- Total Revenue: $666 million, above the high-end of guidance range.
- Non-GAAP Gross Margin: Exceeded 10%, marking the sixth consecutive quarter of year-over-year margin expansion.
- Non-GAAP Operating Margin: 5.1%, a 60-basis point expansion year-over-year.
- Non-GAAP EPS: $0.57, above the high-end of guidance range.
- Free Cash Flow: $47 million for the quarter, over $230 million generated in the last four quarters.
- Inventory Reduction: Down $38 million versus last quarter.
- Semi-cap Revenue: Increased 5% year-over-year.
- Industrial Revenue: Decreased 15% year-over-year.
- Medical Revenue: Down 23% year-over-year.
- A&D Revenue: Up 36% year-over-year.
- AC&C Revenue: Decreased 26% year-over-year.
- GAAP EPS: $0.43.
- Non-GAAP SG&A Expense: $33.8 million, down 3% sequentially and 1% year-over-year.
- Non-GAAP Effective Tax Rate: 23%.
- Non-GAAP ROIC: 9.9%.
- Cash Conversion Cycle: 90 days, a four-day improvement from Q1.
- Operating Cash Flow: $56 million.
- Cash Balance: $310 million as of June 30, a sequential increase of $14 million.
- Debt Reduction: Reduced by $26 million in the quarter.
- CapEx: $9 million in Q2, expected $10 million to $14 million in Q3, and $45 million to $55 million for the full year.
- Dividends Paid: $5.9 million in Q2.
- Share Repurchase Authorization: $155 million remaining as of June 30.
- Q3 Revenue Guidance: $630 million to $670 million.
- Q3 Non-GAAP Gross Margins: Approximately 10%.
- Q3 SG&A Expense Guidance: $33 million to $35 million.
- Q3 Non-GAAP Operating Margin Guidance: 4.8% to 5%.
- Q3 Non-GAAP EPS Guidance: $0.52 to $0.58.
- Q3 Non-GAAP Effective Tax Rate Guidance: 22% to 24%.
- Full-Year 2024 Free Cash Flow Estimate: Greater than $120 million.
- Quarterly Dividend Increase: To $0.17 per share.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue of $666 million exceeded the high-end of guidance range.
- Non-GAAP gross margins exceeded 10% for the sixth consecutive quarter.
- Generated $47 million in free cash flow for the quarter, contributing to over $230 million in free cash flow over the last four quarters.
- A&D revenue increased by 36% year-over-year, driven by strong demand in commercial aerospace and defense.
- Raised full-year 2024 free cash flow estimate to greater than $120 million.
Negative Points
- Industrial revenue decreased by 15% year-over-year due to reduced demand from existing customers.
- Medical revenue was down 23% year-over-year, impacted by inventory rebalancing and end demand weakness.
- Advanced Computing and Communications (AC&C) revenue declined 26% year-over-year.
- Continued pressure in the communications subsector due to significant customer disengagement.
- Interest expense and foreign exchange headwinds expected to impact other expenses in Q3.
Q & A Highlights
Q: How should we think about normalized free cash flow for Benchmark Electronics going forward?
A: Arvind Kamal, Interim CFO, stated that the company expects to generate at least $120 million in free cash flow for 2024, driven by inventory reductions. For a normalized basis, they anticipate $70 million to $90 million annually, acknowledging that 2024's performance is exceptional due to significant inventory reductions.
Q: Can you expand on the new plants opening up in Mexico and Penang?
A: Jeffrey Benck, CEO, explained that the company is expanding capacity in low-cost regions close to consumption markets. The new facilities in Romania, Mexico, and Penang will support various sectors, including industrial, semi-cap, and precision technology. The Penang facility will enhance capabilities for the semiconductor market.
Q: What is the outlook for the semi-cap sector?
A: Jeffrey Benck noted that the company is optimistic about the semi-cap sector, expecting double-digit growth in 2024 despite a generally down market. They are gaining share and seeing signs of recovery, particularly in the memory segment. The company is well-positioned for future growth due to recent investments in capacity.
Q: What are the expectations for the medical sector?
A: Jeffrey Benck mentioned that the medical sector is experiencing softness, particularly in medical devices, due to inventory rebalancing and end-demand weakness. They expect these headwinds to persist through 2024 but anticipate a recovery in 2025, driven by new program wins in biotech and medical devices.
Q: How is the company performing in the A&D sector?
A: Jeffrey Benck highlighted strong performance in the A&D sector, with revenue up 36% year-over-year. The growth is driven by robust demand in both defense and commercial aerospace, supported by new program wins and improved supply chain conditions. They expect continued growth in this sector.
Q: What is the impact of engineering wins on future revenue and margins?
A: Jeffrey Benck explained that engineering wins are crucial as they often lead to manufacturing contracts. While engineering revenue is a smaller percentage of total revenue, it has higher margins than the corporate average. The company sees significant opportunities in medical, industrial, and semi-cap sectors.
Q: What are the company's plans for cash on the balance sheet?
A: Arvind Kamal stated that the focus has been on reducing short-term debt and increasing dividends. While no shares were repurchased in the last quarter, the company intends to do so in the future, balancing debt reduction and shareholder returns.
Q: How is the company addressing the softness in the industrial sector?
A: Jeffrey Benck noted that the industrial sector is experiencing near-term demand softness but expects a return to growth by the end of 2024. The company is focusing on automation, energy controls, and robotics, with a strong pipeline of new program wins.
Q: What is the company's exposure to AI and high-performance computing?
A: Jeffrey Benck mentioned that Benchmark Electronics has significant exposure to AI through its work in high-performance computing (HPC) and semiconductor capital equipment. They have supported some of the largest supercomputers and see opportunities in AI-driven applications across various sectors.
Q: What are the expectations for gross margins going forward?
A: Arvind Kamal and Jeffrey Benck indicated that the company aims to maintain double-digit gross margins, driven by high-value focus and expense management. They expect further margin expansion with increased factory load and optimization, particularly in the semi-cap sector.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
