Benchmark Electronics Inc (BHE) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Benchmark Electronics Third Quarter 2013 Earnings Call. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions.) As a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Ms. Lisa Weeks. Please go ahead.

Good morning, everyone, and welcome to the Benchmark Electronics Earnings Conference Call for the third quarter of 2013. I am Lisa Weeks, Benchmark's VP of Strategy and Investor Relations. Thank you for joining our call today.

Gayla Delly, our President and CEO, and Don Adam, our CFO, are with me here this morning. After their prepared remarks, we will open up the call for your questions. Following the conclusion of this conference call, an audio replay will be available on our website.

Gayla and Don will be referring to specific earnings presentation slides in today's call. These slides, which will be referenced to by page number, are posted under the Investor Relations section of our website. Also, please note that Gayla and Don will be referring to non-GAAP measures during their presentations unless otherwise noted.

The Company has provided a reconciliation of our GAAP to non-GAAP measures in today's press release, as well as in the appendix of the earnings presentation slides.

During our call today we will be discussing forward-looking information. As a reminder, any of today's remarks that are not statement of historical facts are forward-looking statements and involve certain risks and uncertainties that are disclosed in the Safe Harbor section of our earnings release and SEC filings. Actual results may differ materially from such statements and Benchmark undertakes no obligation to update any forward-looking statements.

With that summary, I will now turn the call over to Don Adam.

Thank you, Lisa, and good morning to everyone. Today we will use the presentation slide deck, and we will refer to the slide numbers as we go, so let's begin, starting with slide 3.

First I want to take time to provide a few comments on our third quarter financial performance and metrics. We delivered solid performance with revenue and operating margins in line with our third quarter expectations. Revenues of $600 million were within our guidance of $590 million to $620 million. Our non-GAAP earnings per share of $0.31 were at the high end of our guidance for the third quarter and were consistent with the second quarter of 2013 as well as the third quarter of last year.

Our GAAP earnings per share were $0.43 versus $0.34 in Q3 of last year. 2013 results include $9.9 million of Thailand insurance recoveries in addition to $1.2 million in restructuring charges and integration and acquisition related costs. Our non-GAAP operating margin was 3.5% for the quarter, which was consistent with last quarter.

Now moving to slide 4, you can see the composition of our industry, our revenue by industry sector. The revenue breakdown by industry for the quarter was as follows. Computing at 30%, industrial controls at 31%, telecomm at 20%, medical at 12%, and testing and instrumentation at 7%. On a sequential basis for the quarter, computing revenues were up 3% and benefited from new program ramps even against the softness in demand for some products within our top customers. Industrial control revenue was up 3% with overall stable demand levels. Testing and instrumentation revenues were up 8% sequentially with program wins and continued improvements in the semi-cap space. Medical sector revenues decreased 6% sequentially associated with the timing of new programs. And finally, telecomm revenues decreased 13% when comparing the quarters. This was not related to softness in the telecomm market. It was, however, directly related to the new program in which we position inventory for an early fourth quarter launch.

Now going to slide 5. In the third quarter of 2013 we incurred restructuring charges and integration and acquisition related costs of $1.2 million. In addition, as we previously announced, we closed the acquisition of the EMS operations of CTS Corporation on October 2nd. The total purchase price was $75 million and we expected to generate annual revenues in excess of $200 million and to be slightly accretive to earnings in 2014. This acquisition will provide greater opportunities following our integration activities which are underway and will continue through the first half of next year. We have incorporated the acquisition into our guidance for the fourth quarter.

Now for a quick update on our Thailand operations. As we disclosed in today's press release, during the quarter we received $9.9 million of additional insurance proceeds. Please note that the insurance process is ongoing. We have no amounts reflected on our balance sheet and any additional recoveries will be recorded as a gain when received.

Turning to slide 6, I would like to discuss a summary of our third quarter operating metrics. The financial information and the following comments will be provided excluding our restructuring charges and integration and acquisition related costs as well as other special-type items. A reconciliation of GAAP results to our non-GAAP results excluding these items is included in today's press release.

