in thousands, except per share data) | Three Months Ended March 31, 2020 (in thousands, except per share data) | Change | | :-------------------------------------------------------------------------------- | :---------------------------------------------------------------------- | :---------------------------------------------------------------------- | :----- | | Net income | $7,917 | $3,852 | $4,065 | | Denominator for basic EPS – weighted-average common shares outstanding | 36,250 | 36,790 | (540) | | Basic earnings per share | $0.22 | $0.10 | $0.12 | | Diluted earnings per share | $0.22 | $0.10 | $0.12 | - Restricted stock units totaling 4 thousand shares (2021) and 9 thousand shares (2020) were excluded from diluted EPS computation due to their anti-dilutive effect[78] Note 15 – Financial Instruments The company uses derivative instruments, specifically an interest rate swap with a notional amount of $135.0 million, to manage foreign currency and interest rate risks, not for speculative purposes, resulting in an unrealized gain of $1.3 million in Q1 2021 - The company uses derivative instruments (forward contracts and interest rate swaps) to manage foreign currency and interest rate risks, not for speculative purposes[79][160] - An interest rate swap with a notional amount of $135.0 million hedges interest rate exposure on borrowings, converting floating rates to a fixed rate of 2.928%[81][163] - The interest rate swap, designated as a cash flow hedge, resulted in an unrealized gain of $1.3 million ($0.9 million net of tax) recorded in other comprehensive income (loss) in Q1 2021[82] Note 16 – Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased to $(18.0) million at March 31, 2021, from $(16.7) million at December 31, 2020, primarily due to foreign currency translation adjustments and a net gain on derivative instruments | Component | December 31, 2020 (in thousands) | Other Comprehensive Gain (Loss) before reclassifications (in thousands) | March 31, 2021 (in thousands) | | :-------------------------- | :------------------------------- | :------------------------------------------------------ | :---------------------------- | | Foreign currency translation adjustments | $(8,375) | $(2,420) | $(10,795) | | Derivative instruments, net of tax | $(6,742) | $945 | $(5,797) | | Other | $(1,534) | $139 | $(1,395) | | Total | $(16,651) | $(1,336) | $(17,987) | Note 17 – Segment and Geographic Information The company operates through three reportable segments: Americas, Asia, and Europe, with Asia and Europe showing sales growth in Q1 2021, and long-lived assets primarily located in the United States - The company operates and is managed geographically, with three reportable segments: Americas, Asia, and Europe[85][87] | Segment | Net Sales Q1 2021 (in thousands) | Net Sales Q1 2020 (in thousands) | YoY Change (in thousands) | YoY % Change | | :-------------- | :----------------------------- | :----------------------------- | :------------------------ | :----------- | | Americas | $276,838 | $314,396 | $(37,558) | -12.0% | | Asia | $188,304 | $171,609 | $16,695 | +9.7% | | Europe | $60,880 | $47,000 | $13,880 | +29.5% | | Total Net Sales | $505,721 | $514,964 | $(9,243) | -1.8% | | Segment | Income from Operations Q1 2021 (in thousands) | Income from Operations Q1 2020 (in thousands) | YoY Change (in thousands) | YoY % Change | | :-------------- | :------------------------------------ | :------------------------------------ | :------------------------ | :----------- | | Americas | $8,234 | $12,425 | $(4,191) | -33.7% | | Asia | $17,352 | $10,998 | $6,354 | +57.8% | | Europe | $5,238 | $2,189 | $3,049 | +139.3% | Note 18 –Supplemental Cash Flow and Non-Cash Information This note provides supplemental cash flow information, indicating that income taxes paid decreased to $1.6 million in Q1 2021, while interest paid increased to $2.1 million, and non-cash additions to property, plant, and equipment were $4.4 million | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | | :------------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Income taxes paid, net | $1,605 | $2,035 | $(430) | | Interest paid | $2,090 | $1,939 | $151 | | Additions to property, plant and equipment in accounts payable | $4,432 | $7,173 | $(2,741) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the quarter ended March 31, 2021, covering business overview, COVID-19 impact, Q1 highlights, detailed results, and liquidity - The discussion includes forward-looking statements about future operating results, sales, income, cash flow, and the anticipated impact of the COVID-19 pandemic[94] - The company is a worldwide provider of innovative product design, engineering services, technology solutions, and advanced manufacturing services[95] Overview Benchmark Electronics, Inc. provides integrated concept-to-production solutions, including design & engineering, technology