Good afternoon and welcome to the Benchmark's First Quarter 2020 Earnings Conference Call. [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 Investor Relations. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today for Benchmark's First 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 first 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 advised on Slide 2 in the presentation. During this 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 noteably 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 the framework of our COVID-19 emergency response protocol and providing a current status of our global operations. Roop will then discuss our first quarter results including a cash and a balance sheet summary. Jeff will wrap up with a rundown of the demand outlook by market sector and our near term guidance before we conclude the call with Q&A. If you all please turn to Slide 3 in the presentation, I will turn the call over to our CEO, Jeff Benck.

Thank you, Lisa. Good afternoon and thanks for joining us. I would like to start up the call by offering our heartfelt condolences to all who have been affected by the COVID-19 crisis. I would also like to recognize the courageous healthcare workers and first responders who are taking care of those impacted by the COVID-19 virus. For the past three months, we have been working very hard to maintain operations against the global spread of the pandemic with two priorities in mind. First is the health and safety of our colleagues and their family. The second priority is to sustain the output of our operations so that we can continue to serve our customers during this critical time. Since the early outbreak and direct impacts to our Suzhou, China operations the senior leadership team have met daily and created a task force to centralize employee and operational safety protocols and we established a global communications team. We received a daily report on employee health and the status of our global manufacturing and engineering operations. We also established a critical work stream to deal with the ever-changing government requirement and regulation and to maintain alignment between the local authorities, our operations and our customers. I want to give tremendous kudos to our team for all they have accomplished. This is a 24 hour a day, 7 day a week day in day out effort to stay aligned, productive and coordinated. Our teams have approached this challenge with incredible results and a sense of responsibility to our employees, customers, shareholders and local community. Please turn to Slide 4. As the global COVID pandemic has evolved Benchmark continues to follow guidance from the World Health Organization and the Centers for Disease Control and Prevention as well as working with national, state and…

Thank you Jeff and good afternoon everyone. I hope everyone and their families are healthy and safe. Let me start by echoing Jeff sentiment on the incredible efforts of our teams to support our customers through a very dynamic environment to deliver our first quarter results. As we managed through the COVID crisis our priorities remain centered on one the health and safety of our employees. Two, retaining the critical resources and capabilities for our customers. Three, maintaining a healthy balance sheet and four, ensuring the financial flexibility to run our operations to uncertainty. I would discuss these priorities and our actions to support each as we step through our results. Please turn to Slide 7. As a reminder, on March 16, 2020 we announced that COVID-19 outbreak would negatively impact our first quarter results relative to the guidance that we had provided on February 6. Our first quarter results were below our February guidance driven by direct cost associated with labor expenses, personal protective equipment, supply chain inefficiencies and under absorption all caused by the disruptive impact of COVID-19. Even considering the challenging environment we achieved revenue of $515 million in the first quarter which was supported by strong demand in our semi-cap, Medical and A&D sectors. Our gross margins for the quarter were 8.4% and non-GAAP earnings per share was $0.22. Our non-GAAP earnings reflect revenue changes as well as costs associated with employees who restricted, quarantined or otherwise affected by the COVID-19 conditions. We also incurred higher overtime expenses and we paid labor premiums to those employees working in our China factory as they worked to recover from the shutdown. As a result we estimate that our China factory inefficiencies impacted our global EPS by approximately $0.08. As the impact of COVID-19 conditions expanded globally as Jeff…

Thanks Roop for that update. Turning now to the impact of the pandemic on Benchmark on Slide 15. I want to provide some insights into what we're hearing from our customers by sector. I would like to focus on two dimensions; the current visibility of demand by each market vertical and our ability to translate that demand to revenue based on operational and supply chain constraints. In summary, the second quarter will be less about demand than our operational and supply chain capability to support it. Our supply chain team has been proactively managing part supply during this pandemic since the early days of the outbreak in China. The team is assessing risk areas with our suppliers every day and taking preventative steps to ensure our critical supply lines remain open. However, the global supply base remain subject to the same ordinances and decrees that affect our operation and are causing inevitable interruption in our suppliers ultimately impacting our output. In the medical sector, demand remains strong for the medical products we produce, our medical design services and new program [indiscernible]. Furthermore, as I discussed we have been engaged by existing and new customers and helping produce medical equipment to help fight COVID-19 and in some cases this has meant a significant increase in demand. This demand and our abilities for medical customers will result in sequentially higher revenues in Q2 and we expect the second half 2020 revenue in this segment will be higher than the first half. In semi-cap, the demand recovery for semiconductor capital equipment continues based on the current forecast from our customers. However, operations supply chain challenges that exist in our California and Malaysia operations are impacting our ability to fulfill all of our demand backlog in Q2. Our competitive position remains strong in this…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jason Smith of Lake Street. Please go ahead.

