Benchmark Electronics Inc (BHE) Q3 2024 Earnings Call Highlights: Strong Revenue and Margin Performance Amid Sector Challenges

• Semicap Revenue: Increased 13% year-over-year.
• Industrial Revenue: Decreased 2% year-over-year.
• Medical Revenue: Decreased 28% year-over-year.
• Aerospace & Defense Revenue: Increased 2% year-over-year.
• Advanced Computing & Communications Revenue: Decreased 27% year-over-year.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Benchmark Electronics Inc (BHE, Financial) exceeded the midpoint of their guidance for revenue, margin, and non-GAAP EPS in the third quarter.
• The company reported a 13% year-over-year increase in semiconductor capital equipment (semicap) revenue, driven by improving demand and new customer wins.
• Non-GAAP gross margin was 10.2%, marking the fourth consecutive quarter of 10% or better margin performance.
• Benchmark Electronics Inc (BHE) delivered $29 million in free cash flow in the quarter, contributing to a trailing 12-month total of $245 million.
• The company has achieved 16 consecutive quarters of year-over-year non-GAAP operating margin expansion.

Negative Points

• Revenue declines were noted in industrial, medical, and advanced computing and communications sectors.
• Medical revenue decreased by 28% year-over-year, primarily due to inventory rebalancing and end-demand weakness in medical devices.
• Advanced computing and communications revenue decreased by 27% year-over-year, impacted by the completion of several large HPC programs and continued weakness in communications.
• Despite some recovery signs, the semiconductor capital equipment sector's cycle has been challenging to predict, with pockets of weakness expected to continue into 2025.
• The company faces ongoing demand challenges in several end markets, impacting their ability to grow revenue year-over-year.

Q & A Highlights

Q: Are there any sectors you're more optimistic about now compared to the last call?
A: Jeffrey Benck, President and CEO, mentioned that they are encouraged by the semi cap recovery and continued strength in aerospace and defense (A&D). While there has been some inconsistency across OEMs, they have started to see recovery in semi cap, and A&D remains strong with expected growth picking up in the fourth quarter.

Q: Has the pricing environment remained rational when bidding for programs?
A: Jeffrey Benck stated that the pricing environment has been rational, with competition present. Benchmark differentiates itself with complex solutions and engineering content, which has helped them win engagements. Customers are focused on cost savings, and Benchmark is working on operational improvements to meet these needs.

Q: How much further upside do you see in operating margin growth when demand improves?
A: Arvind Kamal, Interim CFO, noted that with a more uniform semi cap recovery, they anticipate an additional 25 to 50 basis points in operating margin. Jeffrey Benck added that revenue growth will help bring leverage, and they continue to focus on operational improvements and efficient use of working capital.

Q: Are there any signs of improvement in underperforming markets like industrial equipment and medical?
A: Jeffrey Benck indicated that they are seeing stabilization in industrial markets with expected year-on-year growth in the fourth quarter. However, the medical sector continues to experience prolonged weakness due to inventory adjustments post-COVID. They are optimistic about new business wins in industrial that will help drive growth.

Q: Has there been any change in the engineering services business?
A: Jeffrey Benck highlighted an increase in engineering wins, particularly in the semiconductor sector. Engineering services are a core part of Benchmark's value proposition, leading to manufacturing opportunities. Despite macroeconomic pressures, engineering services have held up well and remain a focus area for the company.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.