solutions, and manufacturing services, to OEMs across regulated industries - Benchmark provides integrated services from product concept to volume production, including direct order fulfillment and aftermarket services[96] - Key industries served include aerospace and defense (A&D), medical technologies, complex industrials, semiconductor capital equipment (semi-cap), next-generation telecommunications, and high-end computing[96] - The company's core strengths include leading-edge technical capabilities in engineering services, technology solutions (e.g., high frequency RF, microelectronics), and manufacturing services (electronics and precision machining)[102] COVID-19 Pandemic Update The COVID-19 pandemic negatively impacted 2020 revenue and increased costs, and while productivity has largely returned, the pandemic continues to affect operations into 2021 - COVID-19 negatively impacted 2020 revenue due to reduced productivity, supply chain constraints, and increased labor/PPE costs[110] - Manufacturing and engineering services operations have essentially returned to pre-COVID-19 productivity levels, but the pandemic still affects operations in 2021[111] - The company utilized CARES Act provisions in 2020 for deferral of employer social security taxes and employee retention tax credits, but is not eligible for these in 2021[112] First Quarter 2021 Highlights Sales for Q1 2021 decreased by 2% to $505.7 million due to lower demand in A&D, oil and gas industrials, and medical sectors, partially offset by strong growth in Semi-Cap and Computing - Sales for Q1 2021 were $505.7 million, a 2% decrease from $515.0 million in Q1 2020[116] - Higher-value market revenues were down 4% (A&D -25%, Industrials -7%, Medical -8%), offset by Semi-Cap (+37%); Traditional market revenues were up 8% (Computing +19%, Telecommunications stable)[116] - The company is impacted by supply chain constraints, including shortages, longer lead times, and increased transit times, especially in semiconductors[118] Results of Operations This section provides a detailed analysis of the company's financial performance for the three months ended March 31, 2021, compared to the same period in 2020, covering sales by market sector, gross profit, operating expenses, and net income | Metric | Q1 2021 (% of Sales) | Q1 2020 (% of Sales) | | :------------------------------------ | :------------------- | :------------------- | | Sales | 100.0% | 100.0% | | Cost of sales | 91.7% | 91.6% | | Gross profit | 8.3% | 8.4% | | Selling, general and administrative expenses | 6.0% | 6.1% | | Amortization of intangible assets | 0.3% | 0.5% | | Restructuring charges and other costs | 0.3% | 0.6% | | Ransomware related incident costs (recovery), net | (0.7)% | — | | Income from operations | 2.4% | 1.2% | | Net income | 1.6% | 0.7% | Sales Total sales decreased by 2% in Q1 2021 compared to Q1 2020, with higher-value markets down 4% (A&D, Industrials, Medical) but Semi-Cap up 37%, and international operations accounting for 55% of sales | Market Sector | Q1 2021 Sales (in thousands) | Q1 2020 Sales (in thousands) | YoY Change (in thousands) | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------ | :----------- | | Industrials | $95,452 | $102,826 | $(7,374) | -7.2% | | A&D | $89,381 | $119,200 | $(29,819) | -25.0% | | Medical | $108,190 | $117,976 | $(9,786) | -8.3% | | Semi-Cap | $113,110 | $82,720 | $30,390 | +36.7% | | Computing | $43,686 | $36,601 | $7,085 | +19.4% | | Telecommunications | $55,902 | $55,641 | $261 | +0.5% | | Total Sales | $505,721 | $514,964 | $(9,243) | -1.8% | - The decrease in Industrials sales was due to softer demand in oil and gas and building and transportation infrastructure, and new program ramp delays[124] - International operations accounted for 55% of sales in Q1 2021, up from 49% in Q1 2020[129] Gross Profit Gross profit decreased by 2.6% to $42.2 million in Q1 2021 from $43.4 million in Q1 2020, with gross margin slightly declining to 8.3% from 8.4%, primarily due to lower revenues | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % of Sales Q1 2021 | % of Sales Q1 2020 | | :---------- | :--------------------- | :--------------------- | :-------------------- | :----------------- | :----------------- | | Gross profit | $42,227 | $43,361 | $(1,134) | 8.3% | 8.4% | - Gross margin decreased primarily due to lower revenues[130] Selling, General and Administrative (SG&A) Expenses SG&A expenses decreased to $30.5 million in Q1 2021 from $31.6 million in Q1 2020, primarily due to lower variable compensation costs | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % of Sales Q1 2021 | % of Sales Q1 2020 | | :------------------------------------ | :--------------------- | :--------------------- | :-------------------- | :----------------- | :----------------- | | Selling, general and administrative expenses | $30,548 | $31,575 | $(1,027) | 