Benchmark Electronics Inc (BHE) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Benchmark Electronics Inc. fourth-quarter 2015 earnings conference call. At this time all participants are in a listen-only mode. Later we will can conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Ms. Lisa Weeks, VP of Strategic Planning and Investor Relations. Ma'am you may begin.

Thank you operator. Good morning, everyone and thank you for joining us today for Benchmark's fourth-quarter and full-year 2015 earnings call. My name is Lisa Weeks and I'm Benchmark's Vice President in Strategy and Investor Relations. With me this morning are Gayla Delly, President and CEO; and Don Adam, CFO. Gayla will provide an update on our strategic priorities and near-term outlook and then Don will provide a detailed review of our financial results followed by a question-and-answer session.

Earlier today, we issued our earnings release highlighting our financial performance for the fourth-quarter and full-year 2015. And we have prepared a presentation that we will reference on this call. The press release and presentations are available online under the investor relations section of our website www.bench.com. This call is being webcast live and the replay will be available online following the call.

Please take a moment to review the forward-looking statements advised on slide 2 in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today's remarks that are not statements of historical fact are forward-looking statements which involve risks and uncertainties described in our press release and SEC filing. 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. If you will turn to slide 3, I will now turn the call over to our President and CEO, Gayla Delly.

Thank you, Lisa, and good morning to everyone. I'm very pleased with what our results say about the merits of our strategic plan.

A few years ago we committed to increase our efforts in our higher value markets to capitalize on the growing trend of outsourcing while balancing reduced customer spending in our traditional space. Despite the significant macroeconomic challenges in our traditional markets, particularly in our telecom market space, our profit margins have increased. Our mix has grown in favor of higher growth and higher-margin business.

So despite the headwinds and the topline, our profits and cash flows have continued steady. Our top priority is to expand sales and improve our mix in the higher-value markets where outsourcing rates are growing. Products and contracts typically have longer lifecycles and customers see value in our early engagements with engineering services and value-added solutions which drive a richer engagement model.

Our portfolio transition has enabled us to increase our margin. Previously, we set forth a target of 4.5% quarterly operating margin on a non-GAAP basis. We achieved that in the fourth quarter which was a full 50 basis points higher than the comparable 2014 quarter and our highest quarterly margin since 2007. For the full year, our margin was 4.2%.

As we move forward, we will now establish a target to exit 2016 at a 4.8% operating margin. Recall, that we are now targeting 5% as our longer-term operating margin goal. A business as large and complex as Benchmark always has an opportunity for continuous improvement in areas such as production efficiency and supply-chain optimization.

The transformation of our portfolio to our targeted markets, which are characterized by higher mix and lower volume, has temporarily increased our working capital requirement as we work to optimize the supply chains we inherit as our customers initiate the outsourcing of their increasingly complex and diverse extended supply chains. Don will detail our efforts here, but I can say that we are aggressively addressing our working capital performance during this transformation.

You will note that our inventory positions have improved and we have line of sight to reductions in cash cycle times in 2016 as well. We will maintain our disciplined focus on operational excellence in cost management. As our portfolio revolves towards higher operating margins, the Company continues to generate strong operating cash flow which was $147 million in 2015.

For the last 12 months, we repurchased 3.1 million shares for $68 million and returned 63% of our annual free cash flow to shareholders. We have $135 million remaining on our current repurchase program and we expect use this opportunistically.

We manage our business effectively and I want to reinforce that we will continue to have a balanced approach to our capital allocation. We will first invest in our organic business and drive growth. Second, we will make acquisitions that fit our strategic goals and, third, we will continue to return money to our shareholders.

During this quarter, we demonstrated our ability to do exactly this. We're confident that we have the right strategy in place to increase revenues across the board and raise profits and return to shareholders.

Now if you will please turn with me to slide 4. For the full year, we achieved a record 55% of our revenues from higher value markets. For us this includes medical, industrial, including aerospace and defense, and test and instrumentation. This compares favorably to 50% of revenue in 2014 and 32% in 2007.

