Ladies and gentlemen, thank you for standing by and welcome to Benchmark Electronics Second Quarter 2012 Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded. I’d now like to turn the conference over to Benchmark Electronics’ Chief Financial Officer, Don Adam. Please go ahead sir.

Good morning and welcome to the Benchmark Electronics earnings results conference call for the second quarter of 2012. After a few opening statements I will turn the call over to Gayla Delly, our President and CEO who will provide an overview of our performance during the second quarter, the state of our business and the outlook for the third quarter. I will then follow with a review of our financial metrics. After our prepared remarks, Gayla and I will take time for your questions in our Q&A session and we will hold this call to one hour. This morning during our conference call, we will be discussing forward-looking information that involves future events and the future financial performance of the company. We would like to caution you that those statements reflect our current expectations actual results or actual events may differ materially from our projections. We also would like to refer you to Benchmark's periodic reports that are filed from time to time with the Securities and Exchange Commission, including the company's 8-K and S-4 filings, quarterly filings on Forms 10-Q and our Annual Report on Form 10-K. These documents contain cautionary language and identify important risk factors that could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future. Now, I will turn the call over to Gayla.

Thank you, Don. Good morning and thank you everyone for joining our call today. We're pleased with the second quarter improvement in a number of key areas which position us well for future growth. I’ll reflect on a few items from this morning’s press release. Our second quarter revenues and EPS exceeded the high end of our guidance with our operating margin percentage moving towards our near term target of 4% with positive cash flow generation. Revenues were $639 million compared to our guidance of $595 million to $625 million for the second quarter. This represents a sequential 6% increase over Q1 and it also represents a year-over-year revenue increase of 8%. Our earnings per share, excluding restructuring and Thailand flood related charges were $0.32 per share compared to our guidance of $0.26 to $0.30. The operating margins was 3.7% in Q2 excluding restructuring and Thai flood related charges of $5 million and this is compared to 3% in Q1. These results were supported by revenue growth, our continued focus on cost controls and the ongoing Thai recovery. All of these were supported by diligent focus by our global operations team. Importantly, we achieved these results while we supported several new program ramps during the quarter. As we and others in our industry have often noted, inefficiencies are associated with program ramps and are simply a fact in manufacturing and we’re no exception to this challenge. Positive operating cash flow generation was $41 million for the quarter. Specifically, our working capital focus delivered strong improvement. Our inventory turns improved from 5.5 turns in the first quarter to 6 turns in the Q2 period. Our receivable days improved from 72 days in Q1 to 65 days in Q2. All in all we had very strong operational execution and a strong second…

Thank you, Gayla. First, I’d like to comment on our second quarter revenue and EPS. As Gayla mentioned we were pleased to complete the second quarter of 2012 with revenues of $630 million. These revenues exceeded the high end of our guidance for the quarter of $595 million to $625 million and we’re up sequentially from the first quarter of 2012 by $37 million or 6%. Our earnings per share excluding restructuring and Thai flood related charges for the quarter were $0.32 and our GAAP earnings per share were $0.24. This compares to $0.25 for non-GAAP and $0.24 for GAAP EPS last year. The revenue breakdown by industry for the second quarter of 2012 was as follows. Computing was 31%; industrial controls 26%; telecom was 25%; medical was 10% and test and instrumentation was 8%. The breakdown when comparing the second quarter of 2012 to the first quarter of 2012 was as follows. Our medical sectors were up 16% primarily driven by new programs ramping for sale of customers and test and instrumentation revenue grew up 10% and telecom revenues were up 8% quarter-over-quarter again primarily associated with new program ramps and increased output and return market share in Thailand. And the computing sector revenues were up 7% associated with new program ramps and for industrial controls, our revenue was essentially flat this quarter as compared to last. Now for a quick update in our Thailand operations. Included in our financial results for the second quarter, our Thailand flood related charges are $4.7 million. We continue to work with our insurance carriers on the claims and recovery process which will be ongoing for the next several quarters. Upon settlement, recovery items including loss/profits will be recorded and may result in gains for Benchmark. We expect further recovery of our claims…