Hey guys, thanks for talking my questions. I fully understand why you're not providing specific guidance for Q2 given the backdrop but just curious if you could share what you're seeing from a bookings or order momentum perspective in April compared to the end of March and relatedly if the Q2 guideposts assume that 75% to 80% productivity you currently have sort of is maintained throughout Q2.

Yes. Thanks Jason. It's Jeff. I will start and then Roop can jump in if you want. The demand is pretty strong particularly as we look at the second half. We did say this current quarter we saw revenue coming down sequentially, modestly because we know we're constrained really by more supply chain and operational -- the state of the current operations to meet the full demand. That being said we're not immune to the conditions and the environment and we have seen some demand come down in the sectors that I talked about like industrial and some of those areas compute and telco. We've seen some order load shift but we do feel like second half still look pretty strong for us that's why you see us saying that we believe that we will do better than second quarter as you go out to Q3 and Q4 and kind of calling the low point. Our assumptions with those guideposts were kind of looking at where we are today with that 75% to 80% knowing we've got a fair amount, we talked about Tijuana sites being unfortunately completely closed. We're anticipating being able to do some return to work there in the coming weeks. We're kind of looking at where it is now in those guideposts. It can change which is really why we were uncomfortable. We've seen things where -- Malaysia as of Monday we weren't able to operate 100% and just as of today I can report that it's going to 100% and we were at 50%. So that was a really positive thing but a week and a half ago I would have told you about Mexico and that was a negative. So it's a pretty fluid environment. I think the team has done a great job. We have justification certainly for the critical infrastructure and the sites we operate and that's allowed us to maintain production around the world and all of our facilities but local jurisdictions still rule the day and we want to be safe. So we're taking all the precautions we can but hope that provides a little more color.

No, that's helpful and I know you outlined some constraints in other product lines but are you seeing any capacity constraints in the medical business just given the inbound momentum you're seeing?

Yes and some -- you can imagine, I mentioned in one case related to some of the products fighting the COVID fight. We have seen demand more than quadruple, when the demand goes up 10x of course you're going to see short-term constraints while you go get parts to be able to build products. So we're certainly capped there but in some of the scenarios we also know this isn’t in demand that it may not be sustained for the long term but it's a great opportunity to do more for the customers we support, get a few new customers in the mix and to like them and continue to do business with them but I can't say we're not constrained in some cases in medical because we're on a lot of customer engagement calls and communications really daily on some of these most critical products. So there are some areas that are tight.

Yes. Maybe Jason, if I maybe just add remember that labor constraints we have are across our global network. So when you think about the medical sector as all sectors are somewhat impacted the good news is we've got higher demand that we're seeing in some of these medical products and upside which suggests that we're chasing components and making sure we can deliver on those.

Okay and then the last one for me and I will jump back into queue. I know you guys have been pretty disciplined about what programs you bid for but just given the current backdrop are you seeing any of the bidding process pricing become increasingly competitive given the backdrop?

Our space is competitive at the go. So most of the bids are competitively contested. I won't say that it's been necessarily more aggressive. We're in a pretty high value space now with approaching 80% of our revenue which not, there's a limited number of people that can do it. We know the usual suspects and we know kind of where we need to be competitively. I will say given the lack of -- we can't have people on site necessarily. It's really difficult. We're doing actually literally face time walk through the site to give people tours and stuff. I have been really encouraged by the pipeline of new business and we have weekly check point where we look at that and I got to say even through the March quarter and into April here, I've been sitting on those weekly. I don't always participate necessarily but I've been really wanted to see what the deal flow looks like and it's been pretty encouraging and we're winning our fair share. We went through a whole host is the charge the deck about all the wins. In fact, we just got an award this morning from an industrial customer that's pretty sizable that will probably roll up into our Q2 numbers but we're still, a lot of it with existing customers doesn't require a site visit or checking us out which just a great compliment to the work we're doing for them already, but I'm also seeing new customers want to engage. So I'm anxious to get people back in our facilities and all that but I got to say on that is very encouraged well it takes time as you know it can take 18 months and some of those design wins or awards to get to production but it's good to see things continue to happen.

