Benchmark Electronics Q4 2007 Earnings Call Transcript

Benchmark Electronics Inc. (BHE)

Q4 2007 Earnings Call

February 05, 2008 11:00 am ET

Executives

Don Adam - CFO

Cary Fu - CEO

Gayla Delly - President

Analysts

Celeste Santangelo - Merrill Lynch

Amit Daryanani - RBC Capital Markets

Kevin Kessel - Bear Stearns

Will Stein - Credit Suisse

Jim Suva - Citigroup

Sean Hannan - Needham Group

Yuri Krapavin - Lehman Brothers

Brian White - Jefferies

David Fondrey - Hartland Funds

Presentation

Operator

Welcome to the Benchmark Electronics fourth quarter 2007 Earnings Call. (Operator Instructions)

I would now like to turn the conference over to your host, Don Adam. Please go ahead.

Don Adam

Good morning. Welcome to the Benchmark Electronics conference call to discuss our results for the fourth quarter and full year of 2007. I am Don Adam, Chief Financial Officer of Benchmark Electronics.

Today, we will begin our call with Cary Fu, our CEO, providing a review of our third quarter and year and an overview of the current marketplace, and we'll then continue with the discussion of our estimates for first quarter of 2008 and our financial metrics for Q4 in greater detail. After our prepared remarks, Gayla Delly, our President, Cary and I will take time for your questions in our Q&A session. We will hold this call for one hour.

During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We would like to caution you that those statements reflect our current expectations and that actual events or results may differ materially. We would also like you to refer to Benchmark's periodic reports that are filed from time to time with the Securities and Exchange Commission, including the Company's 8-K and S-4 filings, quarterly filings on Form 10-Q, and our annual report on Form 10-K.

These documents contain cautionary language and identify important risk factors, which could cause actual results to differ materially from our projections or forward-looking statements. We undertake no obligation to update those projections or forward-looking statements in the future.

Now, I'd like to turn it over to Cary Fu.

Cary Fu

Good morning. Our fourth quarter results rebounded as expected. We finished off 2007 with a solid result with both Q4 revenue and EPS at a high end of guidance. I want to take this opportunity to thank our team for working hard and driving to our goal for our shareholders and the customers as we close our 2007.

First of all, I'd like to discuss our current view of this business environment. As we look into 2008, it appears there is a level of inconsistency in overall market. We see the financial markets have indicated slowdown; yet the demand from our customers has not yet slowed.

Our Q4 customer demand was stable. We also see stable Q1 demand, although Q1 will be impacted somehow by the typical, but mild seasonality in the computing sectors. We will monitor the demand level very closely in this uncertain environment.

Now, I'd like to highlight some of our 2007 achievements. Number one, we expanded our customer base by adding additional new customers. Our revenue concentration with our largest customers was approximately 21% for Q4 and 22% for the full year. 2007 was a year of strong booking, which continued into Q4 and should give us the positive momentum moving into 2008.

The self (inaudible) for the new business development was also very robust. Number two, we enhanced our manufacturing and engineering capability. We have added an additional 190 design engineers, which allow us to expand our service offerings to our customers.

Number three, we completed our global resource realignment. As you can see, our restructuring charges for Q4 were higher than we had originally anticipated, as we [shifted operations] in five different locations. We should see the benefit of this realignment activity in 2008, and we anticipate no significant restructuring activity in 2008.

Number four, we generated cash flow from operations of approximate $285 million for the year. Our cash in short-term investment positions increased by $158 million for the year after payouts of $72 million in debt and spending approximately $32 million for the stock repurchase plans.

Overall, 2007 was a transitional year for Benchmark. We are delighted to have the heavy lifting behind us. We are well-positioned to report a strong 2008.

Now, I will turn it over to Don to provide comments on our first quarter guidance and the fourth results. Don?

Don Adam

Thank you, Cary. As Cary mentioned, we did complete 2007 with revenues and EPS at the high end of our guidance. Our results rebounded nicely from Q3, and we continue to see stable demand from our customers. We booked seven new programs during the fourth quarter, worth $64 million to $81 million of potential annual revenues.

We are pleased with the bookings we have seen in total during 2007 and expect our bookings to remain strong in Q1 based on new bookings in January and a positive pipeline of opportunities in front of us due to program opportunities with both new and existing customers and from a mix of the industries that we serve, including industrial controls, computers, testing instrumentation and telecommunications.