Thank you, Don. Again I am pleased overall with our team’s execution in the second quarter and the ongoing management of the things that are within our control. We had an excellent second quarter. Our strong performance in the second quarter and the solid booking performance provides us a strong basis for our future growth. We see numerous opportunities and challenges in the markets we serve. Our existing capacity is sufficient for a solid growth with the investments and expansions we took in 2010 and 2011. We will remain focused to support the changing needs of our customers and ultimately we will continue to adapt, grow, and investment in our business for the future. And now I’d like to turn it over to the operator to open our Q&A session.

(Operator Instructions) We’ll go to the line of Brian White with Topeka.

Could you talk a little bit about where you’re seeing perhaps the most caution in the September quarter, just what market?

Brian I think it is broad based. I -- we don’t see any one market that is being more significantly impacted in their caution and probably most importantly with the number of new programs that we’re supporting those provide a good buffer and are not necessarily seeing the same level of impacts as some of the more mature programs just with the new solutions and opportunities for improvement, the new products often offer to the marketplace.

Okay. And then on the new computing programs that you previously announced could you just update us where we are in that ramp? I know it’s almost started, some more going to start.

Yes, so in the prior periods we have announced to significant computing programs. One of those has ramped nicely and we’ll begin to taper off for the year end in the volume that is, has and then the other programs will do exactly the opposite and it’s still in its development stages and will begin to ramp towards the latter portion of the year and once again we’ve incorporated both of those into our guidance and the new program ramp is probably somewhat delayed or at least what we factored into our forecast is a bit of delay given the malaise in the

We’ll go to the line of Amit Daryanani with RBC Capital Markets.

Two questions from me. One on the operating margin side, could you talk about what is out in the -- what is the basis for the margin degradation in the September quarter, I guess revenues are going down, but are there any other factors that are driving their headwinds?

I believe that our guidance incorporates only a slight decline associated with low rates of revenue which is primarily due to volume increase -- decrease as well as the new programs ramp, but Amit, I don’t believe that our guidance incorporates the level that you are -- or that you know that they are so and maybe if you go back through and make sure we calibrate there. I think one difference in some of the models that we have seen would be that if the actual versus the estimated tax rates that some of the models have seen so that our actual tax rate being higher, it probably affects the margin that some of the models had incorporated into them.

I’ll make sure if that out. And then you just probably talked about in the past you’ve talked about you know a 4% operating margin target, what's sort of revenue run rate would you need given the fact that Thailand, the inefficiencies from Thailand are starting to subside, what's the revenue run rate do you need to get back to that 4% margin run rate?

With the 3.7% achieved at $630 million in the current mix which is during a time period where we’re recovering from Thailand, we would estimate that we would be pretty close by achieving the 4%, but for the Thailand impact this quarter with the current mix and that’s probably the best information that we have available. So the current mix probably about 4% at $630 million with a different mix having mix with a greater level of more mature programs as opposed to new programs ramping and the mix of business we have from the industry and the services it’s going to be a bit higher. As macro environment changes and some of the more mature programs get a boost, we would expect that to be at a lower revenue run rate.

And we go to line of Sherri Scribner with Deutsche Bank.

I was hoping you could give us a little detail by segment in terms of what you’re expecting for a fiscal fourth quarter. I think overall guidance implies a 3% decline in revenue sequentially at the midpoint and it seems like at least three of your segments the sequential growth was driven by new programs, so can you give us a little bit of detail in terms of how those continue to play out through the year by segment? Do you expect new programs to continue to drive the telecom and medical segment and what do you expect for industrial and testing?

The only industry that I expect to be down significantly would be test and instrumentation and then based on the new programs I would expect the others to pick that up or that’s going to be the major factor that causes softness in the near term and that’s again an industry that does have quite a volatile change in revenues.