Likewise, our 2015 bookings mix has also shifted towards the higher-value sectors with a longer term goal of generating more than 70% of our revenue and bookings from these sectors. In alignment with our target market, in late 2015, we revitalized our good market activities adding new global-sales leadership. With this, we're encouraged and optimistic about our long-term topline and margin growth even in a difficult operating environment.

In our targeted markets, many products have strengthened timelines and certification requirements. Accordingly, we continue to invest in design engineering, talent and solutions. During the second half of this past year, we also incremented our engineering leadership and have recently reorganized our three, regional design centers under one global leadership team.

Late last quarter we acquired Secure Technology, a market leader that specializes in providing engineers and recognized products for complex, industrial, aerospace and defense application. We're excited to add the catalog of engineered technology and proprietary solutions that Secure has developed to cost effectively deliver select solutions to our targeted industry.

To eliminate the nature of Secure's activities, Secure's engineers often design products with very limited high-level specification partnering with customers in a more collaborative manner to achieve the speed and results desired. This differs somewhat from the typical EMS-engineering model where services are provided primarily for designed to specification engineering requirements. The Secure acquisition directly aligns with our strategic focus to expand both the depth and the breadth of services and solutions to customers in a higher-value market.

The existing solutions and go-to-market capabilities serve as excellent building blocks for growth as we identify and leverage these technology solutions across our service industries and portfolio. The integration of Secure is proceeding according to plan, as expected to be EPS and cash-flow accretive.

And from a cost perspective, we are implementing planned manufacture procurement and corporate overhead synergies and these are all underway. We're excited to have the talented team on board. With saw minimal contribution from Secure this quarter with the mid-November closing and we expect to benefit in 2016 and beyond as we integrate this acquisition.

Our prudent current capital allocations have permitted us to continue investing in the business for both CapEx and strategic acquisition and also return capital to shareholders while we have transformed our portfolio.

Please turn to slide 5 for a review of outlook by market segments. The current market environment, from our view, is character by pockets of uncertainty as well as stability. Don will take you through some of the details related to the quarter and our specific near-term outlook, but I wanted to provide you a broad view by market from the customers we serve.

First I will focus on the higher-value market. In the industrials market, this is a high priority area for Benchmark. Our new business bookings over the past few quarters have been the highest of all sectors and reflect our focus on this important market. Over the past year, we saw markets soften due to reduced infrastructure spend and this limited the growth benefit we expected from new programs.

Our customers, in the infrastructure-related markets, expect significant macro challenges to continue in the near term. While some customers in our building automation, transportation, aerospace and defense markets feel a more stable level of demand. For the full year, and compared to 2015, we expect 2016 growth in this sector which will come primarily from the contributions of new programs and our Secure Technology division.

Moving to medical, we are pleased that the benefit of strong bookings resulted in a full-year revenue increase of 13% in comparison to 2014. Our engineering and production bookings remain strong and we expect continued growth throughout the year 2016 above the 2015 level. Further growth is expected in 2017 as some of these newer medical programs begin to ramp into volume production.

Now moving to test and instrumentation, this is the revenue base that is comprised largely of semi-cap customers and they project relatively stable demand throughout the year, with a modest opportunity for potential upside in the second half of 2016. This follows on an expected slight period of inventory correction. In summary, for the full year 2016, we are well positioned in the higher-value market to exceed our 10% annual growth target for these markets.

Now looking at our traditional markets, we expect continued sluggishness in computing as these end markets continue to be choppy. Overall, in 2016, we expect a modest decline in revenue from this customer base, reducing new programs with more advanced technologies that will partially offset some of the traditional technology weakness.

Telecom revenues experienced the most significant impact to our revenue base in 2015. As we noted last quarter, the majority of our decline for the full year related to our largest telco customer. Outside of this top customer, telco declined less than 10%. We expect new program ramp in support of complex technology products to launch in this market space during 2016. However, we do not expect that these programs will fully offset the persistent weakness that we expect in telco overall in 2016.

I will note that for the full-year 2015, we had one top customer over 10%. This was the top customer in the computing space and it represented 11% of our sales and we had no other customers above 10% for the year 2015. As in recent quarters, the majority of our growth is coming from new products and new product ramps rather than wholesale demand improvements and we expect this trend to continue in the current marketplace.

