Good day, ladies and gentlemen and welcome to the Benchmark Electronics First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference Lisa Weeks, Vice President of Strategy and Investor Relations. Please go ahead, ma’am.

Thank you, Christie and thanks everyone for joining us today for Benchmark’s first quarter 2018 earnings call. With me this afternoon, I have Paul Tufano, CEO and President and Roop Lakkaraju, CFO. Paul will provide introductory comments and Roop 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 of 2018 and we have prepared a presentation that we will reference on this call. The press release and presentation are available online under the Investor Relations section of 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 ladies and gentlemen. If you could please turn to Slide 4, I would characterize Q1 as the solid quarter for Benchmark. We met actually exceeded our commitments on both revenue and EPS. The revenue was $608 million for the quarter up 9% year-over-year. We had good growth across the majority of our segments. Gross margin was 9.5%, 40 basis point improvement year-over-year and non-GAAP operating income was 3.7% or 10 basis point year-over-year improvement. EPS on a non-GAAP is $0.41, $0.09 year-over-year. And our cash cycle days were 16 at the low end of our target range. Operating cash flow was $45 million and our ROIC was 11.2%, a 230 basis point growth from the year ago period. If you turn to Page 5, we are making good progress on bookings. As you all know, revenue growth is critical for us to achieve our long-term financial model and bookings are critical to what we were. In the second quarter, we generated $171 million of bookings. And of those bookings, 63% were in our higher value markets and 37% in traditional markets. I’d like to give you a little color on some of those wins that are related to the quality of the bookings. In industrial, which was 30% of our bookings we had a very nice growth in smart cities as well as a win on electric vehicle charges for electric automobile. In A&D, we have a variety of wins across the board for comms devices, for land vehicles through munitions and for high and specialized filters for military applications. In the medical segment, 17% of our bookings came from medical with two very nice wins, one in device, the other for optical image stabilizer for use of MRI machines. In computing, which was…

Thank you, Paul and good afternoon to everyone. Paul provided recap of the first quarter of 2018 financial summary. I would like to provide a few updates that occurred in the quarter. Effective January 1, 2018, the company implemented ASC 606, the accounting standard governing revenue from contracts with customers using the full retrospective transition method. Under ASC 606 revenues recognized are as or when the customer obtains, controls the goods or services promised in the contract. Given the nature of the terms and conditions in substantially all of the company’s customer contracts, the company now recognizes revenue over time beginning at work in process for the majority of its contract. And with the change in the timing of revenue recognition from a historical perspective, the effect of implementing ASC 606 is a reduction in revenue by less than $500,000 for Q1 2018. As part of ASC 606, we are also required to reclassify finished goods and work in process meeting the over time criteria from inventory to a new line item called contract asset on the face of the balance sheet. Contract assets are defined as the company’s right to consideration, the work completed but not billed. During Q1 the company repatriated approximately $277 million of cash from international locations. We also expect to repatriate additional available funds in the future. As part of our capital allocation strategy during Q1, the company entered into a $50 million ASR agreement with Goldman Sachs. During the first quarter of 2018, the company changed its historical repatriation strategy. We began to repatriate core earnings from our foreign jurisdictions to the U.S. in support of our capital allocation strategy announced in March 2018. As a result, we are required to record estimated foreign withholding taxes and estimated State income taxes to assess the…

Thank you. [Operator Instructions] Our first question comes from the line of Sean Hannan of Needham. Your line is open.

Yes. Good evening. Thanks for taking the question here. Just a few things to make sure I can clarify and kind of solidify some of this is modeling as we are looking out at the back end of the year here, just to check in on you the comments on gross margin as well as SG&A, first gross margin hitting 9.7% or approaching, is this a value for the second half or are we talking at some point in the second half to achieve there, now on the SG&A front just want to make sure that I understood correctly where we are looking to get that value down to about 5-ish percent I think by the end of the year, but I may have misheard you?

So I am sure we will take that gross margin point and let Roop talk on the SG&A point. As I have said we believe we have the ability to approach 9.7%, well, that’s going to be probably as we enter the year. Our ability to do that would be a function of two things, okay. How long we can resolve some of these operational issues. And number two, how we can drive or absorb more revenue growth, but the revenue growth would be in that second half end of its net revenue. So we are focused on maximizing gross margin. And the question will be the trajectory of that from the second quarter to the end of the year, but we are going to be relentless on the gross margin line.

And Sean just to add some color on the SG&A regarding your question, obviously in Q1 we were about $35.2 million. And as we think about the range that we provided $36.5 million to $37.5 million, we are going to be in that range overall and so we expect that with the revenue growth of 2% to 5% that we anticipate for the year as we get towards the end of year, we think we will be in that range of approximately 5%.