Can I just dig into that a little? Why was testing up so much this quarter and then your commentary seems to imply that it’s sort of a one quarter saying and you’ll see a decline next quarter and then are you saying that you expect the other segments to be up sequentially again so the only one that declines is testing?

I don’t have any real insight into what gave the end customers opportunities to have such good sell through in the second quarter, but to answer maybe the real question that you might be asking is, is there any market share or customer loss and that answer is no. But as to what's happening in their end markets and why they have strength right in advance of a fall off, I do not have that answer. I do believe that there are some of their customers that announced maybe some changes or some drawbacks on their capital investments and that’s getting way into the ways beyond my level of true knowledge. So, from our customer relationships, no changes there from their forecast, yes there are changes. On the other industries, I’ll let Don talk a little bit about some of the industry changes there.

Yeah, I think as we go through the other industries as Gayla mentioned on her prepared comments you know we do have new programs ramping in some of the other sectors. You know I would expect as Gayla knew we’ll see the other industries sort of pick up the downturn that we’re seeing in test and instrumentation, but you know I would say that most of them would be you know flattish compared to Q3.

And our next question comes from Jim Suva with Citi.

Just had quick clarification question and sorry if I missed this in the prepared remarks, but you talked about the new bookings. Did you give the dollar amount like on an annual basis about those new bookings are?

Yeah, Jim it was 155 to 177, $155 million to $177 million.

Okay. So that looks like you know a pretty healthy number both quarter-over-quarter and year-over-year. Anything into that about you know is that kind of the booking rates that you guys are looking forward to doing or was there anything unique in that quarter that you know may have been positive increase as it looks like the extreme healthy number?

No Jim, we’d expect those looking to be even greater for the future quarters. No, there is no anomaly there. There is not one single extremely large program that drives that number up, it’s just good performance by the teams and expected levels of even better performance going forward.

Great. And then my follow-up is on the computing programs seemed like the macro environment has changed over the past year or two, is the dollar amount of kind of the smaller one that I believe you mentioned is going to be tapering off in this year. Does that one kind of still in the $35 million to $55 million range and is the larger one kind of still in the $100 million range or have some of those numbers also changed?

You know Jim as we go through the end of the year I guess we’ll have better insight, but I would say that the smaller we may end up being a bit larger and the larger we may end up being a bit smaller and it relates to you know this year, so the one that we initially thought was larger again may get some boost later on, but that’s not incorporated into our guidance. Currently, it would just be a ramp that would be into next year.

We’ll go to Brian Alexander with Raymond James.

You know just -- is the caution for your revenue guidance based on the actual order rates that you’re seeing from your customers that have ticked lower here in recent weeks or are you basically just haircutting their forecast at a higher rate than you have in the past because of the uncertainty that you alluded to?

Probably a combination of both of those, probably more so some of the customer indications have been tempered in the last -- quite honestly it really didn’t start till June, I think April and May were very strong. In June you started seeing caution and in some ways it seemed like a dog pile effect of reading the news and reacting to it, because it was a pretty broad based but nothing specifically significant or event based. Other than as I said specifically test and instrumentation which I do believe there were some changes in plans on capital spend for some of the customers’ customers.

Okay. And to follow-up in the telecom segment, could you just talk more about the growth you’re seeing there, you know up quite a bit year-over-year, I think you said 8% sequentially, better than the end markets seemed to be doing and quite frankly many of your peers in that end market and I think you’re back above pre-flood levels from a revenue standpoint, so just talk about how much of that telecom strength was driven by demand from existing customers versus new programs and maybe a deeper view of your telecom segment in terms of what subsectors you have the most exposure to?

I think in terms of telecom you know combination there is new programs as well as the recovery from Thailand. As you point out if you look at you know comparing to last year we’re up, but again that’s going to be attributed to new customers, but I think you know I think some of the other competitors or segments they are also seeing a little bit of strength in the telecom, so. But I would say a combination of you know from quarter-over-quarter, Thailand recovering well and new programs are really driving that increase.