We anticipate that the revenue and earnings benefits of these new 2007 bookings will begin to be realized in 2008 and into 2009. Keep in mind that these are estimates and actual revenues may differ significantly.

Based on the current indications from our customers, including new program ramps in the current macro-environment, we expect first quarter revenues to be in the range of $700 million to $725 million. The corresponding earnings per share is in the range of $0.33 to $0.37, which excludes stock-based compensation expenses of approximately $800,000 and the amortization of intangibles of $447,000. Please note that the earnings per share guidance includes the impact of our stock repurchase program.

For the year 2008, we expect topline growth of 5% to 8% for the year and earnings per share growth in the range of 15% to 20% excluding amortization of intangibles of $1.8 million and the impact of stock-based compensation expenses of approximately $3.8 million. Please note that the earnings per share guidance provided includes the impact of our stock repurchase program.

As Cary discussed, 2007 was a transitional year for Benchmark. Even with the challenges of the year, we also saw many positive trends. Let me share some of those with you. We generated cash flows from operations of approximately $59 million for Q4 and $285 million for the year.

As Cary noted, our revenue concentration with our top customer was approximately 21% in the fourth quarter and 22% for the year. Operationally, we were able to handle a large number of customers with the continued diversity of our customer base. We completed our planned realignment of our resources, and we had strong bookings that continued throughout the year.

Please note that the fourth quarter results contained three special items. They are as follows: restructuring and integration cost of $4.6 million or $3.1 million net of tax, stock-based compensation expenses of $679,000 or $478,000 net of tax, and amortization of intangibles of $447,000 or $291,000 net of tax related to the acquisition of Pemstar.

Also note that the Q4 '06 included special items, which we have detailed in the press release. To provide a more meaningful comparative analysis, we will present certain financial information, including the special items during the conference call. We will call your attention to the fact that these items are excluded when we do so. In today's press release, we have included a reconciliation of our GAAP results to our results excluding these items.

Our operating margin for the fourth quarter was 3.7%. Excluding the special items noted earlier, this is an improvement over Q3 with the rebound in our revenues. Our operating margin is still being impacted by inefficiencies and resources related to the closing and ramp-up of several facilities. We expect to realize these benefits in the first quarter of '08.

GAAP net income for the fourth quarter was $20.9 million compared to $28.3 million for Q4 of last year. Excluding the special items, net income was $24.7 million compared to $29 million in fourth quarter of last year.

Diluted earnings per share for the fourth quarter were $0.29. Diluted earnings per share excluding special items were $0.35. Diluted earnings per share for fourth quarter of '06 were $0.44 excluding special items. Our ROIC was 9.7% for the fourth quarter of 2007.

Interest and other income was approximately $3.8 million. Interest expense was $397,000, primarily related to the acquired debt and other expenses; primarily foreign currency related were $1 million.

Excluding special items, our effective tax rate was approximately 17% for the fourth quarter and for the full year. On a GAAP basis, the effective rate was 13% for the quarter and 8% for the year. Our tax rate tax rate has continued to benefit from favorable tax incentives on our expanded business levels in Asia. Weighted average shares outstanding for the quarter was $71.6 million.

Our cash and short-term investment balance was $382 million at December 31. Our cash and short-term investment balance increased to $158 million when compared to December 31st of last year. This increase is after reducing our acquired debt by approximately $72 million during the year and $52 million of stock repurchases. In addition, we have purchased an additional $22 million of stock from January 1, 2008, through yesterday, February 4th.

For the fourth quarter, our cash flows from operations were approximately $59 million. Capital expenditures for the fourth quarter were approximately $6.7 million. Depreciation and amortization expense was approximately $11.1 million.

Receivables were $486 million at December 31st, an increase of $35 million from last quarter, primarily due to an increase in sales for the quarter. Inventory was $362 million at December 31st. Our inventory turns were 7.6 times for the quarter compared to 6.6 times last quarter. During the fourth quarter, we were able to reduce inventory levels with increased demand.

Current assets were approximately $1.3 billion, and the current ratio was 3.1 to 1 in Q4 compared to 3.3 to 1 in Q3. As of December 31st, we have $12.5 million in debt outstanding, all as a result of the acquisition. Remaining debt outstanding is primarily a long-term capital lease on many of our facilities.