Now please turn to Q1 for our guidance on slide 6. For the March quarter, our revenue is expected to be between $565 million to $590 million, which is a quarterly decline consistent with historical seasonality. Our non-GAAP diluted earnings per share is expected to be between $0.29 and $0.33. Also implied in this guidance is an operating-margin range of 3.8% to 4.1%. We do not expect significant restructuring or integration costs to be present in the first quarter.

I will now turn the call over to Don Adam, our CFO, who will provide more details on our performance.

Thank you, Gayla. Please turn to slide 7, where I will provide income-statement highlights. Our fourth-quarter results in operating margin were within our guidance and reflect the continued execution of strategy to transition our business towards higher-value markets.

The fourth quarter was the fifth consecutive quarter where higher-value markets exceeded 50% of our revenues. While revenues were flat, compared to the third quarter, and down 12% from the fourth quarter of 2014, we continued to successfully drive operating margins to our targeted goal.

In fact, we exited the fourth quarter at 4.5% non-GAAP operating margin which is a 50-basis point increase year over year and a 20-basis point quarter over quarter increase. This operating margin is the highest level we have achieved since 2007.

Net Income on a GAAP basis was $39 million for the quarter compared to $23 million in 2014. Our GAAP results include two nonrecurring items; the first is $6 million of acquisition and restructuring costs. The second is a $21 million of discrete tax benefits which primarily relates to a US tax benefit for the release of an income-tax valuation allowance.

Our non-GAAP net income for the quarter was $23 million in 2015 and 2014. Our GAAP EPS was $0.77 for the quarter compared to $0.44 in 2014. Our non-GAAP EPS was $0.45 for the quarter compared to $0.42 in 2014.

The fourth quarter 2015 non-GAAP effective income tax was 16% compared to 19% in 2014. The tax rate for the fourth quarter was lower than expected due to recently enacted US tax legislation. We expect the tax rate for the first quarter to range from 24% to 25% based on higher expected income in the US. The diluted weighted-average shares outstanding for the fourth quarter were 50.9 million.

Now please turn to slide 8. For the full year, revenues were $2.54 billion compared to $2.8 billion in 2014 with the majority of the decline coming from reduced production levels from our top telco customer. Continued progress in bookings and new product introductions in our higher-value markets did not offset headwinds that we experienced in the telco sector.

We continue to maintain excellent relationships with customers across the sector, but we do not expect telco spend in 2016 to return to the levels that we saw in 2014 and early 2015. Against this backdrop, our non-GAAP operating margin improved from 3.9% to 4.2% for the full year.

Now please turn to slide 9 for a trending view of operating income. Our increased operating margins reflect the success of our strategy to increase sales in higher-value markets and execute on operational excellence initiatives. These initiatives have delivered improvements in a number of areas ranging from logistics and freight to automation and efficiency in our operations.

We're pleased with the results from these efforts and look forward to realizing the benefits of future improvements. Despite a challenging macro environment and end-market headwinds, we were able to increase our quarterly operating margins 50 basis points year over year.

Please advance to slide 10 for a review of our fourth-quarter new bookings. Our bookings in the fourth quarter, once again, align with our targeted markets growing 35 new programs including 12 engineering projects that should result in estimated annual revenues of $115 million to $135 million when fully released production. We continue to benefit from engineering design wins in our targeted markets which enable us to engage in a more meaningful way with our customers to drive greater value and, ultimately, higher margins.

Please turn to slide 11 for results and quarterly outlook by market sector. We expect the macro trends in the first quarter to reflect what we saw flat in the last half of 2015.

I will first focus on our higher-value markets. Industrial revenues were $223 million and represent 35% of fourth-quarter revenues. On a sequential basis, revenues were up as expected. We expect revenues and industrials to be up mid-single digits in the first quarter.

Medical revenues were $92 million and up sequentially in the fourth quarter, but slightly below expectations as we had product qualifications, extended product qualifications, for two programs. We expect medical revenues to remain roughly the same in the first quarter.

Test and instrumentation revenues of $51 million were down slightly quarter over quarter due to lower demand pull-through primarily from our semi-cap customers. We expect sequential revenues to be flat in the first quarter.

