Good afternoon. Welcome to Benchmark Second Quarter 2020 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. Please note this event is being recorded. I would now like to turn the conference over to Lisa Weeks, Vice President of Strategy and Investor Relations. Please go ahead.

Thank you operator, and thanks everyone for joining us today for Benchmark's second quarter 2020 earnings call. Joining me this afternoon are Jeff Benck, CEO and President; and Roop Lakkaraju, CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the second quarter 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. 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. 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 as described in our press releases and SEC filings. Actual results may differ materially from these statements, most notably from the ongoing impact of the COVID-19 pandemic, and Benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will begin by covering a summary of our second quarter results and by providing a current status of our global operations. Roop will then discuss the second quarter results in more detail, including a cash and balance sheet summary and our third quarter guidance. Jeff will wrap up with an outlook by market sector and an update on our strategic initiatives before we conclude the call with Q&A. If you will please turn to slide 3 in the presentation, I will turn the call over to our CEO Jeff Benck. Jeff?

Thank you, Lisa. Good afternoon everyone, and thank you for joining our call today. Our second quarter results were achieved against the backdrop of mandatory facility shutdowns, component constraints, and extra processes required to keep everyone safe. I want to thank the entire Benchmark organization for doing a remarkable job and taking care of one another and making sure we are operating as effectively as possible in the new world. During Q2, we achieved revenue of $491 million, which was down sequentially from Q1, but supported by strong demand in our medical and semi-cap sectors. Non-GAAP gross margin for the quarter was 7%, and non-GAAP earnings per share were $0.07. Our non-GAAP earnings include $4 million, or $0.10 per share of COVID related costs that we could not fully anticipate as we entered the quarter. In addition to these COVID costs, we experienced other production inefficiencies as a result of the current pandemic environment. Our overall performance was helped by the aggressive cost reduction actions taken earlier in the quarter. Our cash conversion cycle for the quarter was 84 days. Despite operating challenges, we generated $23 million in cash flow from operations and returned $6 million of cash to shareholders as part of our recurring quarterly dividend payment. As we look forward, I wanted to step back and offer a few perspectives. I'll do that on slide 4. Since I joined Benchmark last year, we've made a lot of positive changes and all of these have been supported by an amazing team. From the hard work required to execute on our strategic initiatives and goals that we outlined last year to overcoming unique challenges presented by the unprecedented global pandemic of today. Let me simply say, our team has risen to the occasion. Before I arrived, the company had embarked…

Thank you, Jeff, and good afternoon. I hope everyone and their families are staying healthy and safe. Let me start by echoing Jeff's sentiment on the incredible efforts of our teams to support our customers through a very dynamic environment. As we manage through the COVID crisis, our priorities remain centered on; one, the health and safety of our employees; two, delivering for our customers; three, maintaining a healthy balance sheet; and four, ensuring the financial flexibility to run our operations through uncertainty. Please turn to slide 8 for our revenue by market sector. Total Benchmark revenue was $491 million. Medical revenues for the second quarter increased 14% sequentially and were up 18% year-over-year from continued new product ramps, strength throughout our medical customers and increasing demand for critical devices necessary to support the COVID-19 fight, including X-ray and ultrasound devices, ventilators and diagnostic equipment, which we estimate is approximately a third of our sequential growth. Semi-cap revenues were up 5% in the second quarter and up 39% year-over-year from continued strong demand across our semi-cap customers. A&D revenues for the second quarter decreased 26% sequentially due to approximately $15 million lower revenue from our commercial aerospace programs, which is approximately 30% of the sectors revenue. The remaining decline in the sector is related to defense program timing changes, whether that is the end of certain programs or transitions to new programs. Demand from our defense customers for security solutions, aircraft, munitions and satellites remain strong. We expect continued strong demand in Q3 and Q4 2020 including new programs ramping, which should result in sequential revenue growth. Industrial revenues for the second quarter decreased 15% sequentially. Demand for products in the oil and gas industry, which is approximately 20% of our revenue continue to be generally soft and will likely…