Our operating margin of 3.5% was consistent with last quarter. Our margin was maintained despite late-quarter order reductions in computing and our investments in new program ramps. GAAP net income was $23.7 million for the quarter compared to $19.3 million last year. Our 2013 GAAP results include the Thailand insurance recoveries and the non-recurring charges mentioned earlier. Our non-GAAP income for the quarter was $16.9 million compared to $17.5 million last year.

The non-GAAP effective income tax rate was approximately 21% for the third quarter which is a bit higher than we had forecasted based on the actual geographic mix of income and impacted our EPS by $0.01. Included in our guidance for the fourth quarter is a tax rate of approximately 23% based on the expected geographic income mix. The diluted weighted average shares outstanding were 54.6 million.

Now turning to slide 7. Our cash and long-term investments balance was $437 million at September 30th. Again we note that approximately three-quarters of this balance resides outside the US with approximately $107 million of our cash balances in the US as of September 30th. Our long-term investments consist of $11 million of auction rate securities, the unrealized loss on (inaudible) securities of $1.5 million as reflected in shareholders' equity.

For the second quarter we generated $38.7 million in cash flows from operations including $9.9 million in insurance recoveries. Capital expenditures were $6.8 million, and depreciation and amortization expense was $10.1 million.

At September 30th our accounts receivable balance was $424 million, a decrease of $41 million from last quarter. Accounts receivable days were 64 compared to 69 for the second quarter.

Inventory at September 30th was $395 million, an increase of $45 million from June 30th. Our inventory turns were 5.6 times compared to 6.4 times for the second quarter. Let me highlight 2 items that impacted our inventory turns and level at September 30th. First, as noted, in telecomm we had a significant program ramp in early October for which inventory was in our finished goods at quarterend. And secondly, we are positioning ourselves for a strong fourth quarter as noted by our guidance.

As of September 30th we had $10.2 million capital lease on one of our facilities. And finally during the quarter we repurchased 431,000 shares at a cost of $9.4 million. As of September 30th we have $57 million remaining in our share purchase plan.

Now I will turn the call over to Gayla.

Thank you, Don, and good morning, everyone. Thank you for joining our call today. Benchmark continues to execute well in a challenging market environment. Admittedly our revenues were slightly lower than consensus but within our guidance. Given the weak demand witnessed in a portion of the computing sector and the positioning of inventory for the new telco program ramped in October, we were pleased overall with both our revenue and earnings performance.

As we guided last quarter, our third quarter revenues would be and in fact were essentially flat based on slowness in summer spend in Europe, typical third quarter seasonality in IT spend, and customer caution. These scenarios played out much as we expected. We experienced growth in 3 of the 5 sectors we serve during the third quarter, and based on current forecasts from our customers, we expect to see growth in all sectors during the fourth quarter.

Our performance for the fourth quarter and moving into next year will be driven by translating our bookings over the past 18 months into production revenues and the integration of our recent acquisition. Both of these key activities are well underway.

We are also pleased with our operating margin performance this quarter. We are making significant investments, first in support of further revenue growth as we ramp the sizable number and level of programs that we have booked over the past 6 to 7 quarters, and in our acquisition and integration activities during the third quarter.

We continue to see solid bookings in the nontraditional markets. Many of these we are supporting from design to production and while these programs have a longer ramp phase, they also enjoy a much longer life cycle. We are excited to add these important products to our program mix.

As we migrate these programs into production and complete the integration activities, we are currently aligned to achieve our 4% operating margin target in the second half of 2014. This is two quarters later than we had anticipated primarily associated with some timing changes on the ramp moving a bit to the right and also with our integration efforts.

New bookings. Let's turn to slide 8 for our third quarter 2013 business wins. We had another strong quarter of program bookings with both new and existing customers. Our new bookings represent new products to Benchmark, and these do not include revision updates or re-spins of existing products.

During the third quarter our new bookings included 29 new programs. 7 of these are engineering projects. Our new bookings have an estimated annual revenue run rate between $145 million and $170 million.

Looking at the acquisition and integration focus, as Don noted, we completed the acquisition of the EMS operations of CTS earlier this month. We welcome the customers and employees new to the Benchmark family and we look forward to future growth together.

This acquisition supports our strategic commitment to expand our portfolio of leading customers in nontraditional and highly regulated markets, and importantly strengthens the depth and scope of Benchmark's new product express capabilities on the West Coast.

