Oct 24, 2013
Executives
Lisa K. Weeks - Vice President of Strategy & Investor Relations Donald F.
Adam - Chief Financial Officer and Principal Accounting Officer Gayla J. Delly - Chief Executive Officer, President and Director
Analysts
Sherri Scribner - Deutsche Bank AG, Research Division Amit Daryanani - RBC Capital Markets, LLC, Research Division Jim Suva - Citigroup Inc, Research Division Brian G. Alexander - Raymond James & Associates, Inc., Research Division Sean K.F.
Hannan - Needham & Company, LLC, Research Division Wamsi Mohan - BofA Merrill Lynch, Research Division
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Benchmark Electronics Third Quarter 2013 Earnings Call. [Operator Instructions] And as a reminder, today's conference is being recorded.
I would now like to turn the conference over to your host, Ms. Lisa Weeks.
Please go ahead.
Lisa K. Weeks
Good morning, everyone, and welcome to the Benchmark Electronics earnings conference call for the third quarter of 2013. I am Lisa Weeks, Benchmark's VP of Strategy and Investor Relations.
Thank you for joining our call today. Gayla Delly, our President and CEO; and Don Adam, our CFO, are with me here this morning.
After their prepared remarks, we will open up the call for your questions. Following the conclusion of this conference call, an audio replay will be available on our website.
Gayla and Don will be referring to specific earnings presentation slides in today's call. These slides, which will be referenced to by page number, are posted under the Investor Relations section of our website.
Also please note that Gayla and Don will be referring to non-GAAP measures during their presentations, unless otherwise noted. The company has provided a reconciliation of our GAAP to non-GAAP measures in today's press release, as well as in the appendix of the earnings presentation slides.
During our call today, we will be discussing forward-looking information. As a reminder, any of today's remarks that are not statements of historical facts are forward-looking statements and involve certain risks and uncertainties that are disclosed in the Safe Harbor section of our earnings release and SEC filings.
Actual results may differ materially from such statements and Benchmark undertakes no obligation to update any forward-looking statements. With that summary, I will now turn the call over to Don Adam.
Donald F. Adam
Thank you, Lisa, and good morning to everyone. Today, we will use a presentation slide deck and we will refer to the slide numbers as we go.
So let's begin starting with Slide 3. First, I want to take time to provide a few comments in our third quarter financial performance and metrics.
We delivered solid performance with revenue and operating margins in line with our third quarter expectations. Revenues of $600 million were within our guidance of $590 million to $620 million; our non-GAAP earnings per share of $0.31 were at the high end of our guidance for the third quarter and were consistent with the second quarter of 2013, as well as the third quarter of last year.
Our GAAP earnings per share were $0.43 versus $0.34 in Q3 of last year. 2013 results include $9.9 million of the Thailand insurance recoveries in addition to $1.2 million in restructuring charges and integration and acquisition-related costs.
Our non-GAAP operating margin was 3.5% for the quarter, which was consistent with last quarter. Now moving to Slide 4.
You could see the composition of our industry -- our revenue by industry sector. The revenue breakdown by industry for the quarter was as follows: computing at 30%, industrial controls at 31%, telecom at 20%, medical at 12%, and testing and instrumentation at 7%.
On a sequential basis for the quarter, computing revenues were up 3% and benefited from new program ramps even against the softness in demand for some products within our top customers. Industrial control revenue was up 3% with overall stable demand levels.
Testing and instrumentation revenues were up 8% sequentially, with program wins and continued improvements in the semi-cap space. Medical sector revenues decreased 6% sequentially associated with the timing of new programs.
And finally, telecom revenues decreased 13% when comparing the quarters. This was not related to softness in the telecom market.
It was, however, directly related to the new program in which we positioned inventory for an early fourth quarter launch. Now going to Slide 5.
During the third quarter of 2013, we incurred restructuring charges and integration and acquisition-related cost of $1.2 million. In addition, as we've previously announced, we closed the acquisition of the EMS operations of CTS Corporation on October 2.