Comparing the fourth quarter of 2007 to the same period in 2006, the breakdown by industry segment is as follow. In 2007, medical was 11% compared to 11% in 2006. Telecommunications was 16% in 2007 compared to 13% in 2006. Computers was 55% in 2007 compared to 58% in 2006. Industrial controls was 13% in 2007 compared to 12% in 2006. Testing and instrumentation was 5% in 2007 compared to 6% in 2006.

Sequentially, when comparing the quarters ended September 30th to December 31st, we saw revenues from the computing sector increase by 17%, telecommunication sector increase by 5%, the medical sector decrease by 1% and the testing and instrumentation sector decrease by 4%, and the revenues from the industrial control sectors remain flat.

At this time, I'd like to open it up for the Q&A session. During the session, we will request that you limit yourself to one question and one follow-up question in order to allow enough time for everyone's questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions)

The first question comes from the line of Steven Fox from Merrill Lynch. Please go ahead.

Gayla Delly

Good morning, Steven.

Celeste Santangelo - Merrill Lynch

Good morning. Actually, this is Celeste Santangelo for Steve. Just I had a question. Looking at your expectations for sales growth in '08, how much of wins from the new customers you mentioned contributing to that growth were pure end demand?

Gayla Delly

At this point in time, I believe that the majority of the growth is coming from new product introductions and new sales wins that we've had over the last few months, because I don't think that you see as much strength simply coming from unit increases and sales forecasted in the current environment.

I don't have a specific percentage to apply to that, but clearly we see part of our growth and a significant portion of the reason we feel good about 2008 is because of the groundwork that we laid in 2007, not because of the current environment.

Celeste Santangelo - Merrill Lynch

Okay. And then, just following up on that, can you provide a little more details around the new customers just maybe how many wins and what kind of markets they're in?

Gayla Delly

Yes, let me get Don to go back over the market wins.

Don Adam

Yes. As we said for the fourth quarter, the wins were $64 million to $81 million.

Gayla Delly

Right. But I think you said those were from new and existing, so I was just asking on the new customers?

Don Adam

I guess I'm not following the question. Again let me just…

Gayla Delly

Just a mix of (Multiple Speakers)

Don Adam

The mix of new and --.

Gayla Delly

So it's now half and half typically in the given quarter.

Celeste Santangelo - Merrill Lynch

Okay. And then just one more question on the operating leverage in '08, how do you plan to hit the earnings growth targets of 15% to 20%?

Gayla Delly

I think what you'll see as you model through the numbers that we have not anticipated, although our goal is to get greater leverage on the operating margin targeting back to 4.5%. If you model through the numbers, we have not put that out there in the current environment. So, making it more consistent with the current performance and planning for improvement, but not modeling the improvement in the numbers that are expected, because the general environment and the NPI ramps that always have cost associated with those.

Celeste Santangelo - Merrill Lynch

Okay. So, a bulk of it is from the realignment put in place in '07?

Gayla Delly

Absolutely. We're really expecting good leverage from that.

Celeste Santangelo - Merrill Lynch

Okay, great. Thank you.

Gayla Delly

Thank you.

Operator

Your next question comes from the line of Amit Daryanani from RBC Capital Markets. Please go ahead.

Gayla Delly

Good morning.

Amit Daryanani - RBC Capital Markets

Good morning. How are you guys doing?

Gayla Delly

Good.

Don Adam

Good.

Amit Daryanani - RBC Capital Markets

Hey, I just had a quick question. Just a follow up on the full year revenue guidance number; if I just look at the wins you've had in the last four quarters, the trailing four quarters the average is about $465 million of incremental sales. If I take the mid-point of your guidance, it looks like sales will be up about $190 million. That seems a little less than 40% convergent of the new wins sale. Are end markets that soft or are we being a little bit conservative given what we have seen in the markets and can you help explain the differential on those numbers I guess?

Gayla Delly

Well, yes, we are trying to take into consideration the macro environment which of course we cant' escape, we have to participate in. And then at the same time as you pointed out, it was an excellent last year for new bookings, but the second thing there is always the timing and the actual ramp to volume. So kind of when you take a mid-point and then try to anticipate it, okay, where we are going to be on these ramps and look at the macro environment. All of those have been considered in giving our guidance and clearly we want to give closest to the pin capability. We certainly don't want t to fall short of the guidance we look forward to, so we want to make sure that we consider everything that's available to us at any point in time when we give guidance.