There is a strong cultural alignment in our combined teams approach with a key focus on customer engagement and serving the customer. We look forward to expanding our global design and solutions services with our newest customers. The employee and customer integration process is well under way and we are pleased with the progress thus far.

Looking at fourth quarter guidance, let's move to slide 9. As we discussed last quarter, we will begin to realize revenue from several of our new program ramps during the fourth quarter. Based on the current forecast from our customers, our fourth quarter guidance is as follows. Revenues between $685 million and $715 million. Diluted earnings per share excluding special items between $0.34 and $0.38. The following items are excluded from the guidance. Estimated restructuring, integration, and acquisition related charges of approximately $2 million and estimated insurance recoveries, if any.

We will continue to balance our near-term financial performance and our investments in support of our long-term growth goals. Our guidance reflects an improvement in our operating margin to approximately 3.7% at the midpoint and also reflects a higher than anticipated tax rate at 23% for the fourth quarter as Don indicated.

Looking at the overall markets, let's turn to slide 10. Overall visibility from our customers and a read from the marketplace indicates no significant change from last quarter. Our customers remain positive but also realistic related to the short-term and near-term prospects for their business. The energy and customer excitement we see today is supported largely by their innovative new products being introduced into the marketplace.

Now to provide some color on each of the industries we served. I'll begin with computing. In computing we did see weak demand for some of the products late in the quarter resulting in lower than anticipated revenue levels in compute. However, within this sector overall, this softer demand was offset by revenue from new computing programs. So net-net this resulted in quarter-over-quarter sector revenue increase. Looking ahead to the fourth quarter we see increased sales in computing based on continued new program brands as well as seasonality in the December quarter.

Looking next at telco. As we stated in our last quarter call, we witnessed the greatest volatility in the products and programs we support within the telecommunications sector. During the past 2 quarters we saw delays in several new program ramps related to the timing on in-market transition. These programs have now launched. The outlook from our customers for 2014 remain positive with a combined impact of some expanded telecomm infrastructure spend and also growth from new bookings in this sector.

Next, taking a look at industrial controls, we saw improvement last quarter supported by an increase in capital project spending, and we categorize this sector's performance as stable going forward. We view this sector as one that provides slow and steady growth over time for Benchmark and we believe that Benchmark has a long runway of positive opportunities to provide both topline revenue and bottom line margin growth in support of this sector.

Looking next at the medical sector. We remain excited about the level of new business we're winning in the medical sector. Let me share a bit of backdrop on the rollouts I expect to see in the medical sector and the programs we have won. Clearly these ramps, given the regulatory requirements in this sector, take the longest period of time from award to revenue recognition, and even more so yet, for those in which we are engaged in the design phase. This causes a level of non-linearity in the revenue stream for medical during the currently key transition and ramp periods, but we, with our customers, are committed to successful product launches which are on the roadmap over the next 12 to 18 months and in some cases even longer. This is a long timeframe in comparison to other technology products, but these products normally are followed by a much longer life cycle.

Our customers in this sector have expressed some general caution based on the US medical insurance and equipment marketplace unknown but remain positive overall. For the fourth quarter we expect to see slight improvements in this sector in 2014 and as these new products and customers begin to ramp, we expect to have more visible improvements in revenue in the latter portion of 2014.

In tests and instrumentation, next, this sector is influenced by the semi-cap market space. We saw improvements in demand during the quarter and expect to see a similar level of improvement in the fourth quarter. Our customers in this space are generally optimistic for next year. We are performing very well for these customers and the investments in the semi-cap space that we have made over the past 3-4 years position us well to grow with these customers in the future.

Next, let's move to slide 11. In summary, our solid third quarter results were demonstrated for Benchmark. We are pleased with the results we achieved. We have a focus on profitable growth with our strong operational performance for our customers. We see the ability to build sustainable growth next quarter and further into 2014.

As we stated last quarter, we are not waiting for the macro environment to drive growth. Our customers remain somewhat cautious in the current environment but continue to eagerly support the transition of their new programs with Benchmark from design to production.