Now in our traditional markets. Computing revenues of $155 million increased sequentially from our third quarter based on quarter-end demand somewhat stronger than expected from our top five computing customers. Computing revenues are expected to be down about 30% in the first quarter based on normal seasonality for the segment.

Telco revenues, of $105 million, decreased sequentially even beyond the 20% we expected for the quarter based on continued softness in capital spending. We expect telco to be down high-single digits in the first quarter.

Now please turn slide 12, where I will highlight a few balance sheet and cash flow items. Our cash balance at December 31 was $466 million which is up slightly from the previous quarter. Our US cash balance was $42 million. Total debt was $235 million. We generated $28 million in cash from operations for the quarter and $147 million for the year.

Capital expenditures were $5 million and depreciation and amortization expense were $13 million for the quarter. We believe that CapEx will range from $40 million to $50 million in 2016.

Our Accounts Receivable balance was $479 million, an increase of $12 million from the previous quarter. Inventory at December 31, was $412 million, a decrease of $10 million from the prior quarter. Please turn to slide 13 to review our working capital metrics.

Our Accounts Receivable days were 69 representing a slight increase from the third quarter because of a higher level of shipments late in the quarter. Inventory days were 64, an improvement from 66 days last quarter.

This is the first area where we are beginning to see the impact of our working capital initiatives. Of course, as we improve inventory management by increasing velocity of inventory through our facilities and slowing down our inbound-inventory feed, the resulting impact on payable days is initially unfavorable which we did see this quarter.

We expect to improve our cash cycle days between 15% to 20% as we exit 2016 from the positive benefits of our ongoing initiatives. A significant portion of this improvement will benefit our non-US sites where newly outsourced products have transitioned over the past year and Benchmark is building a more efficient supply chain.

Now please turn to slide 14. During the fourth quarter, we repurchased 770,000 shares at a cost of $16 million. For the year, we repurchased 3.1 million shares for $68 million and have $135 million remaining for future repurchases.

We will continue our balanced approach to capital allocation by investing in the business to drive organic growth and operational improvements; Making acquisitions that fit our strategic goals; and continue to return money to shareholders through our share buybacks. Now I will return the call back to Gayla to provide some closing remarks.

Thank you, Don. In closing, we are excited about where we're going and we look forward to 2016 and beyond. Our team has made significant progress in transforming our portfolio through rebuilding our revenue structure and reducing customer concentration while also enhancing profitability. Our expected new program ramps result in a greater technology mix with a more stable customer base. We have confidence in the trajectory of our portfolio and the anticipated expansion in our higher-value markets.

I want to thank all of our employees for their continued focus on providing excellent service and solutions to our customers while executing operational and working capital initiatives. We will continue to track progress against our strategic priorities which will enable us to continue to create value for our shareholders and customers.

In conclusion, we're pleased with our strong performance as we evolve our portfolio and position Benchmark to drive enhanced shareholder value. We will continue to operate with discipline and execute on our initiatives throughout 2016. Now I will turn it over to the operator so that we can open the platform for questions. Operator.

(Operator Instructions)

And our first question comes from the line of Steven Fox.

Thanks, good morning. First question, just a couple of things on the acquisition of Secure. Gayla, you mentioned in your prepared remarks that they provide some building blocks for growth across your serve markets. Can you just talk about, more specifically, what that could mean and how long it could take to get there? And then, if you could be a little more specific on the contribution from Secure in terms of revenues, EPS in this quarter, that would be helpful also.

Okay. Thank you, Steven. As we indicated, I will start backwards. As we indicated, Secure revenues were about $100 million and, consistent with all of our other acquisitions, we will not be segregating the acquisition going forward. But you will see the impacts as they are included in our guidance and our margin profile moving forward.

And, as we indicated, they have had growth of about 10% for year. Of course, given their size and the private nature of the Company, we aren't giving specific margins profiles on Secure. But, with that, let me speak to why we're excited about the portfolio they have and the markets that they serve.