Amit Daryanani - RBC Capital Markets

Fair enough. And then just the new wins number, it looks like things slowed down a little bit, I mean, you were running north of $100 million pretty consistently for the whole of 2007. Q4 is a little bit shy. Is there anything meaningful to read into that or what drove that softness I guess?

Gayla Delly

No, I think it's the last thanksgiving to the end of the year is typically not a significant point of time for the answer. So, I don't think that's unusually -- usually Q4 is whatever is a fallout of leftovers for the Q3.

Amit Daryanani - RBC Capital Markets

And then just finally, I've been sure you guys talk about the medical segment. I know we had some ST issues in 2007 that imputed revenues, could you just update us on that?

Don Adam

Yes, what we see is the issues that we faced in 2007 are behind us, and will not impact us going forward, or no anticipation impacting us going forward in '08.

Gayla Delly

So yes, we do expect the medical sector to be one of the higher growth sectors coming forth in 2008.

Amit Daryanani - RBC Capital Markets

Alright, thanks a lot. And nice job on the quarter, guys.

Gayla Adam

Thanks.

Don Adam

Thank you.

Operator

Your next question comes from the line of Kevin Kessel from Bear Stearns. Please go ahead.

Don Adam

Good morning, Kevin.

Gayla Adam

Good morning.

Kevin Kessel - Bear Stearns

Good morning, guys. I just wanted to ask a question here on the service and storage and market, that one was up of the most of all of your end markets, and your number one customer's up significantly on a sequential basis. It seems to me like it's even more than a seasonal bounce, can you maybe say what drove that, is that some of the, is that maybe new program growth or?

Gayla Delly

Again, we always perplexed on how to appropriately handle and respond to questions that are specific to a unique customer, but we continue to have a good strength with our customer base and are committed to growing with our customer base, and aligning with them on very successful products, and I think we are doing an excellent job of continuing to support our customers. So, I don't know the frame of reference or why you are shocked by our strong results there, but I think it was well planned.

Amit Daryanani - RBC Capital Markets

Okay. And then, in terms of the Pemstar integration, it's been actually a year since integration happened. What would you say at this point is left to do and where would you say you are in terms of originally there was an outlined cost savings target of around $20 million. So where are we in that and what do you think about it going forward?

Gayla Delly

I think as we said probably a couple of quarters ago, there is no separate entity, there is no segregation as the -- it is clear lines reporting admissions. So, it's done and whatever we have now to do is to continue to grow with each of our existing customers in the combined organization and get the expected bookings that we're on path for that and continue to expect more growth from the base.

Cary Fu

Yes Kevin, we review the whole -- every time we review the acquisition we would have review the transaction and the year after that, and we did have a reasonable and we have a home loan, review that this particular transaction and we have seen that our operations and the financial goal for that acquisition, as in the synergies are much better than we anticipated. There is not any surprise for the transaction as Gayla indicated, once you integrated the operation together, it's difficult to segregate the information, but they are all very pleased with this transaction, and the only thing left will be, we still have to build intention, we're walking out and all the other issues which bring results, including the realigned activity has being complete, and we are very happy, don't have that living it behind us. So we, should we give us the interest stock for 2008.

Amit Daryanani - RBC Capital Markets

Okay. And then just to clarify, when you guys are talking about your bookings like today when you referenced seven new programs and you give a range. Are these bookings also -- is it inclusive of certain programs that are going into life where you get the next generation program or is it [additives]?

Gayla Delly

No, we did not do a generation refresh. That's included as a booking, that's expected performance.

Amit Daryanani - RBC Capital Markets

That's expected. So, this is supposed to be all additive then?

Cary Fu

It's in the new platform. For the current customer base, it will be new platform or completing new programs.

Amit Daryanani - RBC Capital Markets

New platform that does not replace?

Cary Fu

I'm sorry.

Amit Daryanani - RBC Capital Markets

I was saying, you were saying like a new platform that does not replace an existing one, one that would coexist.

Cary Fu

That's correct, yes.

Amit Daryanani - RBC Capital Markets

Okay.

Gayla Delly

Well, it is designed by definition to be incremental revenue.

Amit Daryanani - RBC Capital Markets

Incremental, got it. Okay. And Cary, you said the 190 new design engineers or 109?

Cary Fu

190.

Amit Daryanani - RBC Capital Markets

190.

Cary Fu

Right.

Amit Daryanani - RBC Capital Markets

Thank you.

Operator

Your next question comes from the line of Will Stein from Credit Suisse. Please go ahead.

Gayla Delly

Good morning, Will.