6.0% | 6.1% | - The decrease in SG&A was primarily due to lower variable compensation costs[131] Amortization of Intangible Assets Amortization of intangible assets decreased to $1.6 million in Q1 2021 from $2.4 million in Q1 2020, mainly due to a fully amortized intangible asset as of December 31, 2020 | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % of Sales Q1 2021 | % of Sales Q1 2020 | | :---------------------------- | :--------------------- | :--------------------- | :-------------------- | :----------------- | :----------------- | | Amortization of intangible assets | $1,598 | $2,381 | $(783) | 0.3% | 0.5% | - The decrease was primarily due to a fully amortized intangible asset as of December 31, 2020[132] Restructuring Charges and Other Costs Restructuring charges and other costs decreased to $1.6 million in Q1 2021 from $2.9 million in Q1 2020, with Q1 2021 costs primarily for site closures and workforce reductions in the Americas | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % of Sales Q1 2021 | % of Sales Q1 2020 | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :----------------- | :----------------- | | Restructuring charges and other costs | $1,591 | $2,915 | $(1,324) | 0.3% | 0.6% | - Q1 2021 costs were primarily due to site closures and workforce reductions in the Americas[133] - Q1 2020 included $1.7 million in restructuring charges and $1.0 million in asset impairment costs in Asia[133] Ransomware Incident Related Costs, Net The company recorded a net recovery of $3.4 million in Q1 2021 related to the 2019 ransomware incident, bringing total insurance recoveries collected to $10.0 million as of March 31, 2021 | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | % of Sales Q1 2021 | % of Sales Q1 2020 | | :------------------------------------------ | :--------------------- | :--------------------- | :-------------------- | :----------------- | :----------------- | | Ransomware related incident costs (recovery), net | $(3,444) | $0 | $(3,444) | (0.7)% | — | - An additional $3.4 million in insurance recoveries was collected in Q1 2021[134] - Total insurance recoveries collected as of March 31, 2021, reached $10.0 million[134] Interest Expense Interest expense increased to $2.1 million in Q1 2021 from $1.7 million in Q1 2020, primarily due to the amortization of a gain from a terminated interest rate swap agreement ending in November 2020 | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | | :------------- | :--------------------- | :--------------------- | :-------------------- | | Interest expense | $(2,149) | $(1,702) | $(447) | - The increase was due to the cessation of gain amortization from a terminated interest rate swap agreement that ended in November 2020[135] Interest Income Interest income decreased to $0.2 million in Q1 2021 from $0.6 million in Q1 2020, attributed to lower invested cash equivalents and reduced interest rates | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | | :------------- | :--------------------- | :--------------------- | :-------------------- | | Interest income | $165 | $599 | $(434) | - The decrease was due to lower invested cash equivalents and lower interest rates[136] Income Tax Expense Income tax expense increased to $1.8 million in Q1 2021 from $0.9 million in Q1 2020, with the effective tax rate slightly decreasing to 18.2% from 18.5%, primarily due to the mix of profits in foreign and U.S. jurisdictions | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | Effective Tax Rate Q1 2021 | Effective Tax Rate Q1 2020 | | :----------------- | :--------------------- | :--------------------- | :-------------------- | :------------------------- | :------------------------- | | Income tax expense | $1,757 | $873 | $884 | 18.2% | 18.5% | - The lower effective tax rate in 2021 resulted from the mix of profits in foreign and U.S. jurisdictions, with a higher amount of foreign earnings being taxed in the U.S. from the Global Intangible Low Tax Income (GILTI) calculation method[138] Net Income Net income more than doubled to $7.9 million, or $0.22 per diluted share, in Q1 2021, compared to $3.9 million, or $0.10 per diluted share, in Q1 2020, driven by improved income from operations and tax expense changes | Metric | Q1 2021 (in thousands) | Q1 2020 (in thousands) | Change (in thousands) | | :--------- | :--------------------- | :--------------------- | :-------------------- | | Net income | $7,917 | $3,852 | $4,065 | | Diluted EPS | $0.22 | $0.10 | $0.12 | - The increase in net income is primarily a result of improved income from operations, including ransomware recovery, and changes in tax expense[140] Liquidity and Capital Resources The company's cash and cash equivalents, including restricted cash, totaled $400.4 million at March 31, 2021, with $36.6 million cash provided by operating activities in Q1 2021, and $496.1 million available under