Q2 2020 Benchmark Electronics Inc Earnings Call
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Well.
To benchmark second quarter 2020 earnings conference call.
Yes, that's will be in listen only mode should you need assistance.
The conference specialist, but personally but okay, followed by Europe. After today's presentation will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference. We'll look to me so weak vice president.
Okay.
Just a relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us today for benchmark second quarter 2020 earnings call. Joining me. This afternoon, or just think CEO and president and <unk> lock garage you see it so.
After the market close today, we issued an earnings release, highlighting our financial performance for the second quarter. We've 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 Dot bench Dot com.
This call is being webcast live at a replay will be available online following the call.
The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the presentation.
Please take a moment to review the forward looking statements advice on slide two and 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 or forward looking statements, which involve risks and uncertainties as described in our press releases and FCC filing.
Actual results may differ materially from these statements most notably from the ongoing impact as the cobot 19, pending Nick and benchmark undertakes no obligation to update any forward looking statements.
For todays call, Jeff will begin by covering a summary of our second quarter results and by providing a current status of our global operation.
Roop will then discuss the second quarter results in more detail, including a cash balance sheet summary, and our third quarter guidance.
Jeff will wrap up with an outlook by market sector and an update on our strategic initiatives before we conclude the call with QNX.
If you will please turn to slide three in the presentation I will turn the call over to our CEO, Jeff Thank Jeff.
Thank you Lisa.
Good afternoon, everyone and thank you for joining our call today.
Our second quarter results were achieved against the backdrop of mandatory facility shutdowns component constraints and extra processes required to keep everyone says.
I want to thank the entire benchmark organization for doing a remarkable job and taking care of one another and making sure we're operating as effectively as possible in the new world.
During Q2, we achieved revenue of 491 million, which was down sequentially from Q1, but supported by strong demand in our medical and semi cap sectors.
Hi, Brad gross margin for the quarter was 7% and non-GAAP earnings per share were seven cents.
Our non-GAAP earnings include 4 million or 10 cents per share of cold it related costs that we could not fully anticipate as we entered the quarter.
In addition to these covert cost we experience other production inefficiencies as a result of the current pandemic environment.
Our overall performance was helped by the aggressive cost reduction actions taken earlier in the quarter.
Our cash conversion cycle for the quarter was 84 days.
Despite operating challenges, we generated 23 million in cash flow from operations and returned 6 million or cash to shareholders as part of our recurring quarterly dividend payment.
As we look forward I wanted to step back and offer a few perspective I'll do that on slide four.
Perfect joints benchmark last year, we've made a lot of positive changes and all of these have been supported by an amazing team.
From the hard work required to execute on our strategic initiatives and goals that we outlined last year.
Overcoming unique challenges presented by the unprecedented global pandemic of today, let me simply say our team has risen to the occasion.
Before I arrived the company had embark on a strategy to diversify the markets, we serve and drive a portfolio mix with a greater concentration in higher value markets.
In the past year, we've worked further to align the customers, where we can add the most value and these efforts have paid off.
Today, we enjoy a diverse portfolio of products across many high growth and high value sectors.
That being said, we're not immune to the current recession that this diseases caused and we have an unprecedented amount of demand changes in our portfolio. That's required a lot of the teams attention to ensure we capitalize on new opportunities while mitigating any risks.
We believe this diverse portfolio and exposure to high value segments will allow us to expand our quarterly revenue through the balance of the year.
Supply chain and our complex high mixed environment, It's a constant focus and our recent results have been supported by the strong performance of our supply chain team.
During the second quarter and due to the team's efforts we were not significantly impacted by component shortages, but they did in some places contribute to operational inefficiencies.
Further our revamp go to market organization has grown their manufacturing and engineering services opportunity pipeline by over 30% in the past 12 months.
And have delivered three quarters of sequential growth in bookings, which bodes well for our long term growth potential.
As we look out to the ended the year, we're still on track to exit 2020 with at least 9% gross margin and we expect to build on this momentum into 2021.
Please turn to slide five.
As a board pandemic continues to evolve we've expanded protocols focused on keeping a safe work environment for our employees.