Cary Fu

Good morning.

Will Stein - Credit Suisse

Thanks. Good morning guys. I am just wondering if you can help us think about the end market performance in March and for the full year. Can you give us idea as to which you'd expect to be strong or strongest and then which you think might be a little bit weaker for the quarter and for the year?

Gayla Delly

Well, I think you'll see some consistent dynamics as far as first quarter goes and that you'll see computing segment is typically not at their strongest in Q1. Medical is going to be stronger as we are coming out and also because they are not as significantly impacted by Q4 versus the Q1 seasonality. Telecom, I expect to be fairly strong because we've been growing there and industrial control continues to be strong. Our Test and Instrumentation I would expect to be somewhat flattish, but maybe show signs of trends going into Q2.

Will Stein - Credit Suisse

Great. And then just the housekeeping question. Can you update us on the tax rate? Should we expect that to still -- I think traditionally we've been looking at 16% there. Is that what we should think for the full year and for next quarter?

Don Adam

Well, for the full year we should be at 14% to 15%.

Will Stein - Credit Suisse

Great, thank you.

Don Adam

Okay.

Operator

Your next question comes from the line of Jim Suva from Citigroup. Please go ahead.

Cary Fu

Good morning, Jim.

Jim Suva - Citigroup

Great. Good morning. Can you just -- at the beginning of your opening comments, you made a couple of comments around the financial slowdown, what you've been seeing or whatever or at least you're reading about versus your demand hasn't slowed. Can you just be a little more clear on that? Is that where you've been hearing like in the newspapers or seeing or have your customers been talking to you or how can we kind of connect those two?

Cary Fu

Well, because we're looking at the current uncertain markets on the financial side, as well as on the housing side, we have spent a lot of time to talk about customers and a major customers wealth, they talk about some suppliers, and the general consents that we got back was that they we will not see a significant deteriorations of the demand so far and you'll be looking to all the press release and the earnings release for last couple of weeks. You will see a lot of tech com and do fairly well. And they will not see the significant deterioration. So, from that point of view we saw a very stable Q4 demand and going to the start of 2008 in Q1 we saw the demand still also stable. So, and that's why we see somehow they disconnect between the financial market and the manufacturing demand at this point of time.

Jim Suva - Citigroup

Great. That's very helpful. And in past cycles the lead time when you picked up any changes, has it been a couple of quarters or a couple of months or what type of notifications did you receive of potential slowdown?

Gayla Delly

Here it's very rapid in activity as far as when there is slowdown, but again it is anticipated based on leading indicators in the marketplace, kind of downstream or upstream and that's why I think all of us, both customers, suppliers, the marketplace is staying very tight out to look for any signs of weakening. What Cary was indicating, as you look around at all of the activities around you in technology, we are not seeing it. You see it in housing, you see it financials as you see it in so many different areas of the consumer, but you are not seeing it in technology.

So, you would see people react to the changes very timely, but you would start hearing reverberations or concern by the data points that you keep in because and that's what we are looking for that we have not seen yet.

Jim Suva - Citigroup

Great. And a quick update on your Greenfield site in China?

Cary Fu

The facility came online in Q3 this year, and we seen no stones reduced in China. We saw those slowly delay, but the construction team, they believe that can recover from that after taking to a Q3 opening start.

Jim Suva - Citigroup

And was it planned to open in the first half of '08 and so it's bumped a quarter or two?

Cary Fu

Right, Yes.

Jim Suva - Citigroup

Okay. Thank you and congratulations.

Cary Fu

Thank you.

Gayla Delly

Thank you.

Operator

Your next question comes from the line of Sean Hannan from Needham Group. Please go ahead.

Sean Hannan - Needham Group

Thank you. Just a quick question. In terms of the recent Chinese laws in terms of wages and other changes from a cost standpoint, does that impact any of your current plans for your facility in China?

Gayla Delly

No.

Cary Fu

No. I don't believe, there is a lot of law changes, tax law changes throughout the world all the times, and the current labor law change and the tax law changes may be a little bit significant, but is that all manufacturing companies are subject to, nobody has an advantage, everybody will be operating in the same environment, and that's my number one point.

The second point will be our ARPU point in China is really a not significant portion of our total offering. And number three, we're looking for the demand standpoint of view, as a more and more end product consumer in China, and the tech company will continue to invest in China to support the demand. So if you will combine those three factors, and I think the -- so the impact for Benchmark will be very significant, and they will continue to pursue activity in China.

