Ladies and gentlemen, thank you for standing by. Welcome to the Benchmark Electronics Second Quarter 2013 Earnings Call. [Operator Instructions] And as a reminder, this call will be recorded. I would now like to turn the conference over to our host, Ms. Lisa Weeks. Please go ahead.

Good morning, everyone, and welcome to the Benchmark Electronics earnings conference call for the second quarter of 2013. I am Lisa Weeks, Benchmark's Vice President of Strategy and Investor Relations. Thank you for joining our call today. Gayla Delly, our President and CEO; and Don Adam, our CFO, are with me here this morning. After their prepared remarks, we will open up the call for your questions. Following the conclusion of this conference call, an audio replay will be available on our website. Gayla and Don will be referring to specific earnings presentation slides in today's call. These slides, which will be referenced to by page number, are posted under the Investor Relations section of our website. Also please note that Gayla and Don will be referring to non-GAAP measures during their presentations, unless otherwise noted. The company has provided a reconciliation of our GAAP to non-GAAP measures in today's press release, as well as in the appendix of the earnings presentation slides. During our call today, we will be discussing forward-looking information. As a reminder, any of today's remarks that are not statements of historical facts are forward-looking statements and involve certain risks and uncertainties that are disclosed in the Safe Harbor section of our earnings releases and SEC filings. Actual results may differ materially from such statements and Benchmark undertakes no obligation to update any forward-looking statements. With that summary, I will now turn the call over to Don Adam.

Thank you, Lisa, and good morning to everyone. As Lisa said, we will be using the presentation slide deck today. We will refer to the slide numbers as we go through to keep everyone on the same page. So let's begin, starting with Slide 3. First, I would like to take time to provide comments on our second quarter financial performance and metrics. We are pleased that we delivered strong performance with revenue and operating margins up decidedly from the first quarter of the year, exceeding our second quarter expectations. Revenues of $608 million exceeded our guidance of $560 million to $590 million, and were up 12% sequentially from the first quarter. Sequential revenue growth was driven by new programs ramping to production, as well as seasonal strength in computing, which we normally see in the second quarter. Our revenues also included approximately $7 million from our Suntron acquisition. Our non-GAAP earnings per share were $0.31, compared to $0.32 last year. Our second quarter earnings were slightly above guidance, primarily driven by second quarter top line growth. Our GAAP earnings per share were $0.16 versus $0.24 in the second quarter of last year. 2013 results include $5.7 million in restructuring and integration costs, as well as $2.6 million in asset impairment charge and other items. Non-GAAP operating margin was 3.5% for the quarter, compared to 2.7% last quarter. We were pleased with the progress made in returning our margins to this level. Moving to Slide 4. You can see the composition of our revenue by industry sector. The revenue industry breakdown -- the revenue breakdown by industry for the quarter was as follows: Computing was 29%, Industrial Controls were 30%, Telecommunications were 23%, Medical was 12% and Testing and Instrumentation was 6%. Let me highlight some of the dynamics here.…

Thank you, Don, and good morning, everyone. Thank you again for joining our call today. As Don noted, Q2 was a solid quarter for Benchmark. We are gaining momentum with our new customers and new program wins. Our second quarter financial results reflect that with revenue and earnings per share that exceeded our April guidance range. We reported sequential revenue growth of 12%, while also generating operating cash flows of $11 million. I am pleased with our performance for the second quarter in this dynamic global economic environment. We have spoken to solid new program wins for the past few quarters, and, as you can see by our performance, our second quarter included a number of these new programs beginning to move into volume production. Our new programs provide near-term headwinds against achieving our targeted 4% operating margin. However, we made good progress in Q2, effectively managing the growth in ramping new programs and achieving 3.5% in our operating margin. Our teams remain committed and diligently focused on driving further improvement in our cost control and productivity level. We remain committed to achieving our 4% operating margin targets. Now if you'll turn with me to Slide 8, we'll review our second quarter 2013 business plan. The second quarter was a strong quarter for both revenue and also for our new program bookings. As we mentioned in our press release, we continue to see good opportunities with new and existing customers. Our focus on bookings and growth resulted in another quarter of robust wins, providing a solid foundation with an expanded base of customers for continued growth. During the second quarter, this included 28 new programs, 9 of which are engineering projects. Our new bookings have an estimated annual revenue run rate between $135 million and $155 million. Recall that we…

[Operator Instructions] And our first question comes from the line of Jim Suva with Citi.

I'll tell you that the new business wins and bookings are quite encouraging. When we take a step back, and, as you run your company as CEO, obviously, there's some ramping headwinds when they come onboard. We had good rampings and bookings for a while. At some point, do kind of they start to layer on and just kind of take care of themselves because you're always having them come in or at some point, do the margin headwinds start to abate a little bit? So when is the timeline?

