Good day, ladies and gentlemen, and welcome to the Benchmark Electronics Incorporated First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Ms. Lisa Weeks. Ma’am, you may begin.

Thank you, operator and thanks, everyone for joining us today for Benchmark’s first quarter 2017 earnings call. With me this afternoon, I have Paul Tufano, CEO and President; and Don Adam, CFO. Paul will provide introductory comments and Don will provide a detailed review of our first quarter financial results and second quarter outlook. We will conclude our call with a Q&A session. After the market closed today, we issued an earnings release highlighting our financial performance for the first quarter and we have prepared a presentation that we will reference on this call. The press release and presentations are available online under the Investor Relations section at our website at www.bench.com. This call is being webcast live and a replay will be available online following the call. Please take a moment to review the forward-looking statements advised on Slide 2 in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today’s remarks that are not statements of historical facts are forward-looking statements, which involve risks and uncertainties described in our press releases and SEC filings. Actual results may differ materially from these statements and Benchmark undertakes no obligation to update any forward-looking statements. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release, as well as in the Appendix of the presentation. I will now turn the call over to our CEO, Paul Tufano.

Thank you, Lisa and good afternoon, everyone and thank you for joining us. I am extremely pleased with the performance of the company in the first quarter. This is the third consecutive quarter that we have met or exceeded our commitment. Now as we discussed before, this is a major focus for the organization and an endeavor to establish creditability. In this quarter, the company posted revenue of $567 million, a 3% growth year-on-year. This is the first quarter in over 11 quarters where the company has posted year-on-year revenue growth, and hopefully this will continue as we move forward through the course of this year. Gross margins were 9.3%, a 10 basis point improvement year-over-year. Our cash cycle days were 67 days, a quarter-on-quarter improvement of 7 days and a very impressive 32 day improvement from the same period a year ago. That drove operating cash flow of $78 million, which puts us on a very good start to achieving our guidance of 125 million to 150 million of operating cash flow for the year. And our ROIC was 9%, an increase of 60 basis points quarter-over-quarter. As we discussed last quarter, we felt the fourth quarter would be the low watermark and ROIC would improve throughout the course of 2017 and I am pleased to see that it is going in that direction. We now turning to Slide 5. Let's [indiscernible] through commentary on bookings. As you know, this is a major focus area of the company. Last quarter, we were very upfront in the fact that we need to increase our bookings on a quarterly basis to drive revenue growth. And we set a target of $150 million of quarterly bookings by the second half of '17. This quarter, we made modest progress in that endeavor. As…

Thank you, Paul. I'm going to start on Slide 9 with a recap of our first quarter income statement. We have revenues of 567 million, which exceeded the high-end of our guidance and are up 3% year-over-year. And again as Paul mentioned, our first quarterly increased in the 11 quarters. The first quarter non-GAAP operating margin was 3.8% and down from the fourth quarter on lower revenues. Our non-GAAP EPS of $0.34 was above the high end of our guidance of $0.24 to $0.28 primarily due to better absorption and higher than expected revenues. We also had a lower than expected tax rate which contributed about $0.01 per share to EPS. GAAP EPS for the quarter was $0.19, our GAAP results include a $5.1 million charge or $0.10 per share for the write down of inventory and a provision to accounts receivable associated with the insolvency of a customer. These charges increase cost of sales by 3.4 million and SG&A by 1.7 million. It also includes 1.5 million of restructuring and other costs. For the quarter, our ROIC was 9%, up 60 basis points from the last quarter, and our long term target is 12%. Please turn to Slide 10 for a quarterly result by market sector, note that we are now separately reporting our Aerospace and Defense sector revenues. Industrial revenues for the quarter were slightly above our expectations and were down 2% quarter-over-quarter and down 14% year-over-year due to continued soft demand for our industrial customer base. Aerospace and Defense revenues were up 2% quarter-over-quarter and 14% year-over-year driven by demand in the Defense sector. Medical revenues were flat quarter-over-quarter and up 4% year-over-year. Medical revenues were adversely impacted by approximately 3 million due to the insolvency of a customer previously noted. Test and Instrumentation revenues grew 18%…

[Operator Instructions]. Our first question comes from Jim Suva from Citi. Your line is now open.

