Good afternoon. And welcome to the Benchmark Electronics Incorporated Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Weeks, Vice President of Strategy and IR. Please go ahead.

Thank you, operator, and thanks everyone for joining us today for Benchmark’s second quarter 2019 earnings call. With me this afternoon, I have Jeff Benck, CEO and President; and Roop Lakkaraju, CFO. Jeff will provide introductory comments, and Roop will provide a detailed review of our second quarter results and third quarter outlook. We will conclude our call today with a Q&A session. After the market close today we issued an earnings release, highlighting our financial performance for the second quarter of 2019, 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 advice 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 fact 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, Jeff Benck.

Thanks, Lisa, and welcome to everyone joining us for this afternoon’s call. I've been on the job for four months now and I've learned a lot about our strength, our unique capabilities and where we have room to improve, and importantly I have had the opportunity to hear from many of our customers, what their needs are going forward and how we can help them accelerate their business and in turn grow our. I’m energized by the opportunities in front of us and we are in the process of transforming our organization to ensure we capitalize on this opportunity. During the call today I will first provide a brief overview of our second quarter 2019 results and introduce the new executives I have added to our team. Roop will then take over and talk through the financial update and I will close with a review of the key strategic initiatives we will be driving in the coming year. Please turn to slide 4. In the quarter ended June 30, 2019, we delivered revenues of $602 million which was beyond the high-end of our guidance and we achieved $0.36 of non-GAAP EPS, which was at the high end of our guidance range. Revenue was higher than our expectations driven by year-over-year increases in the higher value A&D and medical market, along with higher than expected revenues from the legacy computing contracts. Our non-GAAP gross margins improved 10 basis points sequentially to 8.9% on a higher value market mix, despite continued softness in the semi cap market sector which was down 41% from the second quarter of 2018. More importantly non-GAAP gross margin were over 10% when you exclude the legacy computing contract revenue, which reflects the potential leverage in our model with an improving portfolio. Please turn to slide 5. I've…

Thank you, Jeff and good afternoon everyone. We’ll start at slide 7 for a discussion of our second quarter 2019 financial summary. Revenues of $602 million was above the high end of our guidance of $555 million to $585 million. The higher revenue performance against guidance was primarily driven by the substantial completion of a long standing legacy computing contract versus our previous expectations wherein the contract would be completed in Q3 2019. The final activity in Q3 on the contract will be to complete the remaining inventory transfer. Our GAAP EPS for the quarter was $0.24. Our GAAP results also included $3.4 million of restructuring and other costs due in part expenses associated with various site restructuring activities and our go to market changes. $800,000 for a legal settlement with a customer and $1.1 million of funds received from a favorable legal settlement. Our Q2 non-GAAP operating margin was 3.1%, a 20 basis points quarter-over-quarter and 40 basis points year-over-year improvement due to our improved operational efficiency and slightly lower SG&A. Non-GAAP EPS of $0.36 was at the high end of our guidance range of $0.28 to $0.36. For the quarter, our ROIC was 8.2% down 10 basis points sequentially, and 230 basis points year over year. Please turn to slide 8 for revenue by market sector for the three months ended June 30. For your awareness and clarification, we have renamed the test and instrumentation sector, to semi cap, the more accurately reflect the revenue mix in this sector. This change does not affect historical comparative revenue. Industrial revenues were up slightly from our expectations and flat from Q1. Revenues were down 3% year-over-year from softer demand from customers in the industrial transportation market and ramp delays from previously booked new programs. A&D the revenues were up 3%…

Thanks, Roop. Let's go to slide 18. During the past quarter working with my leadership team, we have refined our strategic priorities for the coming year. In fact, we've already made progress on these new initiatives in the quarter. The one thing I want to reinforce is that our strategic initiatives are prioritized with a customer centric mindset. The first initiative is optimizing our go to market organization and customer coverage strategy. Our strategy is built around addressing the future needs of our targeted customers with a partnership strategy that will help them win in the marketplace. If our customers win with us, we will accelerate our revenue growth. Go to market has been an important area of investment over the past several years to drive booking, which would in turn drive revenue growth. Certainly progress has been made. But the organization needs to mature at a faster pace. This quarter, we have realigned our go-to-market organization under a new CRO role, which we have filled with Rob Crawford. The new organization merges our sector leadership, business development teams, marketing and sales operations under one leader. The purpose of this new organization is to facilitate more effective customer and sector coverage, reduce complexity in the selling process and improve revenue conversion. Rob will play a key role in optimizing our sector and customer portfolios and enhancing the sales process to expedite time to market for our customers and time to revenue for benchmark. Part of the process focus will be on the bookings methodology. As Roop communicated earlier, we were down quite a bit this quarter from where we expected to land. While we anticipate a recovery in bookings in 3Q given our pipeline, it's a challenge to time customer communication of awards to a specific date and the quarter.…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jim Ricchiuti with Needham & Company. Please go ahead.

Thank you. Good afternoon. First question I had was just with respect to the performance in the industrial vertical, I wonder if you could maybe shed a little bit more light because I assume that, that vertical encompasses a number of different customers and maybe some subsets. So where are you seeing some of the weakness and/or where has it fallen short of your expectation?