The total purchase price was $75 million and we expect it to generate annual revenues in excess of $200 million and to be slightly accretive to earnings in 2014. This acquisition will provide greater opportunities following our integration activities, which are underway and will continue through the first half of next year.
We have incorporated the acquisition into our guidance for the fourth quarter. Now for a quick update on our Thailand operations.
As we disclosed in today's press release, during the quarter, we received $9.9 million of additional insurance proceeds. Please note that the insurance process is ongoing.
We have no amounts reflected on our balance sheet and any additional recoveries will be recorded as a gain when received. Turning to Slide 6.
I would like to discuss the summary of our third quarter operating metrics. The financial information in the following comments will be provided, excluding our restructuring charges and integration and acquisition-related costs, as well as other special type items.
A reconciliation of GAAP results to our non-GAAP results excluding these items is included in today's press release. Our operating margin of 3.5% was consistent with last quarter.
Our margin was maintained despite late quarter order reductions in computing and our investments in new program ramps. GAAP net income was $23.7 million for the quarter compared to $19.3 million last year.
Our 2013 GAAP results include the Thailand insurance recoveries and the nonrecurring charges mentioned earlier. Our non-GAAP income for the quarter was $16.9 million compared to $17.5 million last year.
The non-GAAP effective income tax rate was approximately 21% for the third quarter, which is a bit higher than we had forecasted based on the actual geographic mix of income and impacted our EPS by $0.01. Included in our guidance for the fourth quarter is a tax rate of approximately 23% based on the expected geographic income mix.
The diluted weighted average shares outstanding were 54.6 million. Now turning to Slide 7.
Our cash and long-term investments balance was $437 million at September 30. Again, we note that approximately 3 quarters of this balance resides outside the U.S.
with approximately $107 million of our cash balances in the U.S. as of September 30.
Our long-term investments consist of $11 million of auction rate securities. The unrealized loss on these securities of $1.5 million is reflected in the shareholders equity.
For the second quarter, we've generated $38.7 million in cash flows from operations, including $9.9 million in insurance recoveries. Capital expenditures were $6.8 million, and depreciation and amortization expense was $10.1 million.
At September 30, our accounts receivable balance was $424 million, a decrease of $41 million from last quarter. Accounts receivable days were 64 compared to 69 for the second quarter.
Inventory at September 30 was $395 million, an increase of $45 million from June 30. Our inventory turns were 5.6x compared to 6.4x for the second quarter.
Let me highlight 2 items that impacted our inventory turns and levels at September 30. First, as noted, in telecom, we've had a significant program ramp in early October which -- for which inventory was in our finished goods at quarter end.
And secondly, we're positioning ourselves for a strong fourth quarter as noted by our guidance. As of September 30, we had $10.2 million capital lease in one of our facilities.
And finally, during the quarter, we repurchased 431,000 shares at a cost of $9.4 million. As of September 30, we have $57 million remaining in our share repurchase plan.
Now, I will turn the call over to Gayla.
Gayla J. Delly
Thank you, Don, and good morning, everyone. Thank you for joining our call today.
Benchmark continues to execute well in a challenging end market environment. Admittedly, our revenues were slightly lower than consensus but within our guidance.
Given the weak demand witnessed in the portion of the computing sector and the positioning of inventory for the new telco program ramps in October, we were pleased overall with both our revenues and earnings performance. As we guided last quarter, our third quarter revenues would be, and in fact, were essentially flat, based on slowness in summer spend in Europe, typical third quarter seasonality in IT spend, and customer caution.
These scenarios played out much as we expected. We experienced growth in 3 of the 5 sectors we serve during the third quarter, and based on current forecast from our customers, we expect to see growth in all sectors during the fourth quarter.
Our performance for the fourth quarter and moving into next year will be driven by translating our bookings over the past 18 months into production revenues and the integration of our recent acquisition. Both of these key activities are well underway.
We are also pleased with our operating margin performance this quarter. We are making significant investments.