Our actions are informed by the best practices published by the C.D.C., the who and local authorities and we've completed a company employee survey to solicit direct feedback on our actions today and ensure our employees agree that we are maintaining a safe work environment.
Wherever possible, we're continuing to permit about 20% of our employees to work from home.
We have shifted our customer engagements to a virtual environment with real time video supported factory tours as we limit traveled to protect our team.
We even a hosted a virtual grand opening of our new Phoenix operation with Governor do see and mayor Guy ego.
Our teams have adapted well to the new reality and we're finding creative ways to stay close to our customers and continuing to collaborate with them on solving new challenges.
If you please turn to slide six I can provide an update on the status of benchmark global operations.
In Asia, China, and Thailand were fully operational through the second quarter.
As we entered Q2, our Penang, Malaysia operations, which includes our largest precision machining facility.
Operated at 50% capacity based on local restrictions, which were subsequently lifted at the end of April.
From the first of May Malaysia has been fully operational.
Our European sites, and the Netherlands, and Romania, we're fully operational and the second quarter and remain so today.
Across the U.S., our five operations in California were impacted by shelter in place orders through April.
Since early may and to the present, all California location as well as there are other U.S. sites are fully operational.
In Mexico, we have two operations in tier one and one in Guadalajara.
The 100% shutdown that impacted our T. Awana operations was lifted in mid May after we passed seven inspection and were given authorization to operate by the boss state.
There's been a phase return to work since this time and the tier one that sites are now operating at approximately 75%.
Our Guadalajara facility has been essentially operating at 75% productivity due to at risk employees being required to stay home for the journalists go state government restrictions.
We are staggering shifts and other protocols in our Mexican operations to keep our employees safe.
And optimize output.
This is Ben it remains a highly dynamic environment.
Shelter in place orders were lifted any U.S., we had hoped the country could maintain the declining infection curve. Unfortunately this has not happened.
He incident rate domestically increases there could be temporary shutdowns in one of our facilities at any given time and we stand ready to execute decontamination protocol beyond our normal safe work in cleaning procedures.
Our operation teams will continue to maintain our safety first approach, while managing schedules to ensure we meet delivery obligations to our customers.
Now I will turn the call over to route to discuss the second quarter result, and following his commentary I will share further insights regarding our business.
Well, what do you route.
Thank you, Jeff and good afternoon, I hope, everyone and their families are staying healthy and safe.
Let me start by echoing Jeff sentiment on the incredible efforts of our teams to support our customers are a very dynamic environment.
As we manage through the cobot crisis, our priorities remain centered on one the health and safety of our employees.
To delivering for our customers three maintaining a healthy balance sheet and for ensuring the financial flexibility to run our operations through uncertainty.
Please turn to slide eight for our revenue by market sector.
Total benchmark revenue was 491 billion medical revenues for the second quarter increased 14% sequentially and were up 18% year over year from continued new product ramps strength throughout our medical customers and increasing demand for critical device.
It is necessary to support the cobot 19 fight, including X Ray and ultrasound devices ventilators and diagnostic equipment, which we estimate is approximately a third of our sequential growth.
Semicap revenues were up 5% and the second quarter and up 39% year over year, we continued strong demand across our semi cap customers.
Revenues for the second quarter decreased 20 for 26% sequentially.
Due to approximately $15 million lower revenue from our commercial aerospace programs, which is approximately 30% of the sectors revenue.
Remaining decline in the sector is related to defense program timing changes, whether that is the end up certain programs or transitions to new programs.
Demand from our defense customers for security solutions aircrafts munitions and satellites remain strong. We expect continued strong demand in Q3, and Q4 2020, including new programs ramping which should result in sequential revenue growth.
Industrial revenues for the second quarter decreased 15% sequentially.
Demand for products in the oil and gas industry, which is approximately 20% of our revenue continued to be generally saw it will likely space off for the remainder of the year.
In addition.
Demand decreased for goods that supports the commercial building and transportation infrastructure markets.
Overall, the higher value markets represented 81% of our second quarter revenue.