Hi. This is Tim Young on behalf of Jim Suva. Thanks for taking the question. I guess, my question is on top-line growth. You highlight that the first quarter, in March quarter year-over-year revenue growth was impressive and of course year-over-year growth in the 11 quarters. But in June quarter revenue guidance implies flattish growth. Can you just -- is there like a demand forming in March quarter? Can you just provide some color on that? Thanks.

Well, I think we are in the range. The range goes from -- up to 5 -- 85 [ph]. So that would imply growth at the top end of the range. So I think, as you look at the demand profile for the second quarter, it’s kind of mixed, we’re seeing some strength in certain sectors and that strength is to some degree being offset [indiscernible] from a few others. And as we go through the course for the quarter, I think we’ll get better feel for now customer demand fills in and I’m hopeful that we can again post quarter-on-quarter growth.

Got you. Thanks. And then the customer resolves the issue? Can you provide some color on that as well? Thanks.

Well, we can’t go into the name of the customer. Unfortunately, we had one customer who has run into some business issues. We took a reserve against it. We’re working with that customer.

And our next question comes from Mitch Steves from RBC Capital Markets. Your line is now open.

Just had a quick question on the networking side. It sounded like you guys are talking about an optical slowdown or is that broad based or was that a customer specific issue you're calling out there?

Well, I think that, I would characterize the optical market as seeing a little bit of weakness. And for those customers that we’re supporting, we’re seeing some of that as well.

Got it. And then secondly the semi-cap side, it sounds like we’re just given the fact that we’re seeing good numbers certainly [ph] that as well. It sounds like that hasn’t slowed down and the year-over-year is still growing. You guys have expected to grow throughout the full year?

So in semi-cap, we are expanding our customer based, and with some of our key customers, they’re seeing what I would say greater than industry demand, industry average demand.

And our next question comes from Steven Fox from Cross Research. Your line is now open.

I was wondering first half, if you could talk a little bit about your Internet of Things initiatives. You mentioned some proprietary technologies that you’re featuring at unique design center and you also mentioned smart city win. So is there a way to sort of tie those two comments together in a more strategic fashion and talk about what exactly is proprietary and how are you going about running some of those businesses? And I have a follow-up. Thanks.

Sure. Let me take the first question. We have been investing in a series of technologies that allow you to have low power radio networks, that will enable sense integration. This technology pretty much came from some of our Defense application and we are now courting it over to commercial application. And it is perfect for sensor network infrastructure. As you know sensors are pretty dumb devices right, and as you interconnect them, unless it's one sensor to the one device, it's pretty difficult to do an interconnect. We believe we have a technology that allows us to interconnect sensors, utilizing nine different types of functionality that will provide extensive array of capabilities for application developers and end users. We are now promoting that technology with our customers and as we do so we will use our new Arizona design center to prototype and to extend that technology working with customers and their solutions.

And in terms of the smart city, when was that related to this technology or is that a sort of leveraging different capabilities?

Leveraging different capability.

Okay. And then just -- I am sorry go ahead.

No, the point I want to make is, today it's leveraging different capabilities. I believe in the future as we get some traction with this technology that there will be a fair amount of leverage and synergy with our existing and more importantly future customer base.

Great thank you. And then just in terms of just this salesforce reorganization, I think you said you are at 80% through that transformation and it looks like if you were to -- not this is easy, to continue to improve your order book. At the progress you made in Q1, you hit your bookings target for the second half. But I guess I was curious whether you saw some of that improvement in the quarter, what markets you thinking are maybe the low hanging fruit where you can reorganize successfully or any other color on how confident you are in getting to that sort of bookings target by the second half? Thanks.

