Benchmark Electronics, Inc. (BHE) Q2 2013 Earnings Report, Transcript and Summary

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. On a sequential basis for the quarter, revenues in all of the industry sectors that we serve were up slightly, with the exception of revenues from the Telecom sector, which were down slightly. Specifically, Computing revenues were up 29%. We saw strong performance in the Computing sector with strength from several new programs ramping to production during the quarter, as well as seasonal second quarter activity. Industrial Controls revenue was up 13%, where we experienced good overall demand levels. In addition to increases from new program ramps, we're seeing good traction and opportunities in this sector. Testing and Instrumentation revenues were up 11% sequentially, with continued improvements in the semi-cap space. Medical sector revenues grew 4% sequentially, with several of our new programs still in the early start-up phase. Telecom revenues weakened slightly for us, primarily due to the timing and qualification of new programs and product updates on existing programs. We should see improvement with the timing of these transitions later in Q3 and into Q4. Now going to Slide 5. During the second quarter of 2013, we incurred restructuring and integration charges of $5.7 million, primarily associated with the restructuring of our footprint. We are closing 2 facilities, Brazil and Singapore, as we continue to align our footprint to the marketplace and our outlook for future growth. Included in the asset impairment charge and other items is a $3.8 million impairment charge related to our Tianjin -- our facility in Tianjin, China, that is being held for sale. Offsetting this was a $1.2 million gain on the sale of a nonmanufacturing facility in Thailand. Further investing in and aligning our footprint to our growth opportunities, during the quarter, we acquired Suntron Corporation for approximately $19 million. This included 2 sites: Tijuana, Mexico, and Phoenix, Arizona. These facilities provide further depth and strength in our Aerospace and Defense sector, and the talent and capacity to support further growth opportunities we see on the horizon for Mexico. We welcome our customers -- the customers and employees of Suntron into the Benchmark family. We are looking forward to a strong growth together. The impacts of these new sites have been incorporated into our guidance for the third quarter. Now for a quick update on Thailand. As we disclosed in our press release, we did not record any Thailand flood-related charges or recoveries during the quarter. The insurance claims process is ongoing, and, as a reminder, as we have no amounts reflected on our balance sheet, additional recoveries will be recorded as a gain when received. Turning to Slide 6. I would like to discuss the summary of our second quarter operating metrics. The financial information in the following comments will be provided, excluding our restructuring and integration charges, as well as the asset impairment charge and other items. A reconciliation of GAAP results to our non-GAAP results, excluding these items, is included in today's press release. Our operating margin of 3.5% was greatly improved from last quarter. Our margin improvement was primarily due to efficiencies gained, as well as the higher revenue level for the quarter. This improvement was somewhat offset by headwinds associated with the level and number of new programs underway. Our GAAP net income was $8.5 million for the quarter, compared to $13.6 million last year. Our 2013 GAAP results were impacted by the nonrecurring charges mentioned earlier. Non-GAAP net income for the quarter was $16.8 million, compared to $18.2 million last year. The non-GAAP effective income tax was approximately 17% for the second quarter, slightly lower than our expectations. We expect the tax rate to be approximately 18% to 20% in the third quarter. The diluted weighted average shares outstanding were $54.5 million. Now turning to Slide 7. Our cash and long-term investments balance was $409 million at June 30. Consistent with others in the technology space, generally, we have approximately 1/4 or $100 million of our cash balance in the U.S. Our long-term investments consist of $11 million of auction-rate securities. The unrealized loss on these securities of $1.6 million is reflected in shareholders' equity. For the second quarter, we generated $11 million in cash flows from operations. We used $19 million for the acquisition of Suntron. During the quarter, capital expenditures were $5.1 million, and depreciation and amortization expense was $9.9 million. At June 30, our accounts receivable balance was $464 million, an increase of $46 million from the last quarter. Our accounts receivable days were 69, which is consistent with the first quarter of this year. Inventory at June 30 was $350 million, an increase of $30 million from March 31. Our inventory turns were 6.4x, which were in line with our expectations and slightly improved from the 6.3 turns for the first quarter. Current assets were approximately $1.3 billion, and the current ratio is 3.5:1, and as of June 30, we had $10.4 million capital lease in one of our existing facilities. And finally, during the quarter, we repurchased 520,000 shares in the second quarter at a cost of $9.2 million. At June 30, we have an additional $67 million remaining in our approved balance for share repurchases. Now we would like to turn the call over to Gayla.