We also have the opportunity to leverage costs as we continue our integration processes. As we look forward, we expect to return to year-over-year growth in 2014, and as we stated we have a line of sight to achieve our 4% operating margin in the second half of 2014.

Our new program wins, diversification, and acquisition activities provide us the opportunity to leverage costs and give us confidence that our margins are on path.

Looking at capital allocations, this is a key focus area for Benchmark. As Don stated we have $437 million of cash on the balance sheet with $107 million of this in the US. We continue to look at and evaluate the most tax efficient methods to manage our non-US cash balances. Regarding capital allocation, we continue to invest in our business and create returns for our shareholders. We had deployed nearly $100 million for strategic acquisitions that provide long-term and strategic growth opportunities during 2013, and we have returned $31 million to shareholders through our share repurchase program which is ongoing.

We will continue to invest in our organic growth, strategic acquisitions, and will also look to complete our repurchase of $57 million remaining in our authorized share repurchases.

As we stated last quarter the common denominator for our future strong foundation is strong execution in all areas of our business. Execution on our acquisition integrations, our productivity management improvements, and continued improvements on our new bookings overall. The execution is not achievable without the continued support of our phenomenal customer base and the innovative products that they allow us to support.

We also require the continued commitment of our loyal and flexible employees who continue to position Benchmark as the solutions provider of choice for design and manufacturing services.

With that, I'd like to open the floor up for questions. Operator?

Thank you. (Operator Instructions.) Our first question will come from the line of Sherri Scribner at Deutsche Bank. Please go ahead.

Hi. Thank you. I just wanted to get a sense of the acquisition, the CTS acquisition. How much revenue are you expecting from CTS in the 4Q guidance? I think you said in the past over the long term you expect about $220 million on annual basis, but just wanted to get a sense of what CTS adds in 4Q.

We expect around $200 million overall and in a strong fourth quarter with kind of similar product mixes, we'd expect somewhere in the $50 million range. We would expect similar seasonality for Q1 and Q3 being the general quarters that are weaker in comparison to stronger Q2 and Q4.

Okay. That's helpful. Thank you. And then just, Don, in terms of the SG&A impact, would you expect SG&A to be going up in the fourth quarter, and what do you think the rate will be in fiscal '14 with the addition of CTS? Thanks.

Well I think in terms of the percentage of sales, you're probably looking at 4 or 4.1. Pretty consistent. I mean there's going to be commensurate increase with the acquisition. As we mentioned earlier today, we will be going through and integrating it. So not a lot to share there, but I would expect to obtain some leverage going forward into next year.

Thank you.

Thank you. We'll go next to the line of Amit Daryanani at RBC Capital Markets.

Thanks a lot. Good morning, guys. Just a couple of questions from my side. One, particularly on the CTS side, could you talk about because I think their slide decks they talked about LTM revenues of $222 million, and you're saying 2014 will be $200 million. Why do you think that business is going to decline by 10% rather than grow traditionally next year?

And then any color you can give on the accretion side would be helpful. Is it going to be more back half loaded? And is there a way to think about the accretion number in absolute dollars?

I would expect the accretion to be kind of midyear, as we stated that we would expect it to come into play.

And as to the revenue, I believe that what you see is some of the programs that they have wound down associated with a facility that they shut down over the past I would say year to 2 years is the primary roll off that you would see.

Got it. And then on the inventory line you guys talked about the telco ramps that you had in the month of October and then you talked about building a stronger Q4. I would imagine CTS added as well a decent amount of that inventory line. Could you maybe talk about those 3 buckets?

Amit, I guess the key point there is, and we may not have made it clear enough, but the acquisition closed on October 2nd, so it is not in our balance sheet or income statement as of September 30th.

Got it. Fair enough. And then just finally on the computing side, you talked about I guess a couple of customers that were fairly soft in the end of the quarter in the month of September. On an organic basis, has that softness persisted so far for you guys in Q4? Do you expect on a like-to-like basis computing to be challenged partially offset by new ramps or has the business stabilized after that cut you got in the month of September?

So the computing sector is generally stronger in Q4, which, as we indicated, we do expect that to continue to show strength. Some of the programs which may not be in as strong of an environment probably will continue to see a similar nature behavior, but the new programs we do expect to, as we saw in Q3, continue to have stronger growth opportunities than some of the longer-term programs.