First, in support of further revenue growth as we ramp the sizable number and level of programs that we have booked over the past 6 to 7 quarters, and, in our acquisition and integration activities during the third quarter. We continue to see solid bookings in the nontraditional markets.
Many of these we are supporting from design to production and while these programs have a longer ramp phase, they also enjoy a much longer life cycle. We are excited to add these important products to our program mix.
As we migrate these programs into production and complete the integration activities, we are currently aligned to achieve our 4% operating margin target in the second half of 2014. This is 2 quarters later than we had anticipated, primarily associated with some timing changes on the ramp moving a bit to the right, and also with our integration efforts.
New bookings. Let's turn to Slide 8 for our third quarter 2013 business wins.
We had another strong quarter of program bookings with both new and existing customers. Our new bookings represent new products to Benchmark and these do not include revision updates or re-spins of existing products.
During the third quarter, our new bookings included 29 new programs, 7 of these are engineering projects. Our new bookings have an estimated annual revenue run rate between $145 million and $170 million.
Looking at acquisition and integration focus. As Don noted, we completed the acquisition of the EMS operations of CTS earlier this month.
We welcome the customers and employees new to the Benchmark family and we look forward to future growth together. This acquisition supports our strategic commitment to expand our portfolio of leading customers in nontraditional and highly regulated markets, and importantly, strengthen the depth and scope of Benchmark's new product express [ph] capabilities on the West Coast.
This is a structural alignment in our combined team's approach with the key focus on customer engagement and serving the customer. We look forward to expanding our global design and solution services with our newest customers.
The employee and customer integration process is well underway and we're pleased with the progress thus far. Looking at fourth quarter guidance, let's move to Slide 9.
As we discussed last quarter, we will begin to realize revenues from several of our new program ramps during the fourth quarter. Based on the current forecast from our customers, our fourth quarter guidance is as follows: Revenues between $685 million and $715 million; diluted earnings per share excluding special items between $0.34 and $0.38.
The following items are excluded from the guidance. Estimated restructuring, integration and acquisition-related charges of approximately $2 million and estimated insurance recoveries, if any.
We will continue to balance our near-term financial performance and our investments in support of our long-term growth goal. Our guidance reflects an improvement in our operating margin to approximately 3.7% at the midpoint and also reflects a higher than anticipated tax rate at 23% for the fourth quarter, as Don indicated.
Looking at the overall markets, let's turn to Slide 10. Overall visibility from our customers and a read from the marketplace indicate no significant change from last quarter.
Our customers remain positive, but also realistic related to the short-term and near-term prospects for their business. The energy and customer excitement we see today is supported largely by their innovative new products being introduced into the marketplace.
Now to provide some color on each of the industries we serve, I'll begin with computing. In computing, we did see weak demand for some of the products late in the quarter, resulting in lower than anticipated revenue levels in Compute.
However, within this sector overall, this softer demand was offset by revenues from new computing programs. So net-net, this resulted in quarter-over-quarter sector revenue increase.
Looking ahead to the fourth quarter, we see increased sales in computing based on continued new program ramp, as well as seasonality in the December quarter. Looking next at telco.
As we stated in our last quarter call, we witnessed the greatest volatility in the products and programs we support within the telecommunications sector. During the past 2 quarters, we saw delays in several new program ramps related to the timing of end market transition.
These programs have now launched. The outlook from our customers for 2014 remains positive with a combined impact of some expanded telecom infrastructure spend and also growth from new bookings in this sector.
Next, taking a look at industrial controls. We saw improvement last quarter supported by an increase in capital project spending and we categorize this sector's performance as stable going forward.
We view this sector as one that provides slow and steady growth over time for Benchmark and we believe that Benchmark has a long runway of positive opportunities to provide both topline revenue and bottom-line margin growth in support of this sector. Looking next at the medical sector.
We remain excited about the level of new business we're winning in the medical sector. Let me share a bit of backdrop on the rollout I expect to see in the medical sector and the programs we have won.