Look our objective is to hit the number, and anything less than that is not going to be expectable, look at it that way.

Okay.

Now, we will see what kind of progress we make in the second quarter. As we look at our various market segments, we have different time to, from time to initial contact with the customer to time to quote, is a little bit elongated. And so what we have to do and what we are doing today is we are managing portfolio of sectors and a portfolio of accounts within each sector to try to drive, such that we have enough pipeline in those longer times to quote segments, such that we can get to that 150 and above it. And quite honestly we're making progress at different rates and paces in each sectors, but the objective is to get everybody to the same level of maturity and the same level of pipeline growth and more importantly quality of pipeline to allow us to get to 150 and beyond with the right mix. And I think in two to three more quarters, I think we will give you a more definitive state about how well we believe we are along that path.

Great, thank you very much.

[Operator Instruction] And our next question comes from Sean Hannan from Needham & Company. Your line is now open.

Just wanted a follow up on some of the comment that you provided as well as some of the responses you've provided for questions a little bit earlier. The optical side of the exposure that you have within the communications business, how big is optical for you folks, I have not had the impression that it was really that substantial. Is this -- at this point today is this kind of 5% of revenue? How large should we be thinking about that given that were we're calling out some of the temporary weakness here?

Shawn first of all just and -- if you're looking at year-over-year comparisons really the driver in why we're down is the former Top 10% customer that we had is really driving most of that. So in terms of the optical, it's probably in the 20% to 30% range on the Telco side.

20% to 30% of the Telco segment, okay alright.

Let me be clear, on Q1 versus Q1 last year, this year that’s driven by the former Top 10% customer.

Right absolutely, that I follow up. Calling out the optical as an incremental was more of a quarter-to-quarter observation.

Looking forward correct.

Okay and in term of the design centers, how have you folks kind of come to a decision to go after an IoT design center and all that high speed design center, what drove the thinking to go at, number one, two different centers and then specifically within those specific areas, how is that ultimately being justified over driven even by your customers, a little bit more prospective around that would be fantastic. Thanks.

We have a number of different -- I've always said the company has a number of outstanding capabilities that need to be leveraged, as I said that's just the beginning, since the day you heard my first call, right? One of those points of leverage is some of the technologies we have surrounding, we have low power sensory networks and [indiscernible] band radios. We're seeing a lot of traction with that in certain points of our Defense portfolio. But the applicability to other parts of the markets and especially other customers is extremely broad in my opinion. And so the reason to invest in it is because we believe we can provide solutions to customers that have them, not only cut development time, but also time to market. And so, we'll be foolish not to leverage it. And so we're doing that. Now we have been over the course of last six months refining it and we're now at the point where we're engaged with customers in this area and as we look to engage with more customers we need to have more capability in terms of prototyping and additional solutions and so its time put that center in place. So that’s the rational for the IoT center of excellence. As it relates to the RF center of excellence, we've always had grid RF capabilities, and I've stated that in my first call. We did or what kind of satellite work, microwave. So there is a lot of high-end RF skills that we have. We also have a high-end filter business, that in my opinion has been woefully underutilized. And so as we attempt to take our high-end filter business, extend it with additional RF capability and bridge into some microelectronics work that our customers are demanding, I think it forms another capability to leverage with existing customers and new customers. And so that’s the rationale for that second center of excellence. What I’ll tell you is that these are nice Greenfield groups, we have critical mass in both of them. I think that, we've never really elevated it or marketed it appropriately to our customers, we are in the process of doing that now. And as a result, we have to extend capabilities to support those customers and drive revenue growth. So we chose to do that and we've chosen the Phoenix area to do it because of proximity to the existing design capabilities, existing support organization for those two areas.

Sure. Okay. Make sense. Thanks very much for the feedback here.

And at this time, I’m showing further questions. I’d now like to turn the call back over to Lisa Weeks for any closing remarks.

Thank you all for joining us today. Please feel free to give us a call if you have any follow-up questions and we look forward to speaking to you in July. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.