In the traditional markets computing was up 20% quarter over quarter from new program ramps and TEW engineering and manufacturing programs and high performance computing.
Telco was down 10% sequentially.
We saw pockets of strength in demand for network infrastructure, which was offset by lower demand for broadband and commercial satellite applications.
Our traditional markets represented 19% of second quarter revenues.
Our top 10 customers represented 44% of sales for the second quarter.
If you'll please turn to slide nine.
Our revenue of 491 million reflects a decrease on a quarter over quarter basis, our GAAP loss per share for the quarter was nine cents.
Brett GAAP results include.
Restructuring to other onetime costs totaling 5.7 billion.
3.3 billion is related to the severance and other items for the announced closure of our Angleton site, which Jeff will cover in more detail it has initiatives update.
1.2 million is related to the completion of our San Jose closure and the remaining is due to other various restructuring activities around our network.
Our previously announced San Jose Psych was there has been completed on schedule and with it our original cost estimates.
Turning to slide 10.
For Q2, our non-GAAP gross margin was 7% like 140 basis points sequential decline.
As Jeff stated earlier, our results were negatively impacted by $4 million costs related to covert 19, including site shutdown days pursuant to government orders idle and not fully productive labor costs personal protective equipment and incremental freight charges. The majority of these costs impacted our gross profit.
We expect the second quarter it'd be a lowest quarterly gross margin in fiscal year 2020, and we still believe that we could exit 2020 at least 9% gross margin.
Rs DNA was 28.5 million a decrease of 3.1 million sequentially and 3 million year over year due to the cost containment measures, which we have continued including salary reductions for certain management personnel, including the executive team.
Do you think travel reducing discretionary spending and delaying hiring in addition to a reduction in variable compensation expense.
Operating margin was 1.2% a decrease from 2.3% in Q1 due to lower revenue reduced gross margin.
Offset by the lower S. You there.
In Q2, 2020, our non-GAAP effective tax rate was 29%, which was higher than expected for the quarter due to the distribution of income across our network and certain discrete tax items the higher tax impact was approximately one set for sure.
Non-GAAP EPS was seven cents for the quarter and non-GAAP ROI see was 5.9%.
Please turn to slide 11 for an update on cash flow the summary of our balance sheet.
Our cash balance was 356 million at June 30, with 194 million available in the U.S.. We did repatriate cash in Q2 will continue to repatriate future quarters, when appropriate well also balancing or foreign sites cash flow requirements.
Cash balances include 30 million proceeds from borrowings under our revolving line of credit.
At June Thirtyth, we were at a positive net of debt cash position of approximately a 183 million, which was higher than the end of Q1 by approximately $12 million.
We believe we've got we have a strong capital structure and our liquidity position provides flexibility to manage our business through the current environment.
We generated 23 million in cash flow from operations, and 13 million free cash flow after netting $10 million of capital expenditures.
Accounts receivable balance was 302 million.
Decrease of 16 million from the prior quarter.
Contract assets were 154 million at June 30, 160 million at March 31.
Payables were down 11 billion quarter over quarter.
Inventory at June 30 was 364 billion up 26 million quarter over quarter.
Turning to slide 12 to review our cash conversion cycle performance.
Our cash conversion cycle days was 84, the primary driver for the slightly higher cycle days would be effects on the increased inventory.
I'm, sorry days increased due to mix changes from customers late in the quarter and advanced inventory purchases to support long production cycles for products in our semi cap and medical sectors.
Along with the inventory increase we did see a corresponding increase in customer cash deposits, which is used to offset advanced inventory purchases.
Now turning to slide 13 for a capital allocation update.
In Q2, we continue to pay a quarterly cash dividend of approximately 5.8 billion. As a reminder, we increased our recurring quarterly cash dipping into 16 cents per share on February Threerd 2020, we expect to continue the record recurring quarterly cash dividends.
We suspended our share repurchase program in Q2, we're not planning any share repurchases in the third quarter.
Turning to slide 14 for a review of our third quarter 2020 guidance.
We expect revenue to range from 490 million to 530 million.