Thanks, Roop, for that update. Following Roop's guidance for the third quarter, I wanted to provide additional color on our view of demand by sector for the second half of 2020 on slide 16. As I stated earlier in the call, our global operations are at or near our planned staffing levels, with the exception of Mexico. Given our current operational state, our ability to fulfill demand remains high. Through the second quarter and early into July, we have gained a better picture of the demand outlook from customers in each of our market verticals and have a current snapshot of what our revenue trends could look like in the second half. I want to reinforce, this is just a snapshot, because there will likely be puts and takes across our sub-sectors as we move forward. I will start with the medical sector, where demand grew almost 14% sequentially from Q1 and is forecasted to remain strong throughout the rest of the year, from new program ramps in imaging systems and for critical care and diagnostic devices supporting COVID-19. On the flipside, our core medical products that support cardiac, renal and orthopedic therapies have seen demand reductions in the second half that have offset some of the increases, as hospitals and clinics are deferring planned procedures and elective surgeries based on hospital capacity. We expect demand for these products to increase when the COVID crisis lessens. But the end result for our portfolio is that, we believe it will remain at the Q2 level for the balance of 2020, which still represents double-digit year-over-year growth. In Semi-cap the demand recovery for semiconductor capital equipment continues, based on the current forecast from our customers. On the strength of this demand, we expect sequential quarterly revenue growth for rest of the year,…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Jason Smith from Lake Street. Go ahead.

Hey, guys. Thanks for taking my questions. I just wanted to start with Q2 and if you could discuss the linearity in the order patterns. Is it fair to assume April was bottom, May better, and June was even better than that. And I guess relatedly, could you just discuss how orders have tracked so far this month?

Yes. I can start and then we’ll let kind of Roop kick in. We, obviously, given the lead time the order load kind of progresses through the quarter. And it starts some of that backlog of orders is actually before the start of the quarter end. I think we've seen reasonably good linearity. It's not like we had a sudden uptick at the end of the quarter. I think that was normal. But that being said, we did have demand adjustments and reductions for 2Q, and also looking on Q3 and Q4. We did also say in the prepared remarks that we see continued recovery. But, when you think about where we might have been before this recessionary environment, we're not in that level, but we do see improving demand as we go. We also -- it's a bit of a tale of two cities for us where we've got some existing products that the demand is weaker, and we can go into any sector you might be interested in knowing more about. But then as we get to other areas like some of the COVID-related products, we're seeing increased demand. So, from that standpoint, that's a little more insight. Roop, do you want to add to that?

His call is dropped. He'll be right back.

Okay. No problem. Anyway, Jason.

That’s helpful, Jeff.

Does that help? Okay.

Yes. And then, I know in Q2, you expected some constraints within the Semi-cap market. I think that was mostly related to labor and with your facilities now being open. Assumption for Q3 is that through the constraints to all be alleviated at this point?

Yes. Yes, it is in fact. We did say, we were -- we had strong demand and we were constrained based on the California sites disruption and that we knew that that would be a challenge for us to meet all of the demand and some would roll through the quarter. We continue to make progress on that in July, and I feel pretty confident that we're going to not have any pent-up or backlog that we can fulfill in the quarter. So, that's one of the reasons that Semi-cap recovery has been good, and we continue to see third quarter be stronger there and we've indicated that.

Okay. And the last one for me, and I'll jump back into queue. The COVID cost that impacted Q2, what's the assumption for Q3?

Yes. That's an interesting one to call. I'd go so far as to say, we expect the expense will be the COVID-related costs to be less than what we saw in the current quarter, because we had a lot of operational disruption, a tremendous amount more than a lot of even some of our competitors just based on where operations are located. But, that being said, we're almost fully operational everywhere. We do have the Mexico sites, which are only 75%. So, I see that cost being less, but it won't be zero. And it still could be a fairly significant number, north of $1 million or more. Because we still have personal protective equipment. We still got extra cleanings and who knows what other disruptions might come about. So, somewhere -- not zero, but probably less than what we called out in the second quarter.

Hey Jeff it's Roop. Jason I got reconnected. Jeff I apologize. If I could go back to add to Jeff's answer on linearity question. Just a couple of things on that linearity. April, obviously -- because of kind of how the quarter happened, we did see the linearity increase as we got later in the quarter in June and as we made mention because some of the medical products and semi-cap products we've got long production cycle-time. So, that carried into the third quarter. And obviously we'll see that ramp as we continue through the rest of the quarter. And we've obviously got revenue growth also. So, that's also contemplated in terms of that linearity. So, you see it kind of up and to the right as we all continue through Q3.

Okay, appreciate that color. Thanks guys.

No worries.

[Operator Instructions] Our next question is from Anja Soderstrom from Sidoti. Go ahead.

Hi. Thank you for taking my question and congratulations on a good quarter, despite the challenges you encountered.