Sean Hannan - Needham Group

Okay. That's helpful, and if I could just ask a little bit around the compute space and your top customer there, your percentage with them has obviously pulled back as you have diversified over the last couple of quarters and years. Is it reasonable to now expect that we should continue to think of this customer in the low 20% range or do you perhaps see some further product transitions that could be disrupted there?

Gayla Delly

We continue to expect to have opportunities to grow our revenue base with them, but we don't expect to take it up as a percentage of that like to continue to see to growth in the remainder of our customer base as we've seen and therefore we would expect that to stay at or below 20% as we grow the remainder of the customer base and continue to be committed in growing that customer also.

Sean Hannan - Needham Group

Great, thank you.

Operator

Your next question comes from the line of Yuri Krapavin from Lehman Brothers. Please go ahead.

Yuri Krapavin - Lehman Brothers

Good morning.

Cary Fu

Good morning.

Yuri Krapavin - Lehman Brothers

Do you expect the pricing environment worsened and sort of the overall environment in the EMI space to become more competitive in 2008 and the reason I am question is that I think your guidance implies basically a flat operating margin, both year-over-year and relative to the December quarter and yet you'll see volume growth. I think you expect to realize some additional benefit from Q4 restructuring. You mentioned NPIs, but you always have NPIs. So, I guess I am a little bit surprised that you know you're essentially guiding to flat up its margin here?

Cary Fu

Well, I think -- we anticipated that the revenue will be the ramped in the second half, and definitely our growth in margin will be increase from the first half to second half. And as Gayla talked about earlier, and this is certainly an environment, we had to take into consideration of the impact of macro environment and the inefficiency of the rental and neutral grants into our guidance. And as far as the pricing environment, we do not see a very significant change as the -- we see a several major transaction happen in 2007 as a multiple, we are going to be taking it out of the capacity. So we should not see as a very significant deterioration on the pricing of environmental.

Yuri Krapavin - Lehman Brothers

Okay. And can you review your capital expenditure plans for 2008?

Don Adam

We should be in the $40 million range for 2008.

Cary Fu

That's included in the building project in China, Yes.

Yuri Krapavin - Lehman Brothers

Okay. And then the final question. Can you give us the share count as of the end of 2007?

Gayla Delly

Weighted average shares use?

Yuri Krapavin - Lehman Brothers

No. well, you give us weighted average, but do you know the count as of the end of the year?

Don Adam

Oh, for the [Multiple Speakers]

Yuri Krapavin - Lehman Brothers

Factor in the buyback in the Q4.

Gayla Delly

[Multiple Speakers] what's used for 2008, if that's what you're asking. If you need the actual count, then we'll have to look that up.

Don Adam

The weighted average share is $70 million.

Yuri Krapavin - Lehman Brothers

Okay. I'm sorry, that's $70 million for Q1 or…

Don Adam

For the year.

Yuri Krapavin - Lehman Brothers

For '08?

Cary Fu

Yes.

Don Adam

Yes.

Yuri Krapavin - Lehman Brothers

Okay. Thank you.

Operator

Your next question comes from the line of Brian White from Jefferies. Please go ahead.

Cary Fu

Good morning, Brian.

Brian White - Jefferies

Hi Cary, hi Gayla.

Gayla Delly

Hi there.

Brian White - Jefferies

When we look at just the revenue growth for '08, what are a couple of the markets that you think will out perform? You mentioned medical growing nicely, but if you had to mention a couple, what do you think they are?

Cary Fu

I think medical will definitely be outperform, all the segments we participate in. We saw the issue behind us, as well as a lot of new products as one thing. And probably second, I will probably still put into the computing side as we add in more customers in that back to segment, and its unnecessary reflecting a strong recover market which is the additional customers.

Brian White - Jefferies

Okay. And if you had to think about the growth rate and purse out between new programs and just your customers growing. What type of percentage would that be?

Gayla Delly

That's a hard one, I mean that would be just kind of guesstimating, but think of it this way, Brian. If I think out loud, the reality is we have a significant number of new programs that over the last six to nine months that we are bringing on and that are coming up in the upcoming months in the second half of 2008. So, I don't know where you want to consider a new and old, but to me if I borrows the phrase from your belong in the two or three. We have more that are young programs, taking market share, growing, providing new solutions, and innovative ideas to our customer's customers, then we have long in the twos that are a portion of our revenue. So, how we want to say that 50%, I don't know what I put in and there was a percentage, but I have more products that I'm excited about that have good upside opportunities, and I do worried about the all frame.