Clearly, these ramps, given the regulatory requirements in this sector, take the longest period of time from award to revenue recognition and even more so yet, for those in which we are engaged in the design phase. This causes a level of nonlinearity in the revenue stream for medical during the key -- current key transition and ramp period.
But we, with our customers, are committed to successful product launches, which are on the roadmap over the next 12 to 18 months and in some cases, even longer. This is a long time frame in comparison to other technology products, but these products normally are followed by a much longer life cycle.
Our customers in this sector have expressed some general caution based on the U.S. medical insurance and equipment marketplace unknown, but remain positive overall.
For the fourth quarter, we expect to see slight improvements in this sector in 2014 and as these new products and customers begin to ramp, we expect to have more visible improvement in revenue in the latter portion of 2014. In Test and Instrumentation, next, this sector is influenced by the semi-cap market space.
We saw improvements in demand during the quarter and expect to see a similar level of improvement in the fourth quarter. Our customers in this space are generally optimistic for next year.
We are performing very well for these customers and the investments in the semi-cap space that we have made over the past 3 to 4 years position us well to grow with these customers in the future. Next, let's move to Slide 9 -- Slide 11.
In summary, our solid third quarter results were demonstrated for Benchmark. We're pleased with the results we achieved.
We have a focus on profitable growth. With our strong operational performance for our customers, we see the ability to build sustainable growth next quarter and further into 2014.
As we stated last quarter, we are not waiting for the macro environment to drive growth. Our customers remain somewhat cautious in the current environment but continue to eagerly support the transition of their new programs with Benchmark from design to production.
We also have the opportunity to leverage cost as we continue our integration processes. As we look forward, we expect to return to year-over-year growth in 2014.
And as we stated, we have a line of sight to achieve our 4% operating margin in the second half of 2014. Our new program wins, diversification and acquisition activity provide us the opportunity to leverage cost and give us confidence that our margins are on path.
Looking at capital allocations, this is the key focus area for Benchmark. As Don said, we have $437 million of cash on the balance sheet with $107 million of this in the U.S.
We continue to look at and evaluate the most tax efficient methods to manage our non-U.S. cash balances.
Regarding capital allocation, we continue to invest in our business and create returns for our shareholders. We have deployed nearly $100 million for strategic acquisitions that provide long-term and strategic growth opportunities during 2013, and we have returned $31 million to shareholders through our share repurchase program, which is ongoing.
We will continue to invest in our organic growth, strategic acquisitions and will also look to complete our repurchase of $57 million remaining in our authorized share repurchases. As we've stated last quarter, the common denominator for our future strong foundation is strong execution in all areas of our business.
Execution on our acquisition integration, our productivity, management and improvement and continued improvements in our new bookings overall. The execution is not achievable without the continued support of our phenomenal customer base and the innovative products that they allow us to support.
We also require the continued commitment of our loyal and flexible employees who continue to position Benchmark as the solutions provider of choice for design and manufacturing services. With that, I'd like to open the floor up for questions.
Operator?
Operator
[Operator Instructions] The first question will come from the line of Sherri Scribner at Deutsche Bank.
Sherri Scribner - Deutsche Bank AG, Research Division
I just wanted to get a sense of the acquisition, the CTS acquisition. How much revenue are you expecting from CTS in the 4Q guidance?
I think you said in the past, over the long-term, you expect about $220 million on an annual basis, but just want to get a sense of what CTS has in 4Q?
Gayla J. Delly
We expect around $200 million overall and then a strong fourth quarter with kind of similar product mix as we do expect somewhere in the $15 million range. We would expect similar seasonality for Q1 and Q3 being the general quarters that are weaker in comparison to stronger Q2 and Q4.
Sherri Scribner - Deutsche Bank AG, Research Division
Okay, that's helpful. And then just, Don, in terms of the SG&A impact, would you expect SG&A to be going up in the fourth quarter and what you think the rate will be in fiscal '14 with the addition of CTS?