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 report new bookings, which represents new program with both new and existing customers, and this is not inclusive of revisions and updates to existing programs and products for customers. As such, normal timing and size risks exist for these new programs. Now let's move to our third quarter guidance and move to Slide 9. With indications from our customers and the expectation of the timing of ramp for new programs, our guidance for Q3 is as follows: revenues between $590 million and $620 million; diluted earnings per share, excluding restructuring and other special type items, between $0.28 and $0.32. The following items were excluded from this guidance: estimated restructuring charges of approximately $1 million to $2 million, associated with the completion of the site closures mentioned by Don, and estimated insurance recovery. As mentioned, we currently have a number of programs in early phases of new production. These new programs, which were won in prior quarters, we expect to be added to our revenue stream during Q4. The quarter -- the third quarter -- this third quarter, will continue to be impacted by investments in these programs, which is incorporated into our guidance. We continue to balance our near-term financial performance in support of our new programs with our investments and support of our long-term growth goal. For our overall market updates, we'll turn to Slide 10. Overall, we're hearing positive signals in the macro environment regarding improvement. To date, though, these signal improvements have not yet translated into wholesale robustness across each of the industries and customers we serve, although the discussions and activities do indicate a more positive general outlook. Assuming the midpoint of our guidance, our Q3 revenues would be essentially flat sequentially. The positive impact expected from ongoing addition of new programs into our revenue stream is being offset by 3 items: First, Q3 experienced a softness in Europe, given summer holiday period; second, IT spending normally reflects seasonal strength in our June and December quarters; and third, although our customers are generally more optimistic, the forecast for many customers still reflects a level of conservatism and caution. Now I will step to a discussion on the industry to provide you a bit more color on what we are seeing starting with Computing. In Computing, we had a nice rebalance from our weaker first quarter level, which had a greater-than-normal seasonal decline in the first quarter. As we had indicated, this was primarily a market demand timing issue. We see a more stable computing environment for products overall. Upside and strength is driven primarily by new programs moving into production, so this is not a different read on the marketplace or an indication of overall significant increases in IT spend, but rather a reflection of the complement of new business and new programs that we are supporting. Moving to Industrial Control. For Industrial Control, we continue to see improvement in this area, which is driven consistent with what we mentioned in our last call via an uptick in spending associated with capital projects. We see a tremendous amount of activity, not only in infrastructure type program, but also within the Aerospace and Defense sector. Despite softness in the defense portion of the industry, generally, associated with sequestration, we are seeing an unprecedented number of new business opportunities related to those new programs and products, as well as new outsourcing opportunities. These take time to harvest and we are excited about the activities we are currently engaged in. We expect to see near-term growth in the Industrial sector going forward. Again, we see this growth coming from new programs and products. In the Telecommunications sector, we see strength on the horizon. We had a very strong year of growth last year with new programs and new product introductions. During the second quarter, our revenue in this sector was impacted by the timing and the qualification process for new programs and revisions in current programs. The timing of these programs have experienced some slight delays, however, we were still positive on the growth outlook. The outlook from our customers indicate that 2014 should be a growth year, with the combined impacts of expanded telecom infrastructure spend and our growth in new bookings in this sector. Now moving to Medical. In the Medical sector, we remain excited about the level of new business we are winning. The manufacturing demand for companies with class 2 and class 3 registered products remain high. Benchmark continues to have a strong differentiated offering in this area. As the qualification timeline for FDA can be double the typical ramp associated with nonmedical programs, we expect to see our medical programs begin a more serious ramp in 2014. And lastly, Testing and Instrumentation. In this sector, which is largely influenced by the semi-cap market space, we see a return to growth with the most significant impact expected later in 2014. Now moving to Slide 11. In summary, the second quarter of 2013 was a very good quarter for Benchmark. Importantly, I want to, again, recognize and thank our dedicated employees. Thank you for the commitment to excellence, continuous improvement and flexibility in serving our customers. With the strong performance and the groundwork we have laid, we continue to be focused on growth. We are not waiting for the macro environment improvement to drive growth. We have a line of sight for growth in the current environment, even as business spend and government spend are not demonstrating healthy levels of growth. We continue in our drive for productivity improvements, and this benefits both us and our customers. It's an incredible time and an opportunity to have an unprecedented number of new programs underway. Our ongoing productivity improvements, coupled with our financial discipline, will aid us in returning to our operating margin target of 4%. Finally, our new program bookings remain strong. We will continue to focus on our customer service and our people to continuously improve the value proposition we offer our customers and continue investing in our capability. The common thread in all of these activities is execution. Executing on consistent performance, executing on growth, executing on productivity management and executing on new bookings and program execution. We plan to continue to do each of these successfully. Thank you. Now I'd like to open it up for Q&A. Operator?

[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.