Okay. So I mean this would imply a very significant back end of the year revenue ramp, I mean I think the mass would suggest and we are probably looking at something close to $700 million type of number for December, am I thinking about this correctly and just kind of make sure I understand this appropriately?

Sean, the answer is yes, you are thinking about it correctly, mostly stronger revenue in the second half than the first. We saw that last year, we expect to see it again this year.

Okay. And then in terms of these customer ramp headwinds, just want to see if we can get a little bit more color in terms of what exactly is occurring here. Do you seem to express a fair amount of confidence you can address this and resolve it operationally is just want to see if we could get a little bit more feedback around what’s occurring?

Sure. Okay, look I mean as you – our factories have multiple customer and local product in every factory. And our job – our job is to absorb customer transitions seamlessly. Now, lot of our factories, haven’t seen growth in a while and it’s like exercise. When you don’t exercise, it’s hard. So, as the volumes increasing, what happens at an organization is it stresses the organization, because these factories have to be like – think about like a NASCAR coming into a pit and the pit crew comes, everybody has got to work in unison to get the car out. Well, when you are not using the volume at the level though, some of these factories are experiencing, we don’t have quite the coordination that you need. We don’t have quite the alignment in terms of processes that you need. And it’s easy to get a little bit out of sequence. If you could add a sequence, it’s tough to recover without either having additional cost or you get crunched on the back end of the quarter to try to get volume and you missed by. So, it comes down to three things. It comes down to ensuring the organization has the right people in place, the right processes and the right tools. Tools are not quite the problem, it’s just getting people and process together and working in tandem, planning accordingly to execute as needed. And so we are working on that. It’s not rocket science but its hard work. And I am confident our teams will resolve work through those issues and get us back on track in a large part maybe in this quarter with most definitely about the third quarter.

Okay.

And just about the fine point in this, I want to make sure you get a fine point. If we are going to see revenue growth as we would like it to be, we must make sure that no matter where you are in our network that you are ready for demand and you catch it flawlessly. That is the mission of Mike and his team and they are off executing that mission.

Okay, fair enough. Let me see if I could just switch gears here and then I will jump back in the queue. Just looking at the program wins, it’s a really wide range this quarter, just want to see if we get a little bit more clarity around that, you are doing a great job in terms of procuring new business so congratulations on that front. Any color would be great on that range and thanks very much for taking the time here?

Okay. So, as it relates to bookings, it’s our objective to have as wider range of new engagements and new bookings as possible. Clearly, we have a model that target for each of the seconds we are going after and our goal is to get customers that require complex, technically rich partners that can deal with a lot of complexity in those volumes. And so they are procuring that. And more importantly, we are doing it in a way that we are trying to engage with customers of our products into the front end of the S curve that see growth. And so if you look at some of the ones we had this quarter in the medical space as the stuff we are doing with [indiscernible] is a really innovative way to do it. We are really excited about that. The stuff we are doing with DC-to-DC power, while it’s different, if you think about energy and energy management, energy storage, it’s going to become a bigger market going forward we want to play in that market. Given budgets for defense, we are going to see fair amount of defense spending over the course of next two years. There is going to be more than we have seen in the past. We engage from munitions to communications, the avionics to land vehicles, so we want to take our fair share, so ypi will see us play across the board. And the old spaces of computing, high-performance computing is our niche and we are pleased we got through in there.

Great, thanks so much, Paul.

Thank you. Our next question is from Jim Suva of Citi. Your line is open.

Thanks very much. Maybe my math is wrong, but does it – notably accounting has the impact of those two, but for the June outlook, is this like the first year of year-over-year declines you have seen in like about 3 years or so and if so did I also hear on your prepared remarks or the Q&A that you expect growth for this year in totality?

So, if you look at our Q2 guidance, revenue range is $590 to $630, I believe we did about 617 last year. So, at the midpoint we are slightly below flat, above the midpoint, we should see growth. Now for the full year – for the full year, we expect to see revenue growth of between 2% to 5%.

Got it. And it feels about there would be obviously second half loaded, would there also be kind of Q4 loaded also just getting the spending now some of the customers if you have in budget flushes and things?

So, if you look at the second half, it was backend loaded. If you look at our 2017 for example, fourth quarter was the highest quarter of the year. I think that is consistent with our friends historically.

Okay, great. Thanks so much for the clarification.

Thank you. And I am showing no further questions. At this time, I would like to turn the call back over to management for any further remarks.

Thank you, operator and thank you for taking the call. Let me just end the call by saying we put guidance out we make a balanced view of what we believe we can do. It is our goal to improve upon the second quarter guidance as we move in the second half of the year. In all the areas we talked about, you have our unrelenting focus to ensure that this is achieved. So, with that, I just want to thank you for listening to the call. We will talk to you in 90 days. Thank you very much.

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