Yes, Jim. We would expect those to abate. I think one of the key factors that we see now is that such a significant portion of growth in technology is from new programs and new ramps versus having strength and underlying volumes in existing programs. So I don't have a timeline as to exactly when I expect it to abate, and that is why I really focus with our teams on driving improvement so that we gain efficiency and productivity improvement in the ramp phases to allow us to get back to 4% even without having the marketplace's help. So we're going to drive as if the underlying macro environment does not have improvement so that we put that on our radar screen to achieve 4% in spite of the macro environment and the headwinds in new programs.

And our next question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch.

Gayla, when in the second quarter do you post the acquisition? And what should we assume for the annual revenue contribution from the acquisition?

Overall, we expect the revenue contribution to be about -- it's about a $70 million run rate. And as you can see, we have some good opportunities and some good challenges with the acquisition. We completed it at the last -- at the beginning of June, and we are excited about the opportunities there.

And any of the new wins coming from this acquisition as well?

Not yet. We expect to, but that's a good challenge for our team to get it done in another 40 or 50 days. We didn't get that accomplished.

Okay. And can you address the restructuring in terms of the closure of the sites you mentioned? Where are you moving this capacity? What's the timeframe and are you carrying any extra inventory as you close these sites?

So the timeframe is they're already underway. We saw and worked with our customers in each of the sites and identified what was appropriate for them and moved very quickly in support of that. So in Brazil, specifically with some of the dynamics in that environment, we were able to work with customers who were challenged by some of the regulation challenges there. It's not just one site. They will be supported by the appropriate site based on how they will serve the customer base there. Same in Singapore, identifying opportunities and other portions of Asia that are more competitive and supportive for customers in that area. As you know, Singapore is not a consumption point for most products, and so, therefore, it made sense to identify the appropriate consumption points for production.

And are you carrying any extra inventory as we look at these sites?

I would say there potentially are some, but by no means would I say that, that's an excuse for our teams to not have a continued improvement on our inventory levels.

And our next question comes from the line of Sherri Scribner with Deutsche Bank.

I wanted to dig into the Suntron acquisition. What end markets does Suntron primarily address, which sort of segments of yours would they go into?

Primarily, as Gayla mentioned on the call, a lot of aerospace and defense, but primarily, the Industrial Control sector for us.

Okay. And then, I just wanted to understand a bit. It sounds like if there's a $70 million run rate and assume you divide that by 4, we get somewhere around $17 million, $18 million, which suggests if you closed the acquisition in June and you did $7 million Suntron in June, you should be up about $10 million sequentially in September, but you guys guided flat. So I'm just trying to understand, why is revenue going down roughly $10 million in September? Which end markets are weaker there?

The 3 items that I've pointed to, Sherri, in our prepared remarks would be IT spend in the first and third quarter are always expected to be somewhat softer than they are in our June and December quarters. And then, likewise, Europe, given the holidays, has a lesser level of activity and neither of them related to anything other than kind of seasonal periods of time. And then, the third item is specifically still a bit of caution and conservatism with customers in their forecast.

Okay. So when you -- for the segment guidance, when you said stable demand for Computing or Telecom, does that mean stable based on normal seasonality, so that means it could be down?

Yes.

And our next question comes from the line of Brian Alexander with Raymond James.

This is Jeff Koche in for Brian. The last question, it does seem to us to like -- it seems a little bit weaker once you back up Suntron. And I'm just trying to get a sense for the higher end of the range of $620 million, puts you pretty close to the revenue run rate. I think that you guys talked about a while back that it could get you back to your target margins. But the midpoint of the guidance would seem like we're still pretty well below that. So I'm just wondering what's the new kind of revenue run rate and if we hit -- on all-cylinders hit the upper end of that range, like how much -- do you think we would be close to that 4% range or what?

Well, I think, first, alluding to Gayla's earlier comment, right now we're seeing growth from new programs, not necessarily the existing base. So when that situation occurs, we're going to have headwinds associated with the new program ramps, NPI, headwinds, et cetera. Given the significant amount of ramping activity right now, again, we're going to drive at 4%, but to suggest that we're going to get to the 4% at $620 million is going to be a little difficult in the environment with significant ramps that we're seeing right now.

So I guess the other part of the comment, as always, is dependent upon mix. So as with any quarter, identifying the specific mix gets a little bit challenging and difficult. But some of the higher levels of value added associated with the ramps, of course, of the same new programs that take longer to ramp, as well as some of those industries where we've had wins take longer just in bringing those programs up to volume in general. So that's why based on our current outlook, we see not achieving that in the third quarter.