Our non-GAAP diluted earnings per share as expected to be the ranged from 26 cents to 30 cents or a midpoint of 28 cents.
We expect to generate cash flow from operations for the full year, even considering the challenging cobot lighting environment.
Capex for the year will be approximately 30 to 35 million as we prioritized investments to support new customers and expand our production capacity for future growth.
Implied in our guidance is at 2.9%, 3.1% operating margin range for modeling purposes.
The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs, we expect to incur restructuring and other nonrecurring costs in Q3 of approximately.
800000.
1.2 million.
Other expenses net is expected to be 2.4 million, which is primarily interest expense related to our outstanding debt.
We expect that for Q3 or non-GAAP effective tax rate will be in the range of 20% 22%.
Because of the distribution of income around our global network expected weighted average shares for Q3 or 36.7 billion.
This guidance takes into consideration all known constraints for the third quarter and assumes no further significant interruptions to our supply base operations or customers.
Guidance also assumes no material changes the end market conditions due to cope with 19.
I'll now turn the call back to Jeff for a detailed look at our sector outlook Jeff.
Thanks for for that update.
Following groups guidance for the third quarter I wanted to provide additional color on our view of demand by sector for the second half for 2020 on slide 16.
As I stated earlier in the call our global operations are at or near our plan staffing levels with the exception of Mexico.
Given our current operational state our ability to fulfill demand remains high.
Through the second quarter, an early in the July we've gained a better picture of the demand outlook from customers in each of our market verticals and have a current snapshot of what our revenue trends could look like in the second half.
I want to reinforce this is just.
Staff shot because there will likely be puts and takes across our sub sectors as we move forward.
I will start with the medical sector, where demand grew almost 14% sequentially from Q1 and is forecasted to remained strong throughout the rest of the year for new program ramps in imaging systems and for critical care and diagnostic devices supporting coated 19.
On the flip side, our core medical products that support cardiac renal and orthopedic therapies have seen demand reductions in the second half that have offset some of the increases as hospitals and clinics are deferring plan procedures done elective surgeries based on hospital capacity.
We expect demand for these products to increase when the Kobe crisis lessons.
At the end result for our portfolio is that we believe it will remain at the Q2 level for the balance of 2020, which still represents double digit year over year growth.
In semi cap the demand recovery for semiconductor capital equipment continues based on a current forecasts from our customers on the strength of this demand we expect sequential quarterly revenue growth. The rest of the year further supported by some new program ramps as well.
Our competitive position remains very strong and we look forward to increasing our industry, leading precision machining position in this sector.
Our envied sector is comprised of approximately 70% defense related products and 30% aerospace.
Demand for radar missiles military aircraft and satellite communication devices remains strong and we expect continued strength in the second half.
However, as roop referenced earlier in our Q2 results demand for commercial aircraft programs are not showing any signs of recovery in the second half of this year.
Moving to the industrial sector, we see limited recovery for customers supporting the oil and gas through 2020, which represents approximately 20% of sector revenue.
We're also seeing softer demand for commercial and transportation infrastructure markets as many of our customers projects have been deferred.
As a bright spot, we're seeing strength in testing instrumentation and aiotv related products.
Similar to what industrials, the traditional markets of computing and telco will remain mixed.
We see strength in computing as we saw in Q2 with very complex high performance computing projects landing in the second half.
However, these programs tend to be project oriented.
So it's important that the end customer schedules supports installing these machines in the year.
Demand from customers, we supported and security computing and enterprise Datacenters will remain muted given the lockdown on enterprise I T capital spending.
On the telco side, we've seen increases in network infrastructure products supporting greater work from home bandwidth demand, but this has been offset by declines for next generation network build out and then some commercial satellite applications.
If you turn to slide 17.
Despite a challenging global backdrop that as most of our business development team grounded we had our third sequential growth quarter of bookings growth.
Our marketing team has been instrumental and working with our operation and sales teams on virtual tours and capability demonstration that is becoming a part of the new norm in our business.
Fortunately the demand environment remains favorable for outsourcing as many companies continue to pivot to more variable design and manufacturing cost models.