So, as I indicated, they are directly aligned with our industrial markets and, specifically, in some of the subsectors such as defense and aerospace, providing engineered solutions and collaboratively engaging with customers, from the very early stages and doing the design-to-production with very little structure as compared to an EMS-engagement where the customer will be further along and engage an engineering team to complete the task. So, this is really engaging much earlier and more collaboratively. And some of the building blocks will be some of the subsystems; Some of the technologies that catalogued engineered approaches to problem solving which are leverageable across multiple industries.

So it will be similar to having a catalog of a product or a widget or a gadget. There's a catalog of engineered solutions that can be brought forth, some proprietary approaches to challenges in the marketplace today; and especially as those apply to taking some of the long-life products and applying current technology and approaches to updating those products which enhance the life cycle and elongate the lifecycle of those products for a much more cost efficient and effective solution versus bringing out a new product. So that's a very meaningful and important aspect of what they're able to do that really falls very nicely into the long-life products that we're targeting in a number of our industrial markets and medical as well.

Great. That's really helpful. And just as a follow-up, if I understood correctly, off a really good growth from medical, you're expecting even better growth this year and even better growth on top of that in 2017. Can you just talk--obviously you have new win momentum, but specifically where the new wins are benefiting from certain trends or what drives the confidence and the accelerating growth? Thanks.

I believe that medical on has accelerated their pace to outsourcing in my mind for two reasons. One is that they are seeing cost pressures that they may not have heretofore seen at the same pace or intensity that they do today; and the second reason being that, in addition to their ongoing investment in R&D, a number of medical equipment organizations have invested through M&A. And, as they have invested through M&A, they have a manufacturing location that may not align directly with their goals and objectives.

And, therefore outsourcing, whether they originally as an organization outsourced, or whether they are looking at it to further align their footprint becomes a valid solution, an opportunity for them to look at more efficient ways to get products to their customers. So we see that as a great opportunity. And of course, as you know, part of the reason we see some growth going forward, in medical, with probably a greater visibility then you might generally see in other markets, is because of the long time to market with the FDA approval, and the period of launch, as we've said.

I believe last quarter we had two programs that were delayed and. Actually last time it was three programs and this time it was two programs that were delayed. And so it becomes very difficult on a quarter-by-quarter basis to anticipate the level of revenues and throughput especially with new product introduction. But we can see how many are on the road map, that have not yet been launched into the full production level as anticipated.

Great. Thanks very much. Good luck going forward.

Thank you. Our next question comes from Andrew Huang of B. Riley Company.

Hello, thanks for taking my questions and congratulations on the operating-margin improvement.

Thank you.

When I think about your longer term operating margin targets of over 5%, will we see some improvement in the gross margin or will that be entirely driven by operating leverage?

That's a good question. I think you'll see a little bit of both, but as you can see no doubt in the model, we have some clear opportunity on the SG&As and on the operating expenses to drive efficiency back, but we would expect that there would be contributions both in the gross margin and the operating margin.

Okay. And then in your press release, you talked about targeting a 15% to 20% reduction in cash-cycle days exiting 2016. So, can you give us a feel for where most of that is coming from? Is it going to be inventory or receivables or payables?

I think we'll get a contribution from all three but the majority of that increase will come from inventory. And then the corresponding impact on payables.

Great. And then if I could squeeze in one last question on Secure Technology. When I look at 2016, are there going to be opportunities to optimize SG&A for that business?

Again, specifically, for Secure, we are integrating; so we would expect that some of the normal business systems and tools to enhance the engineering tool set, enhance some of the back-office operations, that we would probably have some cost in front of the savings. But, yes, we would get the savings through that area.

Thanks very much.

Thank you.

Thank you and our next question comes from Mitch Stevens of RBC Capital Markets.

Thanks for taking my questions. I'm going to start on the telco side of the business; could you walk us through what's happening for the quarter over quarter? Is that still a single customer-specific issue? And then, secondly, I know you can't talk about this, or name the customer, but can you talk about product lines that are doing better or worse than others within telco?

Mitch, I think sequentially I would say most of the customers in our sector saw continuing declines from Q3 levels, much the same as we experienced from Q2 to Q3. So the declines that we've seen are very long, broad-based. We serve a number of customers in the telco sector. There's not one specific product line that's across the board.