Donald F. Adam
Well, I think, in terms of the percentage of sales, you're probably looking at 4, 4.1, pretty consistent. I mean, those are going to be commensurate increase with the acquisition.
As we mentioned earlier today, we will be going through and integrating it. So, not a lot to share there, but I would expect to obtain some leverage going forward into next year.
Operator
We'll go next to the line of Amit Daryanani, RBC Capital Markets.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Just a couple of questions from my side. One, speaking of the CTS side, can you talk about -- because I think in their slide, they talked about LTM revenues of $222 million.
You're saying 2014 will be $200 million. Why are you doing that business with a decline by 10% rather than grow, traditionally, next year?
And then, any color you can give on the accretion side would be helpful, is it going to be more back half loaded and is there a way to think about accretion numbers in absolute dollars?
Gayla J. Delly
I would expect the accretion to be kind of mid-year as we stated that we would expect it to come into play. And as to the revenue, I believe that what you see is some of the programs that they have wound down associated with facilities that they shut down over the past, I would say, 1 year to 2 years, is the primary roll off that you would see.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Got it. And was there -- on the inventory line, you guys talked about the telco ramps that you have in the month of October and you talked about building ahead a stronger Q4.
I would imagine CTS added as well, additional month of that inventory line, could you maybe talk about those 3 buckets?
Gayla J. Delly
Amit, I guess, the key point there is -- and we may not have made it clear enough, but the acquisition closed on October 2. So it's not in our balance sheet or income statement as of September 30.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Got it. Fair enough.
And then, just finally on the computing side, you talked about, I guess, a couple of customers that were fairly soft in the end of the quarter in the month of September. On an organic basis, has that softness persisted so far for you guys in Q4?
Do you expect, on a like for like basis, computing to be challenged partially offset by new ramps? Or has the business stabilized after that cut you got in the month of September?
Gayla J. Delly
The computing sector is generally stronger in Q4, which as we indicated, we do expect that to continue to show strength. Some of the programs, which may not be in a stronger environment, probably will continue to see that -- of similar nature behavior.
But the new programs, we do expect to, as we saw in Q3, continue to have stronger growth opportunities than some of the longer-term programs.
Operator
And then next, we'll go to the line of Jim Suva, Citi.
Jim Suva - Citigroup Inc, Research Division
Gayla, I believe you made the comment of you expect growth next year in 2014. I just want to make sure that, that comment is both including CTS being folded in.
Or is it not? And if so, can you help us understand for magnitude so we don't get too ahead of ourselves.
Such we just layer in $200 million on top of what's kind of projected for '12 and '13 or layer in growth because you have some really strong wins for the past few quarters?
Gayla J. Delly
So we haven't provided guidance for 2014 and I won't go out providing guidance at this point. But a couple of items.
First, our Q4 guidance does incorporate the CTS. So that is kind of a valid starting point.
And typically, what we would see is we would expect to grow at or above the overall industry growth, would be probably the key factor. But as you say, we want to make sure that we are acknowledging the environment we're in that isn't strong growth.
But we are looking to ramp a number of the new programs. So without giving guidance, I think that the environment would see some kind of single digit growth for next year.
But I don't have a true outlook on what the overall marketplace is right now. Importantly though, the Q4 already includes the CTS acquisition.
Jim Suva - Citigroup Inc, Research Division
And then, I think, it was -- Don, you made the comment on taxes. Can you help us understand the CTS being integrated?
Is that 23%, is that a good long-term return rate? Or are there some puts and takes there that we should be conscious of for your tax rate?
Donald F. Adam
As a starting point, 22% or 23% is probably a decent look. But we're going to see variability based on the geographic mix of taxable income, but for a starting point that's probably pretty good.
Operator
We'll go next to the line of Brian Alexander with Raymond James.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
How much was the inventory build for the telecom timing issue that you cited and how much revenue would you say shifted from Q3 to Q4 in relation to that particular ramp? I'm just trying to understand the revenue guidance for Q4 in terms of how much is organic growth versus this particular issue, because it looks like you're guiding up sequentially about 8%, if I back out the acquisition of CTS, which is pretty strong relative to how you've guided in the past and performed in the past.