Okay. I appreciate the color. Thanks a lot guys.

Our next question comes from Anja Soderstrom of Sidoti. Please go ahead.

Hi everyone. Thank you for taking my question. So I just have a follow-up on the previous discussion about that you said, Jeff you said you were encouraged about the pipeline of new business. So what would you say the new business comes from? Is it more from competing with in-house production or is it from competition?

I mentioned in my remark that defense, I think they're more committed. Some of our largest defense customers continue to want to move to outsourcing. Some of that was capacity the last several quarters but I think in the tough cost environment and where everyone pressured you're going to look at who can do things most efficiently and I feel like the commitment and the defense area is there to stay and many times to your point we're competing with in-house production in that segment. Medical is a little more outsourced, so that typically they might have already been outsourced. So we're competing more with folks that do work in that space. That's where our strong U.S. footprint, our FDA capabilities, in fact we do category food product that -- we can do life-sustaining things gives us a good leg up and our history in medical allows us to do well against the competition. So it kind of varies a little bit by segment. I would say we're seeing more outsourcing in the defense and in industrial. I think medical it kind of same complexion that we've seen. I still think it's the long-term secular trend. We know we're not at a majority of people being outsourced. Compute and telco, yes the majority is outsourced but in the other sectors were in it's not. So I think there's a lot of good first-time opportunities there but it's also often times there's competitors involved.

Okay and then talking about the industrial. So it seems like that's going to be slowing down more than others but then given your outsourcing model that might help you because the industrial production that needs to take place still might be outsource. Is that sort of a fair?

Well, [indiscernible] with industrial, you have to kind of a dig down a level with industrial. You got to go to the sub sectors and we do footprint in oil and gas which it's maybe 20% I think we stated 20% of that sector. We know that that market is going to be tougher in the coming months and quarters given the oil, the whole everything going on in oil pricing and everything but then you look at robotics which is also industrial and there is great opportunity there. We've got some new design wins in that segment. Automation continues to be stepped up but then we don't do a lot in transportation but we have some industrial transportation business but we anticipate that might be a little bit certainly flatter to a little bit of pressure there. So we kind of have to kind of play it out but I think it really depends by a segment. That being said it won't have the snapback that we expect with medical and semi-caps given the physician and defense but we are anticipating that we'll see some improvement from Q2

Okay. Thank you. And then talking about the healthcare. So you have this search out there of the COVID related products that you're helping out with but if we go back to the more elective product related, related products have they been pushed out? Have you seen cancellation in those or how should we think about that coming back again?

Yes. Elective surgery is the one category in products in that segment the one category I would say there's some softness but overall it's not enough to drag the medical segment down for us. In fact, we're pretty bullish given the upside on some of the COVID related products or some of the diagnostic and some of the things that we're doing. As you see we try to be articulate about just the kind of things. I mean everything from one-hour tester for COVID one of our customers is developing. It's got great promised. I mean that's exactly the kind of products that are needed. We play in the ventilators and those things. So there's a lot of demand across the broad set of a products there. The elective surgery I would say it's more push out but we're not seeing like we want to cancel things. It'll be more like hey we think if we can't fulfill all the demand in 2Q that's fine. We may see some orders move to the right but not wholesale cancellations but I think you're right in that that's hurting hospitals that they're not able to do elective surgery and I know there's a lot of pressure on our government officials to enable that to start picking back up and we'll watch how that plays out but from that standpoint I think it's more of a shift.

Okay. Thank you and Roop, what did you say about the tax rate for the second quarter? It was expected to be I am sorry --

Yes. We expect it to be 20% to 22% on year in that range.

Okay. And how about currency headwinds? Do you see any currency headwinds or?

We are seeing a little bit of currency headwinds. We have some FX impacts especially from the peso. We continue to monitor that. It's persisting a little bit in Q2. So we'll look to manage that proactively as well.

Okay. Thank you. That was all from me. Thank you.

Thanks Anja.

Thank Anja.