Mitch, and in fact, we serve a number of different technologies within telco and we've seen demand there remain lackluster. And I believe some of it is with carrier spend, some of it is associated with the M&A activities that have been undertaken. And then, of course, in other cases I believe it is associated with some inventory corrections that are taking place.

And, last, that I think we pointed to, is there are some new technologies, some innovation that's coming to market and normal kind of delays there, I would say, on getting those engineered solutions dialed in. So it really seems to be a challenged marketplace as they are looking at the appropriate type of products to put into the infrastructure to support all of the convergence, the Internet of things. There is a lot of moving parts there but, what we're excited about, is specifically, some of the new technologies that we're supporting.

But we don't expect that those are going to, as I said in my prepared remarks, that the revenue size will outpace or meet what we saw in 2014. If you recall, part of the reason we're seeing the fall off is just because we had really outside performance in 2014 and early 2015. And I would say that that is kind of what we're comparing to.

And I don't see that type of marketplace; and I would say, some of that probably had to do with emerging markets' infrastructure buildout. Although I don't have all the details around that, that's what I truly believe was taking place that allowed for such significant increases in 2014.

Yes that makes sense. And then, secondly, if I could ask another one, on the end markets, you guys are talking about growth, essentially, for 2016 for the combined company. Is there any sector that's going to be doing better than seasonal, particular in the back half of the year? I'm not looking for guidance, just looking for rough, essentially seasonality or upticks in the specific market end market.

I would say I don't see anything in the overall marketplace where we see condition changing dramatically in the second half at this point. We see mixed signals from customers and, again, the excitement seems to be converging around new technology. But I don't see you anyone pointing to global economics changing, to the macro environment supporting increased or enhanced performance overall. I don't see any one industry. Our excitement is primarily around the new products and new customers versus volume of production improvements expected.

Got it. Thank you.

Thank you.

(Operator Instructions)

Our next question comes from Jim Suva of Citi.

Thanks very much. If we look at your full-year outlook for 2016 and we roll up the different segments and then we pull out the Secure Technology, does that mean you're looking for relatively flat organic growth or is my math wrong there? Because flat organic growth in this environment actually seems quite encouraging or maybe my math is wrong there. I'm just thinking about organic growth for this year.

I think it would be flat to slightly up, overall. And again, as you point out, we feel that that is strong given the current marketplace, but again we are not giving guidance for the full year. But noting the overall environment and the soft demand environments that our customers see, growth from new products. And it's a matter of trying to identify what your belief is about the longer-term macro environment. And, again, I will point out that we have maintained customer relationships. It's not the departure of a customer. It's the departure of volume for customers that will drive whether, in the macro environment, that will drive whether that is substantial, moderate or no or slow growth in our core base of business.

And then as a follow up, you had mentioned the March quarter outlook is relatively seasonal. Is that when you also include, you added in, I believe, your acquisition in the December quarter and it may have likely only had partial impact for the December quarter so you get a little bit of a boost. Are you excluding that in your comment about seasonal or how should we think about your comment for seasonal? Does it include that and, really, organic and macro conditions are a little bit subseasonal for margin acquisition helps?

Let me take it the other way and see if this helps answer. If you go back a couple of years when we had a greater portion of our business associated with telco and computing, you would see a stronger boost in Q4 and then a fall off that was more substantial in Q1. So, I believe, it was two years ago we saw about a 16% quarter-over-quarter decline. Last year, it would've been like a 12% and this year it's about 8%.

So that's an all-in number for all of our business and all of our guidance. It does have the seasonal impact in there. It also has the shift in business.

Great. And my final question is, on the telecom softness you mentioned, when you go back and talk to your market intelligence people, is it just the overall market? Is it your geographic exposure to where the product is going? Is it your customer concentration or do you just kind of expect that entire market to face those challenges? Thank you.

It's what we see across our customer base which is, as you said, it's product; it's geography; it's customers. So we don't see it isolated to a specific subsegment. And I believe some of it, again, is probably timing related and some of it probably is related to geographic.

Great. Thank you very much and congratulations on the good results. Thank you Jim.