And I'm just wondering how much is timing and how much is actually an improvement in demand?
Gayla J. Delly
I would say that it's really hard to parse as to if you normalized it, how much would they have forecast in third quarter as opposed to fourth quarter when you have a new program ramp. You do have a bolus associated with that.
I would estimate -- the best I could say, maybe $10 million associated with that, Brian.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
Okay. And that was the key reason for why your telecom business came in a little bit below expectation for Q3, right?
Gayla J. Delly
Absolutely, in my mind. But I think that one of the key things we have highlighted and do want to highlight is when there are some of the new program ramps, you do experience nonlinearity.
You'll have a, I'll just call it a big bang kind of approach to a product launch, which will have lumpiness inherently, so it will potentially starve one quarter, if you will, and provide a bolus in the following quarter. But neither of the 2 quarters is probably representative of true run rate level.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
Right. Okay.
And then just on the computing business, if I back out the revenue from your largest customer, which you highlighted, probably didn't perform as well as you expected in the quarter, but the rest of your computing business is actually up close to 50% year-on-year and I think you've had a lot of new programs in computing. But what would be helpful is if you can maybe talk about the composition of your computing business today and how that looks different than it has historically.
And give us a sense for what other key drivers of computing that we should be paying attention to, to better be able to predict that business?
Gayla J. Delly
I would think that what you see in the overall market place is probably the key indicator. I wouldn't go into the details of the programs and products we support.
But clearly, the on-demand computing and the many different ways in which the convergence of data and data availability is manifesting itself throughout the world, is driving opportunities for many traditional and new customers in serving those needs. So I don't think there's any way we can probably give the level of knowledge you'd like to understand about the whys and wherefores on what's providing them their opportunity.
But we're just happy to say that we are participating with a number of new customers and seeing those growth opportunities.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
And then just final one. Could you just give us a little more color on the margin composition of CTS?
What is the margin profile of that business relative to Benchmark? What is that going to look like in the early stages of the integration and where do you think that can be in 12 to 18 months?
It looks like maybe, initially, it's not adding much to profitability but there's some synergy opportunities as you integrate that business.
Donald F. Adam
Brian, this is Don. That's exactly right.
I think there are -- at least, starting off, it's going to be a little bit below what our expectations are, but as Gayla said in her prepared comments, we want to basically get them to our -- that traditional 4% or above.
Operator
We'll go next to the line of Sean Hannan with Needham & Company.
Sean K.F. Hannan - Needham & Company, LLC, Research Division
Just a follow-up on that CTS comment, Don. If I think about their business, particularly that mix, the nature of the mix and the margins, and as I think about the comments of getting through a 4% operating margin in the back end of '14, it looks like CTS is helping you to get there in the back half of the year, but I think you probably should've been able to get there on your own.
So I'm just trying to reconcile how much of an impact is there, there -- is there in earlier in the year and then to what degree is there actually a profile difference within the margins in the CTS business?
Gayla J. Delly
Well, as we've said, our midpoint of guidance implies 3.7% and barring the number of ramps and the acquisition, we would expect to be much closer to the 4% that we targeted. As to the question of, I guess, the margin before and after, clearly, the margin is not aligned with where we would want it to be.
And as we go through the integration process, we will be driving opportunities for improvement associated with that. Help me out on understanding a little bit more about your question.
Maybe I didn't capture it all there or if I didn't capture it all there?
Sean K.F. Hannan - Needham & Company, LLC, Research Division
Yes. I just -- we're going to be going through 3 quarters of CTS business, that'll be -- once I get -- if I separate out from where we are today versus the second half of '14, we were looking at 3 quarters of CTS business that's in the mix.
I think that in general, the mix of that business should be enhancing to your model. So it's unclear to me why we don't see some of that benefit perhaps come through a little bit earlier.