In fact Brian we saw that the few of our competitors while we’ve wanted to incorporate probably into our comments that we felt strength and we’re possibly taking market share while we believe that we are performing very strong there. We’re also seeing that other than the industry are seeing some strength in telco, so it appears that there is actually a pretty strong level of incremental outsourcing going on or a very strong level of new products in traction in the customers that do outsource, so that’s the marketplace as we see it today.

And then final one Don on the working capital that was a nice improvement this quarter. Anything that you would touch on specifically that Benchmark is doing to drive that improvement and how sustainable are these levels of both inventory turns and DSOs going forward?

I -- Gayla alluded to or we alluded to during the call, just you know a diligent focus, but I think you know on the inventory side you know our targets have always been 6 to 6.5 and certainly we faced challenges over the last year and a half, but you know we’re back at 6 and you know we want to, we certainly want to improve on that.

(Operator Instructions) We’ll go to the line of Sean Hannan with Needham and Company.

So, going back to the wins topic, certainly a strong result in the quarter if I look at kind of the trailing 12 months of wins, it’s a pretty strong number, much stronger than I’ve seen in a good number of quarters, can you provide a little bit of insight on the -- I realize Gayla that you would like wins to be higher, but given the $155 million to $177 million range, is there a level of growth that, that supports for you when you look to next year, does that unequivocally or should that unequivocally support double digit growth in kind of a normalized environment or how do we think about that as being kind of an incremental contributor to your business?

I guess Sean that there are challenge right now that’s figuring out what is normalized, is this the new normal about lower growth rate globally, but ultimately what I would say is this level of wins is very strong for Benchmark and we -- as we continue on this pace it does provide us good strength to be at or above the competitive landscape in which we participate and the underlying macro environment will really dictate whether that’s double digit or single digit, but again maybe the point is we feel very good about controlling that, which we control and are very excited about participating in some of the new wins. I think one of the things that we have done and focused on are probably some two changes to again point out that we reflected on in some of our prior calls. One of them is the engineering focus. We’re seeing a number of opportunities as we engage more aggressively that our engineering teams where we are developing new relationships and are able to see the relationship at the engineering stage and have good follow on work with those customers and building production opportunities and ongoing relationships. The second thing is we have incremented and kind of refocused our business development team and that seems to be getting some good traction as we see from the results here, so I think those are two important factors, but no, there is no silver bullet or secret sauce. Ultimately it’s just a execution and driving against what it appears to be a pretty strong headwind of the macro environment right now.

Okay. That’s all for Gayla. And then when we look to the remainder of 2012 is there any reason that investors should consider that December could very potentially be a down quarter from September or is the magnitude of ramps and thoughts that you’re getting from customers and what you’re planning internally would there be any support to that, that at least would you know either provide something that would be more flattish or up, you know just directional thoughts around how you’re thinking about new programs layering into December and then if we’re in still position to get to kind of that 4% operating margin I think alluded to a little bit earlier?

If I may highly surprised and very -- in the negative environment of Q4 to strength over Q3 that’s traditionally a stronger quarter in the markets we serve, but clearly those I guess that we are not giving guidance for Q4, but it would be highly unusual for our customers in the marketplace we have and the new programs that we have not to show strength in Q4. That is not something that you would plan for the pretty dramatic change from history.

And our next question will come from David Fondrie with Heartland Funds.

Don could you go over the insurance for Thailand a little bit, I guess obviously charges the last two quarters, could you give us an indication of what you have recorded as receivables and the amount that you have not yet perhaps claimed that up to this date you think is claimable?

Yeah, in terms of quick cash we did receive $20 million in the first quarter. Our receivable at the end of the quarter was $31 million. We are anticipating in the third quarter an additional $38 million during the -- again during the third quarter, but there will be additional claims, but those are still being worked out with the insurance company at this point.