Thank you.

So, I just have -- so last quarter you sort of said it wasn't really a demand issue for you, it was more of the operational and supply challenges issues for you. How does that -- how does demand look for you going into the second half and maybe also into 2021, if you could give some color on that?

Yes, I think as we did provide guidance for the third quarter, so we are seeing improvement in demand. And we also are much better from an operational standpoint. So, we don't anticipate to be constrained by supply. We believe that we'll be able to fulfill the demand that's there. It is good to see some improvement there. And as we look at the second half, in general, that we see some sequential as we go. A little early for 2021 to talk a lot about it, other than to say, we see a lot of strength in Medical. We believe that will kind of continue into 2021, certainly with the pipeline of new wins, because we've continued to win good business there. We also expect semi-cap recovery to continue into 2021. In fact, this year the semi-cap recovery very heavily dominated by logic and as we look at 2021, we think memory has a good opportunity and certainly just coming out of the SEMICON Conference, memory looks to have a strong 2021. So, we anticipate that that will be a good business line for us. And then defense continues to be pretty solid and has not been as affected by the downturn here. So, that's a little bit of indicator of what we are thinking about it in 2021.

Okay. Thank you. That was good color. And then for Medical and then you have the COVID-related production there helping you. How long do you see that lasting and sort of when do you think the elective will kick-in? Will it be sort of like -- maybe a little bit downtick in between or will it sort of locate each other?

So, maybe--

Yes, almost like I should--

Go ahead.

Hey, sorry, Jeff. Maybe if I could, I'll start, if I could on that one. So, yes, we do have COVID upside Anja, but we've got some general strength in the Medical sector based on the bookings that we've seen, the strong bookings growth over the course of the past few quarters and we've got a number of new ramps. Now, we've got strength within our existing Medical customer base, in addition to the COVID products. So, I think as the COVID products over the next couple of quarters or few quarters may start to decline, we'll see the continued ramps of the medical programs that we have under way and continue to shrink with some of our other customer -- medical customers into 2021.

Okay. Thank you. And then, lastly, so have you -- I guess, it's been a little bit difficult for you this quarter, but have you sort of implemented on your production efficiencies during the quarter that you think might be more permanent and carry over into the next year and help margins?

So you said production efficiencies, did you say?

Yes.

Just to clarify.

Or any other operational efficiencies?

Yes. I mean, obviously, we've got -- we outlined the Mexico operations for which we are still seeing some challenges. With that said, our other global operations are up and running. And so, I think, we've got contemplated any such considerations at this time, in terms of what we've guided. Obviously, we'll have to see how the general market and the COVID environment continues in the second half and what have -- there may be a vaccination and these sort of things. So, I think, for the second half, Mexico is still a concern for us. The other sites are up and running at this point in time.

Let me just add a little bit there. Obviously, we've got a lot -- we had a lot of inefficiency in Q2. I mean, we talked about $4 million that that was very specific COVID expenses that we would say this -- that would have contributed $0.10 of EPS if we wouldn't had to spend that money, which is a big deal. But beyond that, there is a lot of other inefficiency like, productivity, engineering, designers that maybe were 85%, 90% efficient, because they're working from remote and they can't collaborate quite as easily. So there's a lot of other just general inefficiencies that, we see the opportunity, not only adjusting to the new normal, but then also as we get further through and hopefully, as Roop said, there is progress on remedies and ways to combat this disease. But we also took a lot of cost out, like with a lot of the actions we took on expense. So that will mitigate that a little bit, because as the COVID costs go down, then some of the other furloughs and salary reductions and things we'd like to obviously to not continue infant item. So that's a little of the dynamic there. But, certainly, when you look at the margins in the second quarter, we know we can do substantially better and we're sort of guiding to that, we're talking about exiting the year 9% plus.

Okay. Okay. Thank you for the color. That was all from me.

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

Yes. I just wanted to put in a reminder that Benchmark will be supporting a number of virtual conferences in the third quarter. On August the 6, we'll be supporting the Needham Industrial Technologies Conference. On August the 11, The Oppenheimer Technology Internet and Communications Conference. On September 17, The Lake Street Capital Markets Big4 Conference, and on September 23, The Sidoti 2020 Fall Conference. We look forward to engaging with you during these events. And I wanted to say thank you again for joining our call today. If you have any further questions, please feel free to reach out and I'll be happy to follow-up. Thank you again.

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