In the medical sector, we were awarded programs for a fall protection system and the new drug delivery device, which are both coupled with front end engineering projects.
Also as we stated last quarter, we were awarded new ventilator programs that are being rapidly transferred into manufacturing revenue for benchmark.
In defense, we were awarded a number of new programs, including design and manufacturing for space module electronics and for optical sensors for military applications.
And industrials, we were awarded a new product that will come to market for microbial cleaning and commercial venues, which has become a critical application in the new normal of living with coated and beyond.
Im also pleased to announce that we have partnered with core connect.
To provide aiotv ecosystem hardware from our new Phoenix CMS operations.
Our new business pipeline is strong across our targeted sectors and we remain very encouraged about the prospect for continued outsourcing wins in the coming quarters.
Now if you'll please turn to slide 18.
During the first half a 2020, even with the significant challenges brought on by the pandemic. We've continued to make progress on our strategic initiatives and I wanted to share a few updates as we close the call today.
Benchmark has been the services business and one of our top priorities is to deepen our relationship with customers as a strategic partner and trusted innovation collaborator.
I can report that customer satisfaction, which I review with the team weekly remains very high.
During the crisis Theres, a heightened level of communication and coordination required in serving customers.
And as I noted last quarter I have personally received multiple inputs on the discipline and excellence of our teams.
In fact in Q2, we received three service Excellence awards from our top customers recognizing our performance during this pandemic.
As I stated earlier in the call I couldn't be prouder of organization.
In addition, we're partnering with applied materials on their success 2030 sustainability initiatives and participated in their announcement at Semicon West earlier this month.
Benchmarks committed to supporting Iasci initiatives and are excited when we can further these actions working closely with a valued customer.
Turning now to growing our business.
With our revamp go to market organization, we have about our third consecutive quarter sequential growth in new program wins.
We have the right team on the field and we'll continue to reap benefits from the investment in this area.
We're making progress in our medical Semicap in defense accounts and starting to see early results with new engineering NMS wins in our industrial sector.
We continue to drive enterprise efficiencies against a very challenging macro backdrop, our teams to maintain focused on meeting the needs of our customers and on our operating performance is improving.
We've also continued our global footprint optimization program, which we started almost a year ago.
The objective of this program is to utilize ongoing voice for the customer feedback to align our geographic capabilities and footprint to meet customer needs.
The outcome of our most recent around a strategic reviews is that we decided to close our angleton, Texas operations.
We plan to consolidate many of the programs into other benchmark manufacturing operations, which will improve utilization and efficiencies.
I want to thank the employees of the angles in operation for their dedication and support in the coming quarters until these transitions are completed.
This initiative isn't just about closing factories as we're also looking at where we want to expand our investment in footprint.
In support of that in June we announced our newest facility with the virtual Grand opening a benchmarks Phoenix.
This new state of the our facility in Phoenix features RF design and manufacturing circuit fabrication micro we.
SMTC systems integration and testing all under one roof.
This enables us to provide the proverbial one stop shop for sophisticated customers looking for extremely dance hybrid circuit design, who might also have a need for my Korea or Asante Assembly on the same design.
And with our new facility they don't need to look any further.
The customer response for this type of advanced manufacturing operation has been very positive and we look forward to the growth from this operation.
Finally, I want to close with our initiative on engaging talent in shifting culture.
First benchmark has a great cultural foundation and the work we've completed over the past year. Since I joined is a testament to the support we provide each other in this organization.
Benchmark, we are committed to advancing diversity and inclusion efforts at all levels in the company.
In this endeavor, we're committed to more transparency education, and diversity training and talent recruitment to improve our pipeline of diverse future leaders.
We look forward to sharing details on our progress in the future as part of our increasing focus on environmental social and governance affairs.
Now, let me wrap up.
The senior leadership team is engaged in driving these initiatives and the level of collaboration throughout our organization is energized.
We remain committed to our long term strategy and we'll use this unprecedented time of change to honed our skills rightsize, our operations and expand our technical capabilities. So that we will emerge with a stronger organization and business in the years to come.
And with that I'll now turn the call over to the operator to conduct our QNX.