Okay. Thanks a lot.

Thank you. And next we'll go to the line of Jim Suva at Citi.

Thank you very much and congratulations on the closing of the transaction. Gayla, I believe you made the comment of you expect growth next year in 2014. I just wanted to make sure that that comment is both including CTS being folder in or is it not? And if so, can you help us understand for magnitude so we don't get too ahead of ourself? Should we just layer in $200 million on top of what's kind of projected for 2013 or layer in growth because you've had some really strong wins over the past few quarters?

So we haven't provided guidance for 2014 and I won't go out to providing guidance at this point, but a couple of items. First, our Q4 guidance does incorporate the CTS, so that is kind of a valid starting point. And typically what we would see is we would expect to grow at or above the overall industry growth would be probably the key factor. But as you say, we want to make sure that we are acknowledging the environment we are in that isn't strong growth, but we are looking to ramp a number of the new programs.

So without giving guidance I think that the environment would see some kind of single-digit growth for next year, but I don't have a true outlook on what the overall marketplace is right now. Importantly though the Q4 already includes the CTS acquisition.

Great. And then I think it was Don, you made a comment on taxes. Can you help us understand with CTS being integrated, is that 23%, is that a good long-term recurring rate or are there some puts-and-takes in there that we should be conscious of for your tax rate?

You know, as a starting point, 22% to 23% is probably a decent look, but we're going to see variability based on the geographic mix of taxable income. But for a starting point, that's probably pretty good.

Great. Thank you for your clarifications everyone.

Thank you. We'll go next to the line of Brian Alexander with Raymond James.

Thank you and good morning, Gayla and Don. How much was the inventory build for the telecomm timing issue that you cited and how much revenue would you say shifted from Q3 to Q4 in relation to that particular ramp? I'm just trying to understand the revenue guidance for Q4 in terms of how much is organic growth versus this particular issue because it looks like you're guiding up sequentially about 8% if I back out the acquisition of CTS, which is pretty strong relative to how you've guided in the past and performed in the past, and I'm just wondering how much is timing and how much is actually an improvement in demand?

I would say that it's really hard to parse as to if you normalized it how much would they have forecast in third quarter as opposed to a fourth quarter. When you have a new program ramp you do have a bolus associated with that. I would estimate -- best I could say, maybe $10 million associated with that, Brian.

Okay. And that was the key reason for why your telecomm business came in a little bit below expectation for Q3, right?

Absolutely in my mind, but I think that one of the key things we have highlighted and do want to highlight is when there are some of the new program ramps, you do experience non-linearity. You'll have I'll call it a big bang kind of approach to a product launch which will have lumpiness inherently, so it will potentially starve 1 quarter if you will and provide a bolus in the following quarter. But neither of the 2 quarters is probably representative of a true run rate level.

Right. Okay. And then just on the computing business, if I back out the revenue from your largest customer, which you highlighted probably didn't perform as well as you expected in the quarter, but the rest of your computing business is actually up close to 50% year-on-year. And I think you've had a lot of new programs in computing, but what would be helpful is if you can maybe talk about the composition of your computing business today and how that looks different than it has historically and give us a sense for what are the key drivers of computing that we should be paying attention to to better be able to predict that business?

I would think that what you see in the overall marketplace is probably the key indicator. I wouldn't go into the details of the programs and products we support, but clearly the on-demand computing and the many different ways in which the convergence of data and data availability is manifesting itself throughout the world is driving opportunities for many traditional and new customers in serving those needs.

So I don't think there is any way we can probable give the level of knowledge you'd like to understand about the whys and wherefores on what's providing them their opportunity, but we're just happy to say that we are participating with a number of new customers and seeing those growth opportunities.

And then just final one. Could you just give us a little more color on the margin composition of CTS? What is the margin profile of that business relative to Benchmark? What is that going to look like in the early stages of the integration and where do you think that can be in 12 to 18 months? It looks like maybe initially it's not adding much to profitability but there's some synergy opportunity as you integrate that business.

Brian, this is Don. Yes, that's exactly right. I think at least starting off it's going to be a little bit below what our expectations are, but as Gayla said in her prepared comments, we want to basically get them to that traditional 4% or above.

