Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Benchmark Electronics Inc (BHE, Financial) achieved a non-GAAP operating margin of 4.9% in Q1, marking a 50 basis point increase year-over-year.
- The company reported a strong performance in the A&D sector with a 33% revenue increase year-over-year, driven by robust demand in commercial aerospace and defense.
- Benchmark Electronics Inc (BHE) raised its free cash flow target for the year from $70 million to $80 million to now $80 million to $90 million, reflecting strong cash generation capabilities.
- The company successfully reduced its inventory by over $140 million year-over-year, enhancing working capital efficiency.
- Benchmark Electronics Inc (BHE) continued to secure new business wins across various sectors, including semi-cap and medical, which are expected to contribute materially to future growth.
Negative Points
- Total revenue of $676 million was down 3% year-over-year and 2% sequentially, with declines noted particularly in the medical and communications sectors.
- The next-generation communications sector revenue declined by 36% year-over-year, with expectations of continued pressure throughout 2024.
- Medical sector revenue decreased by 16% due to industry-wide inventory rebalancing and demand normalization, with continued weakness expected in the near term.
- Advanced Computing sector revenue decreased by 6% year-over-year due to delays in large HPC program builds.
- Despite positive performance in some sectors, Benchmark Electronics Inc (BHE) faces ongoing challenges from macroeconomic conditions and sector-specific issues, impacting overall growth and stability.
Q & A Highlights
Q: Hi, good afternoon. I had a couple of questions, Jeff, first on some of the comments you made around HPC. compute, um, as you look at winning are your customers look at winning large customer cluster back end environment, compute business. Do you see that as being something that can build into a consistent book of business because or does it remain kind of episodic in your mind? And like how do you think your services are fitting with that environment? Thanks.
A: Yes, I had a question. One of the one thing that we're seeing is that as folks look to get after AI, we are seeing some of these high-performance compute systems play in that they are in general have been very program centric for us, particularly we're doing large builds like for national labs. But I think that while there probably be smaller opportunities, meaning maybe not the scale of a 10,000 node supercomputer. I think that we could see some broader exposure with smaller systems that might make that make that demand a little less lumpy because we have seen in that sector where those large programs, you know, complete. And then we're on to the next one, although while we've seen it up and down and we've had pretty strong business over the last several years, but that's the AI. element is kind of the new opportunity, and we'll have to see how that fills in in the coming quarters.
Q: Thanks to that. And then in terms of semi-cap, it sounds like the messaging is about the same and in terms of the end market, but you guys are growing year over year. And you also said you're investing more in certain engineering areas. So I was wondering if you could just talk about the mix of the business right now and what you're investing in. I know you've had success in terms of precision machining and invested a lot in that area before the downturn. So maybe just putting all that together and yet to follow that.
A: Okay. All right. Thanks, Tom, for them in this, tough on you there, we, um, we did have a good quarter in semi-cap and it was up, but we're seeing all the reports right from the large OEMs that we support, particularly as we're more heavily weighted to the wafer fab equipment is still capital spend. And and we believe that, you know, from what we're hearing and from our forecasts that we won't see significant growth in '24, I think what's enabling us to do better than the market as we have won quite a bit of new business that is really starting to flow in and starting to ramp, which is kind of offsetting weakness there and allowing us to do a bit better. And we still don't see significant growth in 2024, but we are investing and that's a trend that's continued in. And while we do some great engineering work there when we reflected investment. I think in the script, we were really speaking more to pretty significant capital investment in expanding our precision machining footprint in Malaysia and Penang we also had a brand-new facility that was we had the grand opening was the governor here, you know, a year ago in Mesa, Arizona. And so we have continued to invest in capacity because during the last up cycle, we were really, really heavily utilized. So we've got capacity. We certainly see the market coming back. And we also referenced that the CHIPS Act. You know that now we are seeing money in first quarter of this year that started to get doled out. But as you could appreciate, those buildings have to come out of the ground and then capital equipment for wafer fab creation is put into those. And that's really what we feed right as we build subsystems and systems and modules in support of that. So that's kind of how we're thinking about it right now. I certainly feel like '25 is going to be a growth year on that. We'll see if it flips quicker. But right now, we're saying '24, you know, it's going to be more of the same.
Q: And thank you for taking my questions. The first one is you mentioned you had disengagement with that customer. Do have you seen any other comments?
A: No, I mean, if this is on this debt was specifically in the comm sector and you know, the challenges that we've seen there with the demand being up and down, particularly with the end customers. And so as the business has come down has shrunk led to this disengagement, and we reflected that because that's along with the broad softness. It's weighing on our growth in comps. And that's kind of why we were explaining a little bit what dynamic is going on there. But beyond that on, this was really unique. We haven't seen, yes, we haven't seen an impact like that from any of the other sectors or even others income.
Q: Okay. And then on the retail sector, what are you hearing and when do you expect that to sort of come back.
A: In the communications sector specifically, what we're hearing is that some of the 5G and you think about fiber solutions and some of the next-generation networking solutions on some of the large carriers and some of the large operators have just slowed down their deployment there. So has put broad macro headwinds on that on that sector. There's also a lot of activity in the satellite area. We support a number of those customers and some have done better than others. So on in general, I think that people in this tougher macro environment have been careful about capital spend and feather that some and I think that's also weighing on what we see from a macro on. We do have a few customers on one particular, I can think of where they're deploying broadband into lower certain regions and some of the infrastructure bill that supports build-out. Four of you know, broadband everywhere is seeing some growth. And so, you know, it's not that every customer in the sector is necessarily down, but we certainly have seen a broader softness there. And as we looked at some of our peers who were not alone and some of the messaging around comps. But we just we just don't see a line of sight to that picking up in '24. But we're continuing to pursue new opportunities. And we just the you know, we're just in the closing phases. There's some really good things happening there. So we look, we're more optimistic long term. It's just right now we don't we don't see the visibility to growth in '24.
Q: Okay, thank you. That was helpful. And in terms of medical, what are you when do you anticipate that to sort of have normalized and you would see the demand come back up after the normalization in inventory?
A: Jan, this is good. You brought up the inventory because I think what we're seeing in medical, particularly in the in the MedTech
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
