Benchmark Electronics(BHE) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was $658 million, exceeding the midpoint of guidance and showing year-over-year growth in Aerospace and Defense and semiconductor capital equipment [8][9] - Non-GAAP gross margin was 10.2%, marking the fourth consecutive quarter of margins above 10% [9][17] - Non-GAAP operating margin reached 5.3%, representing the 16th consecutive quarter of year-over-year operating margin expansion [9][37] - Non-GAAP earnings per share (EPS) was$ 0.57, at the higher end of the guidance range of $0.52 to$ 0.58 [17][24] - Free cash flow for the quarter was $29 million, bringing the trailing 12-month total to$ 245 million [10][20] Business Line Data and Key Metrics Changes - Semiconductor capital equipment revenue increased by 13% year-over-year, driven by improving demand and new customer wins [14][26] - Industrial revenue decreased by 2%, primarily due to reduced demand from existing customers [14] - Medical revenue declined by 28% year-over-year, impacted by inventory rebalancing and end demand weakness [15] - Aerospace and Defense (A&D) revenue grew by 2%, with strong demand in commercial aerospace and defense sectors [15][33] - Advanced Computing and Communications (AC&C) revenue decreased by 27% year-over-year, driven by the completion of large high-performance computing programs [16][34] Market Data and Key Metrics Changes - The semiconductor sector is showing signs of recovery, although the pace of the next upcycle is challenging to predict [26][28] - The medical sector continues to experience broad market weakness, particularly in medical devices, expected to persist for the next few quarters [29] - The industrial sector is showing stabilization with expectations for year-over-year growth in Q4 [52] - The A&D sector is anticipated to return to double-digit growth in Q4, supported by strong demand in defense and aerospace [33] Company Strategy and Development Direction - The company is focused on high-value sectors while maintaining operational discipline, positioning itself for a structural multiyear growth cycle in the EMS industry [12][38] - Continued investment in capacity expansion, including a new facility in Penang, is aimed at capturing incremental market share [27][28] - The company emphasizes operational improvements and efficient use of working capital to support growth and shareholder returns [40] Management's Comments on Operating Environment and Future Outlook - Management noted that while demand has stabilized, end market softness in several sectors continues to weigh on revenue growth opportunities [9][52] - There is optimism regarding the semiconductor recovery and strong performance in the A&D sector, with expectations for growth in 2025 [26][41] - The company remains committed to supporting customer success and driving operational improvements regardless of market conditions [40] Other Important Information - The company reduced debt by $11 million during the quarter, leaving$ 125 million outstanding on its term loan [21] - Approximately $8 million was invested in capital expenditures to support growth and enhance capabilities [21] - The company repurchased approximately 127,000 shares at an average price of$ 40.27 per share, totaling $5.1 million [22][39] Q&A Session Summary Question: Are there any sectors that the company is more optimistic about now than in the last call? - Management expressed encouragement regarding the semiconductor recovery and strong performance in the A&D sector, expecting growth to pick up in Q4 [42][43] Question: How has the pricing environment been for bidding on programs? - The pricing environment has remained rational, with competition present but focused on differentiated, complex solutions [44][46] Question: What is the potential for operating margin growth when demand improves? - Management anticipates an increase of 25 to 50 basis points in operating margin with a more uniform recovery in the semiconductor sector [47][48] Question: Are there signs of improvement in underperforming markets like industrial and medical? - Management noted stabilization in the industrial sector and some green shoots, while the medical sector continues to face prolonged challenges [51][52] Question: What is the focus on engineering services within the business? - There has been a pronounced number of wins in engineering, with a focus on higher value-add services that can lead to manufacturing opportunities [55][56]