Okay. All right. Thank you.

Thank you. We'll go next to the line of Sean Hannan with Needham & Company.

Yes. Thanks. Actually just a follow up on that CTS comment, Don. If I think about their business, particularly that mix, the nature of the mix and the margins, and as I think about the comments of getting to a 4% operating margin in the backend of '14, it looks like CTS is helping you to get there in the back half of the year but I think you probably should have been able to get there on your own. So I'm just trying to reconcile how much of an impact is there earlier in the year and then to what degree is there actually a profile difference within the margins in the CTS business?

Well as we said, our midpoint of guidance implies 3.7% and barring the number of ramps and the acquisition, we would expect to be much closer to the 4% that we targeted.

As to the question of I guess the margin before and after, clearly the margin is not aligned with where we would want it to be, and as we go through the integration process we will be driving opportunities for improvement associated with that.

Help me out on understanding a little bit more about your question? Maybe I didn't capture it all there, or if I didn't capture it all there?

Yes. I just -- we're going to be going through 3 quarters of CTS business that'll be -- if I separate out from where we are today versus the second half of '14, we're looking at 3 quarters of CTS business that's in the mix. I think that in general the mix of that business should be enhancing to your model.

So it's unclear to me why we don't see some of that benefit perhaps come through a little bit earlier and even still, it's unclear why we don't have organically some of that benchmark business being able to get to a 4% level as well even before the second half of the year. It seems like the expectations are being set a little bit low for the first half of '14 and I'm just trying to understand that.

I think as we noted with the significant number of program wins and the number of new opportunities and the type of products going from engineering and design, we are seeing that the investment that we are making for future growth is stronger and we're very pleased with the opportunities that we're seeing on our front log of opportunities currently.

With that level of new program activity and investment we're making, that's why we believe that it's prudent to continue to support that growth, to continue to diversify our base of business, and expect that it will take the 9 months.

I guess it's important to note that at $200 million it's not having a significant amount of impact on the $2.5 billion business base.

And then when I think about the guidance that you have for next quarter and given that we do have some contribution coming through from CTS, of course realizing this is a much lower scale versus broader benchmark, but I think they have a good amount of medical business as well as a good amount of industrial business. It would almost seem to imply that perhaps the legacy Benchmark business might be down a little bit quarter-to-quarter and the flattish expectation now is a result of bringing in CTS or how do I think about those 2 markets and how CTS has contributed there?

Well I think, Sean, I think in terms of the customer profile, they're primarily going to fall into industrial controls and telecomm for us, very little medical. So you were referring to the medical growth I think and we're expecting growth and not much contribution from CTS on that.

Okay. And on the industrial side we're looking for flat, so ex-CTS that would be down slightly?

No. I think we said we're going to have growth in all of the sectors next quarter.

Okay. I can follow up offline. Thank you.

Thank you. We'll go next to the line of Wamsi Mohan with Bank of America.

Yes. Thank you. Gayla, I know you're not guiding 2014, but can you help us just conceptually how you would expect the mix to evolve? In 2013 we saw a significant uptick on the industrial side. Your new wins would indicate that industrial should become meaningfully larger, even ex-CTS. But we don't know necessarily what programs, any meaningful programs that might be falling off, so any color you can share there and how we should be thinking about the mix in 2014?

Don't have a lot of color to add there other than I don't see any meaningful industrial programs falling off. The programs that have the shortest life cycle clearly are those in computing and then the next probably is telco, but the other industries typically have longer life cycles, and I'm not aware of any of those that have a significant change in product mix or customers we support.

I do think that we would expect to see the impact of the normal macro environment on the industries and the customers overall. And as I've stated, the most excitement and energy is coming around the new programs being added to the mix that really will change the dynamics as compared to the overall marketplace.

Okay. Thank you. And on test and instrumentation, when are we likely to see a bottom on that market in your opinion?

I think that we have seen growth over the last 2 to 3 quarters and we expect to continue to see that based on program wins. Now when the market itself sees a bottom, I believe that customers are somewhat optimistic but do not see any significant changes overall. So this may be rocking along the bottom right now and our growth is really from new opportunities that we're seeing.

Okay. Thanks, Gayla.