Yeah, so this is Jeff, I'll take the lead and then I'll let Roop add some color. We -- there's a number of factors, as you said that that's contributing to it. If you look at our current, quarter revenue and the outlook was flatter, we believe there's growth opportunity here. So when we say we didn't perform as expected, we really intended to see growth here and expect to be able to grow it in the future. But we have had a number of customer wins that we've had here that have taken longer to ramp for a number of issues. Sometimes it's a design issue with a particular customers' product that they're trying to develop, in some cases the company dynamics and their plans to go to market. So we have seen some elongated programs that have not ramped as quickly. So that's certainly one factor. When you look at our bookings performance, because they were -- industrial is certainly a contributor to a weaker bookings quarter. I think some of that, execution on our pipeline, and our ability to do have the right interactions to close that. And we made a number of changes there. We have a new industrial sector VP coming on board that I think is -- I'm excited about and think that's going to help quite a bit there. In general we don’t see really an industry economic slowdown per se in industrial, but just when you look at our participation and where we play there, we were trying to expand into other areas. We were strong in the oil and gas measurement area and some of the segments that we're in may not have the highest growth profile for the complete sector. And as we have expanded it we have gotten these wins but that's certainly taken longer. You want to add to that.

No I think you covered it well, Jeff.

Okay.

And Jeff just with respect to Semi-Cap have you basically now met with all of your major customers and it sounds like the way you're thinking about the recovery is the way we're hearing a lot of folks talk about it, more second half of 2020. But by the same token it sounds like you get any indication as to particular leading indicators that you're looking at that might signal when this is actually really starting to happen?

So let me comment on that and go a little deeper. I have that a lot of customer interaction here. So that’s been given [ph] -- that I was go after that. I haven't met with every customer we have here, so I got more work to do there but from the discussions I have had with some of the really important ones, there is definitely a belief that 2020 will be better than 2019 and you know we feel pretty strongly and I think it's been pretty consistent that we will see improvement in 2020. But we also we kind of look for where does the bookings in the quarter will start to happen? We are also sort of saying which we think is consistent with what we've seen in and heard from the customer that it's probably more back end loaded in 2020, second half 2020. That being said I really like this space, I like our strategic position. We have strong bookings in this segment, we believe that we're gaining share. We've seen some consolidation of suppliers that has come to us and we also been asked by customers that hey, we want you there as a strategic supplier when this recovery happens. And it could be pretty significant as we seen in the past. So from that standpoint we're still bullish on the segment and our position. But it is definitely taking longer than a more pronounced downturn here. And we always -- last quarter, I think we said second half of '19, probably wasn’t going to be there and we're just reconfirming that that is very flat for us in '19. And frankly it might have down further had we not gained some ground.

Jim, just I'll probably add two additional things. I think to your question of leading indicators obviously the comments that our customers who are some of the leading companies there what they might say will give us better indication of customer conversations. The other thing as Jeff mentioned I'll just echo is kind of the order load and how that profiles in will obviously give us confidence as to when we start to see that recovery and we will obviously communicate that at the appropriate time.

Thanks. I'll jump back in the queue.

[Operator Instructions] The next question is a follow-up from Jim Ricchiuti with Needham and Company. Please go ahead.

Just with respect to the facility consolidation, I wonder if you could talk a little bit about the types of customers you are servicing in those two facilities and I just want to again go over the timeline for closing those facilities. And when we might anticipate some of the benefits from a cost savings start to flow in?

Yeah, so let me talk about the strategic context and then I will have Roop comment on the financial impact. This is a tough decision and we don’t want to impact our team but we been going through this strategic assessment and looking at a lot of utilization, the scale of our sites, geographic placement, cost and customer needs, I think I mentioned that in the script. These sites do support really all sectors. So it's not, specific to a sector. They even have some semi-cap business there as well, but it's small. But when we just looked at our strategy and looked at the network, considering all those elements, we made the decision that we would that we would close the site. It's not a tremendously large number of customers. We're talking less than 20 customers across both sides. But we really are looking to move a majority of the programs with those customers to other sites where those customers already -- many already exist. And we can kind of consolidate with program teams and be more efficient and yet still serve those customers in a great way. When you look at the actual timeline, our communication is very much about having the customers' transition in the first quarter of 2020. Then Roop maybe you can comment a little bit on…

Yeah, just to finish off the thought there. As Jeff said, the timing is for customers to be transitioned by the end of Q1 2020. We expect final closure details to be in Q2 2020. In terms of lease termination, these sort of things. Jim, I think you asked also about savings and timing. As we indicated, as I indicated in my prepared comments, we expect the annualized $5 million savings. We think those savings will start to kick in in the Q3 timeframe of 2020.

Great, okay, thanks a lot.

This concludes our question-and-answer session. I would like to turn the conference back over to Lisa Weeks for any closing remarks.

Yes, I just wanted to put a reminder, that Benchmark will be supporting the Needham advanced industrial tech day on August 14 this year, and also the Sidoti Fall Conference in September, September 25. So both of those will be in midtown New York, and we look forward to seeing you there. And with that we thank you all for joining our call today. And if you have any questions, please feel free to reach out to me and I will be happy to follow up with anything that you need. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.