And even still, it's unclear why we don't have, organically, some of that Benchmark business being able to get to a 4% level as well, even before the second half of the year. It just -- it seems like the expectations are being set a little bit low for the first half of '14.
And I'm just trying to understand that.
Gayla J. Delly
I think, as we noted, with the significant number of program wins and the number of new opportunities and the type of products going from engineering and design, we are seeing that we -- the investment that we are making for future growth is stronger. And we're very pleased with the opportunities that we're seeing on our front lines of opportunities currently, with that level of new program activity and investment we're making, that's why we believe that's prudent to continue to support that growth, to continue to diversify our base of business and expect that it will take the 9 months.
I guess it's important to note that at $200 million, it's not having a significant impact on the $2.5 billion business base.
Sean K.F. Hannan - Needham & Company, LLC, Research Division
And then when I think about the guidance that you have for the next quarter and given that we do have some contribution coming through from the CTS, of course, realizing this is a much lower scale versus broader Benchmark. But I think they have a good amount of medical business as well as a good amount of industrial business.
It would almost seem to imply that perhaps the legacy Benchmark business might be down a little bit quarter-to-quarter and the flattish expectation now is a result of bringing in CTS. Or how do I think about those 2 markets and how CTS has contributed there?
Donald F. Adam
Well, I think, Sean, I think in terms of the customer profile, they're primarily going to fall into industrial controls and telecom for us, very little medical. So I think you are referring to the medical growth.
I think -- and we're expecting growth and not much contribution from CTS on that.
Sean K.F. Hannan - Needham & Company, LLC, Research Division
Okay. And on the industrial side, we're looking for a flat, so ex CTS, that would be down slightly?
Donald F. Adam
No. I think we said we're going to have growth in all of the sectors next quarter.
Operator
We'll go next to the line of Wamsi Mohan with Bank of America.
Wamsi Mohan - BofA Merrill Lynch, Research Division
Gayla, I know you're not guiding 2014, but can you just help us conceptually, how you'd expect the mix to evolve. 2013, we saw significant uptake on the industrial side.
Your new wins would indicate that industrial should become meaningfully larger even ex CTS, but we don't know necessarily what programs, any meaningful programs, that might be falling off. So any color you can share then and how we should be thinking about the mix in 2014?
Gayla J. Delly
I don't have a lot of color to add there other than I don't see any meaningful industrial programs falling off. The programs that have the shortest life cycle are clearly those in computing and then the next probably is telco, but the other industries typically have longer life cycles.
And I'm not aware of any of those that have a significant change in product mix or customers we support. I do think that we would expect to see the impact of the normal macro environment on the industries and the customers, overall.
And as I've stated, the most excitement and energy is coming around. The new programs being added to the mix that really will change the dynamics as compared to the overall marketplace.
Wamsi Mohan - BofA Merrill Lynch, Research Division
Okay. And on Test and Instrumentation, are we -- what are we likely to see at the bottom on that market, in your opinion?
Gayla J. Delly
I think that we have seen growth over the last 2 or 3 quarters and we expect to continue to see that based on program wins. Now, when the market itself sees the bottom, I believe that customers are somewhat optimistic that do not see any significant changes overall.
So this may be walking along the bottom right now and our growth is really from new opportunities that we're seeing.
Operator
[Operator Instructions] We have a follow-up from the line of Amit Daryanani at RBC Capital Markets.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
I actually have 2 follow-ups. One, the Thailand recovery.
It looks you guys have got a $10 million recovery this quarter. Could you just talk about what sort of ongoing potential there, some of the recovery basis, and is there any time line associated with that?
Donald F. Adam
Amit, yes, this is Don. I think we're still working through that process.
So, yes, at this point, really nothing additional to add than what we've already disclosed. So what I'll say is process is ongoing.
Gayla J. Delly
And as we've indicated, there is no receivable on our balance sheet and so it's on an as-received cash basis so we continue to work through the finalization of that over the next quarter or June.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Fair enough. And then, I guess, as you look into the fourth -- Q4 [indiscernible] of 2014, is there going to be any restructuring activity associated with CTS?