(Operator Instructions.) We have a follow-up from the line of Amit Daryanani at RBC Capital Markets. Please go ahead.

Yes. Thanks. I have 2 follow-ups. One, the Thailand recovery. It looks like you guys got a $10 million recovery this quarter. Could you just talk about what sort of ongoing potential there is from a recovery basis and if there is any timeline associated with that?

Amit, this is Don. I think we're still working through that process, so at this point really nothing additional to add to what we've already disclosed. So what I'll say is the process is ongoing.

And as we indicated there is no receivable on our balance sheet, and so it's on an as-received cash basis. So we continue to work through the finalization of that over the next quarter or two.

Fair enough. And then I guess as you look into the fourth -- Q4 and your forecast of 2014, is there going to be any restructuring activity associated with CTS, I think they have 5 sites right now, that we should start to think about and potentially factor into our models?

I think the most significant impact there is the integration associated with putting systems and processes in place consistent with Benchmark. As you note, they were part of CTS, which is an ongoing corporation, and therefore we are implementing our systems and processes, so that will be what I would consider the near-term headwinds as we incur costs to do the integration. And then the benefits come from having that integration in place and supporting customers going forward.

And is there a way you would quantify that for us for Q4 or for the first half of 2014?

I don't clearly have 2014 ready to indicate there, but as Don indicated in our integration restructuring costs we have about $2 million in fourth quarter, which is a finalization of some of our pre-CTS activities as well as the integration cost activities.

Got it. Thank you.

Thank you. And we'll go back to the line of Brian Alexander, Raymond James.

Yes. Just a couple of quick follow-ups. I think you said you had about $57 million left on the buyback at the end of the quarter, and your US cash balance is over $100 million, so I was just wondering how quickly do you think you can complete that buyback program? Should we think of the cadence as similar to what you've been performing at, $10 million to $12 million a quarter, or do you think you could accelerate that?

And the second question is do you have an estimate for what you think the book value is for Benchmark pro forma for the CTS acquisition?

So on the buyback we will continue and expect it to be somewhere in the $10 million to $20 million range for the fourth quarter and as we continue to progress through our buyback.

And as to the book value, as we said, the -- go ahead, Don.

Yes. The book value is going to pretty much equate to the purchase price, Brian.

And that's $75 million.

Right.

So there's no goodwill associated with that acquisition?

I would not anticipate any significant amount of goodwill.

Okay. And then just on the 4% operating margin that you expect to achieve in the back half of the year, what kind of revenue level do you think you would need, minimum revenue you would need to achieve to get to that 4%?

I think as we've stated before, it has a great deal to do with the mix. So dependent upon the level of new program and activities in primarily computing and telco, that number will move north. And probably is in the higher, without integration and ramp costs at the current level, I would say clearly at 700 even with 50% to 60% coming from telco and computing, you get there. But as we get more of our mix coming from the other diversified market areas, we would expect it to be closer to the 600 and 650. So it really will toggle as we get in to higher ramps in the other market areas as we talked about the longer life products.

And then the last one for me, if we assume CTS gets to a 4% operating margin and maybe it does a little bit better than that, that would imply overall EBIT contribution of somewhere $8 million or so. And I'm just trying to understand the $75 million purchase price relative to that level of EBIT. It's over 9 times, which is, you know, much higher than where some of the publically-traded EMS stocks are valued, and I'm just wondering the kind of justification for the price and maybe talk through some of the strategic opportunities that you see and perhaps maybe how the margins could go much higher than that to justify the high EBIT multiple?

Well we can go through a further discussion and typically, as you know, it's usually an EBITDA multiple not an EBIT multiple that companies use. But suffice it to say that we have plans, and we're not going through the full dissection, but the plans are to have the right geographic footprint, the right opportunities for customers to drive growth, and to drive it beyond the 4%. And that all of our business is geared towards not only just achieving the 4% but driving past that 4%. And what we were indicating was kind of the near-term goal to get to the 4% that we want to achieve.

Okay. Thank you.

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Okay. Thank you.

Thank you all.

Thank you, and ladies and gentlemen, that does conclude your conference for today. Thank you for your participating and for using AT&T Teleconference. You may now disconnect.