Our next question comes from Mike Cikos of Needham & Company. Please go ahead.

Hey guys thanks for taking the questions here. First just a housekeeping item. I think there was a comment made during the script that you guys are looking to take down SG&A expense 8% in Q2. I just wanted to make sure I was thinking about that that is on a sequential basis correct?

That is on the sequential basis, correct.

Okay and if I'm thinking about those cost reductions that we will be seeing is this more, I guess on a temporary basis to help align the cost structure with how the revenue profile is changing and is there any uncertain concerns or is there anything more to take away from these cost-cutting measures?

Yes. So I'll break them up into two pieces Mike. Specifically around the cost actions that we articulated in the call today with our prepared remarks those are temporary in nature and associated with kind of the demand profile we're seeing and the current environment if you will. Separate from that if you remember in last summer we did announce broader consolidation of some site one of which was completed through a transaction in the fourth quarter and the other one the San Jose State which I mentioned in my comments which is on track to be closed by the end of Q2. So the cost actions we've taken are a result of the current environment. Separate from that we as part of our announced consolidation of certain sites we're on track with that action as well.

Maybe I will just add the fact that Mike, we really given the demand in the second half and given the projects we've been working on really are biased towards protecting our capabilities and the resources and so that's really why we've taken. We have been proactive but we really tried to look at this from a temporary how do we help us whether this current where we've got such a disruption in our site around the world in second quarter.

That makes a ton of sense. Thanks for helping clear that all and I guess another question I had for you and good news on your ability to open up those facilities over in Malaysia and getting them ramped back up but just curious what that involves and how long it would take to get that ramps back up and just trying to get a gauge to imagine every facility is different but let's say Mexico gets the green light in the next couple of weeks, would it be able to follow similar track or how should we be thinking about that?

Yes. So I mean it's complex as you can imagine when Malaysia put under shelter-in-place, the first thing you have to do is appeal to the government that hey we're building critical medical products. We're building semiconductor infrastructure. We're building a semiconductor capital equipment. We're building a number of products that are deemed critical in the industry and critical infrastructure and then you get an approval, okay we'll let you operate with certain guidelines and those guidelines initially when we got approval we actually were only shut down fully for a short period of time less than a week but then we went back to 30% and then we operated to 30% for let's say a month or 3-4 weeks and then we were able to step up to 50% because we met the guidelines, we might have had an inspection, we were able to distance, we're able to reconfigure the factory, we're able to split shifts to get to 50% and increase our production correspondingly. Now with the progress that the country is made and their comfort level with containment we're able to get to a 100 % and it's still meaning socially, social distancing, keeping people apart, protective equipment like masks and things in the facility, cleaning multiple times a day, doing health check and all of that. So it does, it is the kind of thing where it takes time to get back. I would say like in our California facilities that's been an elongated process that might take four or five, six weeks to get to 100% but everyone really want deliver for customers and while we stay safe our teams around the world recognize the importance of what we're doing and so there's motivation to get there. It's just not something that's necessarily a light…

Right. Definitely a little bit of a movement for you when you think at the federal and the state governments line up.

Yes, does that sound familiar?

Right.

[indiscernible].

One other question that I had for you and it was more around the semi-cap. I wanted to make sure that I heard you correctly. So it sounds like Q2 might be -- might be slightly down from Q1 but if anything it's going to be due to your inability to fulfill some of the demand coming in based on the shelter-in-place in the Malaysian facility, I guess partial utilization you're currently at now.

Yes. Semi is not a demand problem. We have plenty of demand. It is really our ability to fulfill it. We're going to work hard to continue to grow that because the demand is there but as you said both Malaysia and our stronger footprint for precision technology in the bay area is making it a bit more demanding, a bit more challenging to get there but as we look at it you go to our chart 15 in the presentation, we kind of tried to do this guideposts where we said, we kind of had a side arrow on semi-cap saying that we see it flattish. It could be up if we could fulfill all the demand.

All right. That's helpful guys. Thank you and I'll jump back in the queue. Thanks a lot.

Thank you.

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

Yes. We just like to thank everyone for joining our call today. If you have any follow-up questions please don't hesitate to reach out. We certainly look forward to providing you an update on our second quarter 2020 results in our next earnings calls and hope that you and all of your families stay well. Thank you.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.