Thank you and our next question comes from Sean Hannan of Needham.

Yes. Good morning folks, can you hear me?

Yes, good morning Sean.

Great. Just a follow-up on the questions and viewpoints around thoughts on 2016. I realize we're not explicitly guiding anything, but there were some good perspectives, I think, around the outlook. If I were to consider the tone and, what appeared to be ambiguity of your outlook for 2016, coming out of the last quarter call, it appears that there seems to be an improved feel that you folks have in the opportunity for growth this year.

Of course, Secure helping that, but again, you do the math and it suggests you've got 58% of your business that, in aggregate, should do over 10% growth and the rest of it is kind of a GDP-ish macro-related kind of decline. Net-net, that should be up for the year. So, it seems like that perspective has changed and improved. Can you help make sure to validate this and make sure I'm thinking about this the right way?

Sean, let me answer it this way. I think if you look at our higher value versus our traditional side, as we stated in our comments, we believe the higher-value portion of our business will have about 10% growth.

Now flipping that over to your traditional side, the wild card in there is, how well is telco going to perform? Certainly Q4 was the low point of the year; we are expecting further declines into Q1. It's how fast do the new programs, that Gayla alluded to earlier, do those ramp in the telco sector is really going to drive what 2016 looks like.

And Sean, one thing that I might add to what Don indicated, that, make no mistake, we don't see this through rose-colored glasses. We don't see a different overall macro environment than what others see. I truly believe that it's rough and rocky times out there across a lot of the markets we serve, if not all of them. So the end-market softness and how that impacts us will be what it is.

But what we are excited about, and the positive tone you hear in our voice and hear in our comments, is that we feel probably better than ever, about what we're doing and the team and the actions we have in place to manage through this. And once again, we are positioned for solid growth. We have focused attack plans for each of our segments. And importantly, we have diversified. So we have behind us some of the challenges, that concentration or some of the technology that is not as leading edge may have in the marketplace. Those are in the rear-view mirror, and that gives us a positive look going forward.

Okay. That's fair. All right and then a couple more technical modeling questions. Unless I missed it, did you state a share count that you're expecting for March?

It will be modestly down for the quarter. We finished at 50.9 million, probably 200,000 lower than that.

So like a 50.5 million? 50.5 million, 50.7 million yes. And then, in terms of the taxes, pretty material change versus my last model. It would signal that there's probably per annum 8% headwinds with this higher tax rate and I'd expect that that 24.5 as the midpoint is probably your expectation for the year. Can you comment a little bit around that and how we should be thinking about taxes and that impact?

Well, first the rate is going to be driven by the geographic mix of where the profits are generated. You couple that with the fact that we just added Secure which is exclusively in the United States. That's going to have an increasing impact on the tax rate. Okay. All right, fair enough. Thanks, folks. Okay.

Thank you, and I'm showing we have a follow-up question from the line of Andrew Huang of B. Riley Company.

Thanks for taking my follow-up. In light of the weakening macro, some people say that slow end markets cause OEMs to pump the brakes and back off the outsourcing and then others say the opposite, that OEMs want to actually step up the outsourcing. So I'm wondering if you're willing to share what you're actually experiencing when you're out there pounding the pavement?

Yes. I think again, you see probably a mixture of both. I don't think it's one-size-fits-all. It really is based on the scenario that each OEM has in their own environment. So, I would say, any of us in our industry would be wrong to say that we only see one or the other. But clearly, what allows OEM to take fixed costs out of their model is to outsource.

And so, while there may be a stepping stone, where a number of OEMs may collect a certain amount of their manufacturing and bring it under one or a few operating units that exist, that's generally a stepping stone. And if they have further, or additional needs, for improvement, then that's when they consider outsourcing. So I don't ever consider it to be a final decision, but it may be a logical decision for some OEMs to take a step function improvement in consolidating some of their manufacturing.

Thanks for that color.

Thank you, and at this time I am showing there are no further participants in the queue. Any final comments from Management?

We want to thank everyone for joining us on the call today and look forward to speaking with many of you with follow-up calls and appreciate your time. Have a great day.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone, have a great day.