Brian White - Jefferies

Okay. And just you know in the past when companies went through big ramps in MS industry, it impacted margins. How should we think about that as you move through 2008?

Cary Fu

I guess we covered that impact into our numbers already. And you always have the some impact on your margin as we ramp new programs and that's what the guidance we give into the -- is incorporated into our guidance now.

Brian White - Jefferies

Okay. And Cary, if you had to quantify though, I mean what is it, your ramps, the 10 basis points a quarter or 20 basis points. I mean I know you incorporated, but what do you think it is? What do you think the impact is?

Gayla Delly

That's another hard one. I think as someone pointed out on the call earlier, without that, you would expect to get more leverage from having things in there. What is the right answer? 10 to 15 basis points, I don't know. I'd be kind of guesstimating kind of with or without calculation.

Brian White - Jefferies

Okay. And just finally appetite for acquisitions, do we have any appetite for acquisitions in '08?

Cary Fu

We have continued walking on the acquisition front. We had the team work very hard and diligently are looking at all opportunities available. Again, we're looking for certain assets which make sense for Benchmark in a longer-term and most likely we are looking closely for a skill related acquisition, i.e. the capability we don't have or capability we don't have so well. So those are assets we're looking at and definitely there is a lot of assets out there and it's difficult to find a good one, but then we are working very closely with them. The acquisition still is part of our focus at this point of time.

Brian White - Jefferies

Okay, thank you.

Operator

Your next question comes from the line of Alex Blanton from Ingalls & Snyder. Please go ahead.

Cary Fu

Good morning.

Operator

Alex Blanton, your line is open.

Cary Fu

Operator, can you take the next call?

Operator

Okay, your next question is a follow up from Amit Daryanani. Please go ahead.

Amit Daryanani - RBC Capital Markets

Thanks. Hey, just a question; calendar '08 guidance, I mean you completed the entire $125 million buyback that's authorized or what's built into that?

Cary Fu

We are only -- basically the guideline will debate on $70 million share count for the year. We will buy more, we would reduce accordingly.

Amit Daryanani - RBC Capital Markets

Okay. All right, and then just come to follow-up on the last question now, in terms of acquisition, what's the appetite of potential you do more buyback versus acquisitions, I mean how do you look at those two options right now?

Cary Fu

We will continue to discuss with our board and the management team that what will be the best way to utilize our IFF and SEC, our cash position was a significant and we'll look definitely to deploy those cash.

Amit Daryanani - RBC Capital Markets

All right, and just looking at cash flow in 2008, 5% to 8% growth is certainly not a high amount of growth, so would it be reasonable to expect you guys to continue to generate cash in '08?

Don Adam

Yes, I think for '08, cash flow from operations prior to $75 million to $100 million.

Amit Daryanani - RBC Capital Markets

All right. Thank s a lot guys.

Don Adam

Thanks.

Gayla Delly

I think we'll take one more question, operator?

Operator

Okay. That question comes from line of David Fondrey from Hartland Funds. Please go ahead.

David Fondrey - Hartland Funds

Yes, good morning.

Cary Fu

Good morning.

Gayla Delly

Good morning.

David Fondrey - Hartland Funds

Could you help me understand the increase in SG&A expense that sequentially? It looks like it went from about $22 million to $24.5 million, a little over 10%?

Don Adam

Well, as we said in the call notes in the opening comments, we accelerated the facility closures and result in some inefficiencies, and again just accelerated the closure, so we're well positioned to go into '08. So that's the primary reason, again, just accelerating the closure of our five facilities.

Gayla Delly

So there is costs associated with the restructuring that are not technically restructuring costs that were incremental to innovation costs.

David Fondrey - Hartland Funds

Okay. And were there some costs of that nature also in the cost of sales.

Cary Fu

Yes.

David Fondrey - Hartland Funds

Okay. And then lastly if you would please, could you give us an idea of the average cost at which you bought back your shares, the average price that you bought back the shares?

Gayla Delly

Well, I mean we can do the simple math of -- you got the shares?

Don Adam

With $74 million through February 4th about the $3.9 million shares

David Fondrey - Hartland Funds

Great, thank you very much

Gayla Delly

Thank you operator, and thank you everyone for joining us on the call today, and we look forward to see in the near future.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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