Okay, that's good. And this is probably one of your first acquisitions since, I think, 2007. Is there any change to your capital allocation strategy and share buyback? You still got a lot of cash, I guess. And share buybacks seem to us like they could be ramped up a bit. What's your thinking going forward?

No. We have not changed our mindset around capital allocation. We'll continue to employ buybacks, and we'll continue to look at good opportunities to invest in the business and continue to grow the business.

And then, lastly, your largest customer, I think, reported their hardware business down 11% year-over-year, which actually ties pretty well to what you guys are doing in Computing. I'm just wondering, going forward, do you see -- is that a good guidepost for us? Do you see that -- do you think you're going to basically out beat them, out earn them, I guess, or out grow them?

Again, we're continuing to add new programs in each of our industry sectors and continue to see good support for existing customers, as well as diversification through adding new customers and new programs. So I'm not speaking generally to one customer, but we believe that it kind of continue to manage our portfolio is the prudent and appropriate thing to do.

And our next question comes from the line of Brian White of Topeka.

Just on Suntron, if you had to talk about what is the special competency of Suntron, what do you think it is? What really drove the acquisition? Is it a capability or customer or capacity?

You hit on 3 of the key things. First of all, as we noted, they have some certifications and some capabilities that are differentiated and also provides them some depth, and some of the defense and aerospace capabilities, as well as we, and I believe others have noted, a good level of opportunity to continue to support customers and new opportunities in Mexico. And so, I think each of those things that you spoke to -- capability, certification, capacity, makes sense for us and it was a great opportunity at the right cost to be able to expand in Mexico. So those are really -- you captured it quite well. You know the industry well.

And how do we think about the margin profile? I think they went private, so they, I'm sure, were nicely profitable. Is it comparable to Benchmark or above?

Well, I guess, Brian, without having to go into enormous details, given the size of this, but maybe it it sums it up to say that we were able to acquire it for $19 million and hit the ground running with strong teams and build on it on a $70 million base. So I think that kind of speaks volumes to some of the opportunities as well as the challenges we have.

Okay. And just finally, any customers over 10% in the quarter?

Just one customer.

Okay. And what percent was that?

Probably around 17%-ish.

And our next question comes from the line of Amit Daryanani with RBC Capital Markets.

Two questions. One, do you just talk of -- the $6 million restructuring plan that you guys laid to charges with this quarter. What kind of savings are you going to expect from that? And when do you expect the savings to flow through your P&L?

We expect those to really begin probably in the first quarter of next year, and I would say that the run rate on those is probably going to be around $4 million range.

All right. And then, if I just look at the inventory, inched up about 9% or so sequentially. I'm sure Suntron has some part of it. Maybe you just talk about how much of that inventory was driven by the Suntron assets and what drove the rest of it?

Say the first part of your question again, I'm sorry, I missed it.

Inventory. You said it was up about 9%, 10% sequentially in the June quarter. So I'm just curious what drove that beyond the Suntron working capital impact?

I think in terms of the total inventory, as we mentioned, the turns actually improved from Q1. So increased demand is going to require the inventory. There was some inventory associated with the Suntron. But again, it was relatively a minor amount. So again, we focused on the inventory turns and pretty pleased with the performance that we had this quarter.

I think it is primarily just associated with supporting the growth and outlook that we have, Amit.

Got it. And then, just finally, if maybe you could just talk a little bit more on the Telecom sector. It was down slightly. You guys talked about sort of a pause, I guess, after some of the ramp you've had. But is that one of the segments where the OEMs are probably more positive, but the [indiscernible] that you see don't quite share that; is that kind of where the commentary applies to?

No. I really do think it's associated with the timing. No, we kind of were, I guess, ahead of the pack, if you will, in that we saw such significant growth last year with a lot of new product introduction, a lot of new programs support with the customer and we had a good level of NPI program transitions going on, and just the timing of those and the curve over to the new programs that is the biggest significant change that I see driving the pause in Q2.

And our next question comes from the line of Sean Hannan with Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: So if I look at the strength that you had in the quarter in Computing, Industrial Controls, Medical, most of that, if I'm understanding correctly, is really new programs. So I just want to see if, first, if I can ask, if you can provide a little bit more color on what the subsegments are or where the new programs really helped with some of that growth? And then, actually, as a follow-up to that was, I'm hoping you see if we can also get some color on the organic environment, kind of those submarkets or themes, whether it be server storage or subsegments within Telecom. Just to get a little bit more color on what's going on with the net mix of your business.