We will now given the question and answer session to ask a question you're my press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before passing the keys to withdraw your question. Please press Star then too.
And we will present momentarily to assemble a roster.
My first question is from Jason Smith from Lake Street.
I had.
Hey, guys. Thanks for taking my questions I, just want to start with Q2 and if you can discuss.
The linearity in the order patterns.
I assume.
The bottom may better and June was even better than that and I guess related Lee could you just discuss how orders have tracked so far this month.
Yeah, I can start and then we'll let kind of route kick in.
We we obviously given the lead time, you know the order load kind of progress is through the quarter and it starts some of that backlog.
Of orders is actually.
Before the start of the quarter we're in.
I think we've seen reasonably good linearity, it's not like it's not like we had a sudden uptake of the ended the quarter I think that was normal but that being said, we did have demand adjustments and reductions.
For two Q.
And also looking out in Q3 in Q4.
We did also say.
In the prepared remarks that we see continued recovery, but you know when you think about where we might have been before this you know recessionary environment, where we're not at that level, but we do see improving.
Demand as we go we also it's a bit of a tale of two cities for US right, where we've got some existing products.
That there's the demand is weaker and we can go in any sector you might be interested in knowing more about but then but then as we get too.
You know other areas like some of the coveted related products were seeing an increase demand so.
From that standpoint, you know that so thats a little more insight group do you want to add to that.
Hello.
Okay.
This call drop Toby right back.
Okay no problem.
Anyway.
Does that help okay.
Yeah and then.
In Q2, you expected some.
Constraints within the semi cap Mark.
It was mostly related labor and with your facility is now being open.
Function for Q3 is that.
The constraints they'll all be alleviated at this point.
Yeah, Yeah. It is in fact, we.
We did say we were we had strong demand and we were constrained based on the California sites disruption and that we knew that that would be a.
Challenge for us to meet all of the demand in some would roll through the quarter.
We continue to make progress on that in July and I feel pretty confident that there were going to not no not have any pent up or backlog that we can fulfill in the quarter. So that's one of the reasons.
The semi cap recovery has been good and we continue to see third quarter be stronger there and weve indicated that.
Okay, and the last one from me and I'll jump back into queue.
That impacted Q2, what's the assumption for Q3.
Yes, that's an interesting one the call.
I'd go so far as the say, we expect to expense will be the kobin related cost to be less than what we saw in the current quarter, because we had a lot of operational disruption a tremendous amount right more than.
Then a lot than a lot of even some of our competitors just based on where operations are located but that being said, we're almost fully operational everywhere. We do have the Mexico sites, which are only 75%. So I see that cost being left but it won't be zero and.
Still could be a fairly significant number.
North of 1 million or more right because we still have personal protective equipment, we still got extra cleaning than and who knows what other disruptions might come about so somewhere you know not zero, but but probably less than what we we called out in the second quarter.
Hey, Jeff that group.
Jason I got reconnect, Jeff I apologize.
Forward as if I could affect to add to Jeff's answer on that linearity question just couple of things on that linear they.
April obviously because of kind of how the quarter happened, we did see the linearity increase.
As we got later in the quarter in June it as we made mention.
Because some of the medical products and Semicap products and got long production cycle time, so that carried into the third quarter and obviously, we'll see that ramp as we continue through the through the rest of the quarter end. We've obviously got revenue growth also so thats also contemplated in terms that linear already so you see it kind of up into the right as we will continue through.
Q3.
Okay I appreciate that color thanks, guys.
Yes.
No worries.
If you have a question. Please press Star then one our next question.
Yes. So this is Tom from Sidoti go ahead.
Hi, Thank you for taking my question and congratulations.
Good.
Yes.
Thank you thank you Ed and.
I just.
Last quarter, you sort of said that it wasn't really a demand.
Demand issue for you with more down operation mall and that supply challenges. It's just for you how does that demand.
Going into the second half of medals play into 2021, if you could give some color on that.
Yes, I think.
I think as you know we did provide guidance for the third quarter. So you know we are.