its revolving credit facility | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------- | | Cash and cash equivalents and restricted cash | $400,428 | $395,990 | | Cash held outside the U.S. | $247,500 | $207,300 | - Cash provided by operating activities was $36.6 million during Q1 2021, driven by net income, depreciation/amortization, decreased accounts receivable, and increased accounts payable[142] - The company has $496.1 million available for future borrowings under its $500 million revolving credit facility[146][150] - Capital expenditures are projected to be $50 million to $55 million over the next 12 months, primarily for machinery and equipment to support revenue growth[151] Contractual Obligations There have been no material changes to the company's contractual obligations, outside of the ordinary course of business, since December 31, 2020 - No material changes to contractual obligations have occurred since December 31, 2020, outside the ordinary course of business[156] Critical Accounting Policies and Estimates and Recently Enacted Accounting Principles This section refers to the company's significant accounting policies summarized in its 2020 10-K and discusses recently enacted accounting principles, as detailed in Note 2 of the current report - Significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements in the 2020 10-K[157] - Recently enacted accounting principles are discussed in Note 2 of this report[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily related to foreign currency exchange rates and interest rates, using natural hedging, forward contracts, and an interest rate swap for risk management - The company is exposed to foreign currency exchange risk, import/export duties, inflationary economies, and economic/political instability due to international operations[158] - Natural hedging and forward contracts are used to economically hedge transactional foreign currency exposure, primarily for trade accounts receivable and payable[160] - An interest rate swap agreement hedges interest rate risk on $135.0 million of floating rate term loan, converting it to a fixed rate[163] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2021, providing reasonable assurance for timely and accurate reporting[165] - No material changes occurred in the company's internal control over financial reporting during the last fiscal quarter[166] - Control systems provide reasonable, not absolute, assurance and are subject to inherent limitations such as faulty judgments, errors, collusion, or management override[167] Part II – Other Information This section provides additional information not covered in Part I, including legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits - Part II covers legal proceedings, risk factors, unregistered sales of equity securities, and exhibits[2] Item 1. Legal Proceedings The company is involved in various legal actions in the ordinary course of business, with no material changes since the 2020 10-K, and management believes these will not materially adversely affect its financial position - The company is involved in various legal actions arising in the ordinary course of business[169] - There have been no material changes to legal proceedings previously reported in the 2020 10-K[169] - Management believes the ultimate disposition of these matters will not materially adversely affect the company's consolidated financial position or results of operations[169] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the company's 2020 10-K - No material changes to the risk factors previously disclosed in the 2020 10-K[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2021, the company repurchased 441,600 common shares for an aggregate of $13.1 million under its stock repurchase program, with $191.2 million remaining authorized | Period | Shares Purchased (Units) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------- | :----------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------- | | January 1 to 31, 2021 | — | $— | — | $204.2 million | | February 1 to 28, 2021 | 142,900 | $28.07 | 142,900 | $200.2 million | | March 1 to 31, 2021 | 298,700 | $30.21 | 298,700 | $191.2 million | - All stock repurchases were made on the open market[171] - The total remaining authorization outstanding as of March 31, 2021, is $191.2 million[171] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications (Section 302 and 1350), and Inline XBRL documents - Exhibits include Restated Certificate of Formation, Amended and Restated Bylaws, and specimen form of common shares certificate[173] - Section 302 and Section 1350 Certifications of the CEO and CFO are filed/furnished[173] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are included[173] Signatures - The report was signed by Jeffrey W. Benck, President and CEO, and Roop K. Lakkaraju, CFO[176] - The signing date was May 6, 2021[175]