Sean, we don't really get into the subsegment and drill down into that and get into further into specific customers. It is quite a mix. So you have hit that head on because the dynamics are not consistent across any those kind of broader industries. But I believe the color I added in each of the segments depicts what we're seeing from our existing customer base, and so, I tried to call out in some cases that may not be the sound that you hear from an overall marketplace, but it is the read that we have generally from the customers we work with and the way we segment our revenues. So I know for -- even within our industry, there is a differentiation in a high volume of products. Is that medical or is that consumer? We do it based on the end markets, and I know that it can be complex, but we don't go into subsegment specifically. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay. So if you were to look at the new programs that you were ramping in June or September, is it safe to assume that the overwhelming majority of these new programs were those that were won in 2012? And can you elaborate a little bit on the time to market that you're seeing today, whether that's continued to be in a kind of a more elongated process versus in years past?

I would say it is taking a little bit longer. But I don't think it's -- I'll tell you what I think it's attributed to. We are getting engaged earlier on, and we have more engineering programs that we're supporting. So the earlier we are engaging, the longer it takes to get to market, and there's product revisions and program revisions along the course as we work with customers. Also as we support a more complex product, we see that the timeline is elongating and the transition plan is elongated. So I do think it's probably taking a little longer generally, but I don't think there's any lack of urgency on the part of our customers to ensure that they get new products to market. I think it is not driven by a lack of sense of urgency. In fact, probably just the opposite. Customers are very excited and engaged, and that's why we're seeing more alignment and partnering on the front end early in the product life cycle.

Our next question comes from the line of Steve Rinery [ph with Franklin Templeton.

I just want to take a bigger picture look here. Between the end of 2006 and today, your stock was $25 then, and it's about $22 now. You were generating an ROE of about 10% versus around 6% now. At the same time, you brought back about $360 million worth of stock, which depending on how you want to look at it, would've been a 20% to 30% return of capital, true return of capital, I think, to shareholders, as opposed to a stock that was down 10-or-so percent. So I guess, I'm wondering -- and you bought back $40 million of the stock to date, which is about 2% yield. So I guess, I'm kind of wondering why you still think that it's a really good use of capital to spend so much on buybacks without dividends in the mix? And without a more sustained increase in return on equity, it's hard to think of the stock really getting that much of a book value. So I guess, it's kind of couple of questions in there. One is how can we get to a more sustained attractive return equity, which I would think would be 8% to 10%? And two, your thoughts around the buybacks versus dividends because to date, we spent a lot of money on buybacks and yet they haven't really created any value.

So Steve, I think as we have discussed before, the industry, in general, has not, overall in technology, utilized dividends as frequently or as significantly as buybacks. I believe there are more indications of trends if the return to growth does not begin to come back. Clearly, I believe the macro environment, which has shown a lot of restraint on both the corporate spending and government spending, is expected to improve from its current level. And when that improves, we would expect underlying growth versus growth simply driven by expansion of new products and new programs. With that growth, our requirements for working capital expand significantly. And as such, the flexibility to invest appropriately in the business and grow the business, we believe, is something we want to keep the cash at our availability. So I guess the second piece of that is, we are seeing as our orders and increased demand in the U.S., and as you know, the dividends would need to be paid from the U.S. We have $100 million in the U.S. in cash as we disclosed. And so, as we see growth in the U.S., that review of available cash to utilize for dividends and compared to the overall market and growth that we'd see is what we'll continue to evaluate. But I think the 2 primary things that we look at would be the outlook for growth and the available cash in the U.S. As we said, with 3/4 of our cash being held outside the U.S. Importantly though, I think that to your point on return on equity, it really is driving that profitable growth that we are focused on, in which you saw us drive improvements during the second quarter.

Okay. Well, I mean, when we still spent $40 million so far this year, or $21 million rather, which would have been at 2% yield so far, and there could be a variable structure there. I know you're concerned about having enough capital, I guess, and certainly want capital that supports profitable growth. But to date, we spent a lot and it hasn't really created a lot of value. I guess, if we were at that 10% ROE, we'd be earning $2 a share, probably have a positive impact on the stock. But we are not leased this year anyway, and I just wish you are a little more open on this.

Again, we will continue to prudently review it, and we appreciate your comments and thoughts. And I think that there are, as I said, a number of indications that reviewing dividends for technology players overall is becoming more prevalent.

And we have no further questions in queue at this time.

Thank you, everyone, for joining us today on the call. We'll be in our office if there's any follow-up, and we look forward to seeing you all as we begin to get back out on the conference circuit in the upcoming quarter. Thank you.

Ladies and gentlemen, that does conclude our conference for today. I'd like to thank you for using AT&T Executive Teleconference service. You may now disconnect.