So at the end of the quarter you had $31 million in receivables and you’re expecting…

Another -- approximately $38 million.

To receive that or to record that?

To receive that.

Receive that. So that would mean you have to claim another $7 million…

No, no, no that’s in excess of the receivable.

The claim has already…

The claim has already been -- yeah, the claim is we expect to receive $38 million in the quarter, $31 million in the receivable at June 30. So, we will -- we anticipate collecting more than the receivable.

Which was -- okay, okay.

Does that make sense?

Yeah, I think so. That means you have to make another claim for $7 million, right.

No.

And it’s like more than receivable.

No, I guess to try to simplify that you go through the claims process and part of the cost that we’ve incurred we would expect to have the potential to recover and that would be the $7 million differential between what's already recorded and reflected and that which we have put forth as a claim to the insurers. The GAAP accounting for it is such that we would not have the opportunity to reflect that in our financial statements until such time as the cash is received.

And then is that fair to say that we should be past the point in time where we’ll have the Thailand charges?

We anticipate that those will -- that they will continue to diminish. They were down little more than half from Q1 to Q2. In our expectation they should be down another 50% or so in Q -- from Q2 to Q3. And then there may be some nominal cost in Q4.

I congratulate you on the repurchase activity. I think that as I said before I think it’s very accretive both to book value and the earnings and perhaps I would have thought it might have been a little more aggressive particularly when you’re buying stock at $13.57, but at least we bought some.

And we’ll go to the line of Wamsi Mohan with Bank of America.

I was wondering if you could comment on how much of the revenues in the quarter on an approximate basis would you say are from programs that are ramped over the course of the last 12 months?

No. I have that in specific numbers but I would say the growth is -- the growth that we saw is primarily driven by new programs. We don’t have it carved out to determine the level of maturity of each of the programs and the total revenue, but the majority of the growth quarter-over-quarter came from new program ramp.

So, there was some growth from mature and the rest of it from new programs quarter-on-quarter?

Yes.

Okay. And I was wondering if you could address if there are any material mature programs that are at the end of life that would disproportionately pressure margins in the near term just September and December that you know of.

No, I don’t believe we have any major programs that customers have called end of life or for any reason we aren’t supporting. Going forward there is always programs that expire or mature but I don’t see any of those significant to our revenue base in the third quarter. The only program that we did call out was the one that is the computing program that by design was in more significant in Q2 and Q3 and then tapering and finishing in Q4, but that is as expected.

And we go to Rick D'Auteuil with Columbia Management.

I appreciate the good results and I echo David Fondrie’s comments on the buyback. The -- just to delve into his line of questioning on insurance settlement am I right if you guys are sort of under accruing the Thailand insurance receivables, essentially you’re understating your operating profits right? ‘Cause your saying we’re going to -- we’re sort of assuming, we’re absorbing some of the costs that you’re realizing and so you’re breaking out some extraordinary Thailand up, but you’re understating that in your freight about that, is that a good way to look at it?

I’ll try again. So the costs that we have considered as part of the Thailand cost are unique and one-time cost and some -- the majority of those we have experienced as we said from that kind of $7 million differential, you know some of those will be recoverable, but they are not and so under accruing is the term that kind of sounds negative, no it’s GAAP. So, from a casual business person or a qualified business person, we would clearly maybe question GAAP. However, we are not allowed to account for it in the period in accordance with GAAP until that cash is received and as that cash is received to the extent it is a recovery of those items they would go back against that same line item in the Thailand -- as the Thailand recovery. Yeah, so we have to call it out and then we have to put it back in that same line item to the extent that we recovered, but cannot base that within the period until cash is received.

You know this could be a mismatch of the cost and the expected proceeds on a quarterly basis.

Okay. Just on the buyback if I can delve into that a little bit you have 100 and I think 12 I think you said still open on it, $112 million?

Right. We just -- we had $12 million under an old program and we just announced the new buyback in --several weeks ago for another $100 million, so there is $112 million remaining correct.