I'm seeing improvement in demand and we also are much better from an operational standpoint. So we don't anticipate to be constrained by supply Ray we believe that we'll be able to fulfill the demand is there a it is good to see you know some improvement there and as we look at the second half you know in general.
You know that we see some sequential.
As we go a little early for 21 to talk a lot about it other than to say you know we see a lot of strength in medical we believe that are kind of continue into 21, certainly with the pipeline of new wins, because we continue to win good business. There. We also expect semi cap recovery too.
Continue into 21.
Fact, you know this year the semi cap recovery very heavily dominated by logic and as we look at 21 is you know we think memory has a good opportunity in certainly just coming out of the Semicon conference.
Memory looks to have a strong 21. So you know we anticipate that that that that'll be a good business line for US and then defense continues to to be pretty solid and has not been as affected.
By the downturn here, so that's a little bit of indicate or what we what we're thinking about it in a 2021.
Okay. Thank you that was good color and then add from maybe call on when you have that Colgate related production there helping you.
How long do you see that lasting and.
One of that when do you think that they will kick in will be although like.
Maybe a little bit downtick in between our will sort of.
Okay chatter.
So may I almost feel like I should.
But.
Sorry, sorry, Jeff maybe if I could have started if I could on that one.
So yeah, we do have cobot upside on you, but we've got general strength in the medical sector based on the bookings that we've seen strong bookings growth.
Over the course of the past few quarters and we've got a number of new routes that we've got strength within our existing medical customer base. In addition to the coated products. So I think as the cobot products over the next couple of quarters are few quarters may start to.
Decline will see the continued ramps.
Of the medical product programs that we have underway.
Continued strength with some of our other customer medical customers into 21.
Okay. Thank you and then lastly, and so have you.
I guess, it's been a little bit there.
And.
Both radius quite a bit have you and putting implemented on the production efficiencies during the quarter to update that you think likely more permanent.
And carried over into the next year.
And help margin.
So you said that production efficiencies did you say.
Yeah.
Just to clarify any other operational efficiencies.
Yeah, I mean, obviously, we've got we outlined the Mexico operations for which we are still seeing some some challenges with that said our other global operations are are up and running.
And so I think.
Got contemplated any such considerations that this time in terms of what we've guided.
Obviously, we'll have to see how the general market and the Kogut environment continues.
In the second half and whatever.
So there may be a vaccination and they sort of thing so I think for for the second half Mexico is still a concern for us the other sites are up and running at this point.
Let me just add a little bit there.
Obviously, we've got a lot we had a lot of inefficiency in Q2, I mean, we talked about 4 million that that was very specific Colgate expenses that we would say you know this that would have contributed 10 cents of vps of we wouldn't have to spend that money, which is which is a big deal, but beyond that there's a lot of other inefficiency like.
Productivity engineering designers that maybe were 85% 90% of fishing because they are working from remote and they can collaborate quite as easily so theres a lot of other just general inefficiencies that you know that we see the opportunity not only adjusting to the normal. But then also you know as we get further through and hope.
Finally, as we've said there's progress on on remedies and and ways to combat. This disease, but we also took a lot of cost out like with lot of the actions. We took on expense. So so that that will mitigate that a little bit because as the called it costs go down then some of the other you know furloughs and.
Salary reductions and things, we'd like to obviously to did not continue infant item. So so thats a little of the dynamic there, but certainly when you look at the margins and second quarter. We know we can do substantially better and we're sort of guiding to that we're talking about exiting the year.
9% plus.
Okay. Okay. Thank you for the color there was no for me.
Okay.
This concludes that question answer session I would now like to turn the conference back over to Lisa weeks for closing remarks.
Yes, I just wanted to put in a reminder, that benchmark will be supporting a number of virtual conferences in the third quarter on August six I will be supporting the Needham Industrial Technologies Conference on August 11, the Oppenheimer technology Internet in Communications Conference on September 17, The Lake Street capital Mark.
It's big store conference and on September 23rd the Sidoti 2020 Fall conference. We look forward to engaging with you. During these events and I wanted to say thank you again for joining our call. Today you have any further questions. Please feel free to reach out and I'll be happy to follow up. Thank you again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.