I think there's 5 sites right now, that we should start to think about and potentially factor into our models?
Gayla J. Delly
I think most significant impact there is the integration associated with putting systems and processes in place consistent with Benchmark. As you note, they were part of CTS, which is an ongoing corporation and therefore, we are implementing our systems and processes.
So that will be the -- what I would consider the near-term headwinds as we incur cost to do the integration and then the benefits come from having that integration in place and supporting customers going forward.
Amit Daryanani - RBC Capital Markets, LLC, Research Division
And is there a way you would quantify for us? For Q4?
Also, for the first half of 2014?
Gayla J. Delly
I don't clearly have 2014 ready to indicate there. But as Don indicated in our integration and restructuring costs, we have about $2 million in fourth quarter, which is the finalization of some of our pre-CTS activities, as well as the integration cost activities.
Operator
And we'll go back to the line of Bryan Alexander, Raymond James.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
Just a couple of quick follow-ups. I think you said you had about $57 million left on the buyback at the end of the quarter and your U.S.
cash balance is over $100 million, so I was just wondering how quickly do you think you can complete that buyback program? Should we think of the cadence as similar to what you've been performing at, $10 million to $12 million a quarter?
Or do you think you could accelerate that? And the second question is, do you have an estimate for what you think the book value is for Benchmark pro forma for the CTS acquisition?
Gayla J. Delly
So on the buyback, we will continue and expect it to be somewhere in the $10 million to $20 million range for the fourth quarter and as we continue to progress through our buyback. And as to the book value, as we said, we -- the -- go ahead, Don.
Donald F. Adam
Yes, the book value is going to pretty much equate to the purchase price, Brian.
Gayla J. Delly
So -- and that's the $75 million?
Donald F. Adam
Right.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
So there's no goodwill associated with that acquisition?
Donald F. Adam
I would not anticipate any significant amount of goodwill.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
Okay. And then just on the 4% operating margin that you expect to achieve in the back half of the year, what kind of revenue level do you think you would need -- minimum revenue you would need to achieve to get to that 4%?
Gayla J. Delly
I think as we've anticipated before, it has a great deal to do with the mix. So it's dependent upon the level of new program and activities in, primarily, computing and telco.
That number will move north and probably is in a higher -- without integration and ramp cost at the current level, I would say, clearly, at $700 million even, with 50% to 60% coming from telco and computing you get there. But as we get more of our mix coming from the other diversified market areas, we would expect it to be closer to the $600 million and $650 million.
So it really will toggle as we get into higher ramps in the other market areas as we talked about the longer lived products.
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
And then the last one for me. If we assume CTS gets through a 4% operating margin and maybe it does a little bit better than that, that would imply overall EBIT contribution of somewhere $8 million or so.
And I'm just trying to understand the $75 million purchase price relative to that level of EBIT, it's over 9x, which is much higher than where some of the EMS -- publicly traded EMS stocks are valued. And I'm just wondering, the kind of justification for the price and maybe talk through some of the strategic opportunities that you see and perhaps, maybe, how the margins could go much higher than that to justify the high EBIT multiple?
Gayla J. Delly
So we can go through further discussion and typically, as you know, it usually is an EBITDA multiple and not an EBIT multiple that companies use. But suffice it to say that we have plans and we're not going through the full dissection, but the plans are to have the right geographic footprint, the right opportunities for our customers to drive growth and to drive it beyond the 4%.
And that all of our business is geared towards not only just achieving the 4%, but driving past that 4%. And what we were indicating was kind of the near-term goal to get to the 4% that we want to achieve.
Operator
There are no further questions in queue at this time.
Donald F. Adam
Okay. Thank you.
Gayla J. Delly
Thank you, all.
Operator
Thank you. And ladies and gentlemen, that does conclude your conference for today.
Thank you for your participation and for using AT&T Teleconference. You may now disconnect.