Right. Doesn’t it make sense to get a little more aggressive here? I guess I’d like that your thoughts on why the Board/management isn’t being more aggressive on that. Again as David pointed out discount to book value, a discount accretive to earnings, so it seems to me you know based on everything you’ve said, the world isn’t falling apart, the new programs are ramping, if anything outsourcing is gaining momentum, you know those are all pretty powerful for your business. And even the caution that you’ve put out for the next quarter it looks like you could kind of work your way through that and it gets better as the year progresses. Why wouldn’t we get more aggressive than the level of buying that you’re -- you’ve been doing?

I think we again will continue to evaluate the level of aggression we use in our buyback and in accordance with and in discussions with our Board. I think the primary caution is always around the new program ramps, the business opportunities we see, and the level of investment that is required to support those and do so with a level of flexibility. But having said that we clearly do understand that interest rates have never been so favorable and we’ve seen others who have gone to the next step of actually using debt as a means to accelerate their buyback program. So, it is not and has not been something that we have done, but we will in discussion with our Board continue to look at the best use of our capital structure in order to make sure that we have a solid foundation and also have a strong base to grow from.

I mean you’re a long way from using debt. I think $297 million in cash at the end of the quarter, $112 million you’d barely use more than a third if you were to just fill what you have out -- approved at this point and yes, that would retire a substantial percentage of your share. So, again I think you know it seems like you can address all of your growth capital requirements and still be much more aggressive on the buyback.

Yeah, we appreciate your thoughts and feedback there.

We’ll go to Al Tobia with Sidus.

My first question was going to be along the lines of the buyback question was just asked, so if I can just add on that, because you have more receivables than you have total liabilities, so to the extent that you’re doing a buyback on a daily basis, you know since you now -- you weren’t going to fill the $30 million buying what you were buying on a daily basis just by eyeballing the stock. And now that you’ve authorized another $100 million before the $30 million is done, when you look at the buyback do you consider tendering for stock? I mean is the buyback a means to stabilize the stock, avoid share creep or you’re now looking at it as a means to actually improve your returns in the business?

I think we just used it as an ongoing mechanism of returns to investors. Others have used dividends and this is that in practical purposes probably and in lieu of a dividend in the current marketplace. As we’ve had it as an ongoing program and as I stated just a moment ago we’ll continue to evaluate if the program should change or be more aggressive.

Right. I guess the point is that if you were going to setup this business today and you had a clean sheet of paper and you were going to establish this business and look at it as looking at your capital structure to maximize the returns in the business, you would agree that the business now was widely over capitalized right?

I don’t know that I agree that it was widely over capitalized, but we do have sufficient capital. I think again part of the structure of any global business is the opportunity to grow and properly fund the growth in the global environment and so there is a level of cash that’s appropriate for each geography and to support that growth, so you know some of the funding requirements more specific than just a consolidated level.

Okay. Well, this is -- is the tender offer for shares given the fact that they’ve traded below your net liquidation value? Is that something that you would look at or is it that’s an element say that there is just going to be whether or not you step up daily buying?

Again as we go through this on a periodic basis with our Board. It is our fiduciary responsibility to look at all options and we will once again evaluate that to see if that is something that it’s deemed appropriate for our business and the opportunities we see in front of us.

Okay. And then just on the test and instrumentation on that on the weakness, can you be a little specific? Was it any one area, was it semiconductor test? As far as I remember you guys do testing in air conditioning systems and the telescope type of things and semi, was any one of the segments weaker than the other? You know telcom up, industrial?

So, I don’t think we do air conditioning test, but we did see some softness in some of the test equipment for use in telco and some of the semi cap equipment for foundries, so I think the biggest change is probably the semi cap for foundries where the spending has been kind of shut down or brought down in a significant manner.

And we have no further questions.

Again we thank you all for joining our call today and we’ll be available in our offices for any follow-up. Thank you and have a good day.

And ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.