BENCHMARK ELECTRONICS INC Q3 FY2024 earnings call

• The third quarter was successful with total revenue exceeding the midpoint of guidance. Non-GAAP gross margin was 10.2% for the fourth consecutive quarter of 10% or better. - Non-GAAP operating margin was 5.3%, the 16th consecutive quarter of year-over-year expansion. - Delivered $0.57 in non-GAAP EPS, at the higher end of guidance. - Generated $29 million in free cash flow in the quarter, with a trailing 12-month total of $245 million. - Semicap revenue grew 13% year-over-year driven by new wins and share gains. - Medical continued to pick up new wins in life sciences and Class 3 medical devices. - Complex industrials won new business in key growth subsectors. - A&D sector performed well with strong defense and aerospace demand. - AC&C faced pressure from completed large HPC programs and communications weakness. - Inventory was down more than $140 million year-over-year, the fifth consecutive quarter of annual inventory reductions. - Returned capital to shareholders through cash dividends and share repurchases.

Total revenue for the third quarter was $658 million. Semicap revenue increased 13% year-over-year, supported by improving demand and new customer wins. Industrial revenue decreased 2% due to reduced demand from existing customers, partially offset by new program ramps. Medical revenue was down 28% versus the prior year, impacted by inventory rebalancing and end demand weakness. A&D revenue was up 2%, with strong commercial aerospace and defense demand. AC&C decreased 27% year-over-year, driven by completed large HPC programs and continued weakness in the communications business.

• For fiscal Q4 ending December, revenue is expected to be within a range of $640 million to $680 million. - Non-GAAP gross margin is expected to be 10.2%. - Non-GAAP SG&A expense is expected to be within a range of $34 million to $36 million. - Non-GAAP operating margin is expected to be between 4.9% and 5.1%. - Non-GAAP diluted earnings per share is expected to be in the range of $0.53 to $0.59. - Non-GAAP effective tax rate is expected to be between 22% to 24%. - Expect to continue to deliver positive free cash flow in the quarter, inclusive of $12 million to $14 million in capital spending. - For the year, free cash flow is expected to be greater than $130 million.

• Market environment uncertainties which may impact financial performance. - End market softness in several sectors continuing to weigh on revenue growth.

Q: Any sectors more optimistic about now than last call?

A: Encouraged by semicap recovery and A&D strength, with semicap showing signs of recovery and A&D expected to pick up pace in Q4.

Q: Is the pricing environment rational?

A: Very rational, focused on engineering capabilities which differentiate the company.

Q: How much further upside in operating margin?

A: Anticipate anywhere from 25 to 50 basis points of additional operating margin percentage with semicap recovery.

Q: Green shoots in underperforming markets?

A: Industrial seeing stabilization with new business wins, medical more prolonged, AC&C with new wins back end of 2025.

Q: Effectiveness of engineering services?

A: Strong focus on engineering as it's higher value add and leads to manufacturing wins, holding up well in the current macro environment