Benchmark Electronics, Inc. (BHE) Earnings

Management highlights

Overall Quarterly Performance - Q2 2026 revenue and non-GAAP EPS of 75 cents both exceeded the high end of prior guidance issued in April 2026. - Non-GAAP gross margin improved 30 basis points year-over-year to 10.5%, and non-GAAP operating margin improved 50 basis points year-over-year to 5.2%, driven by higher volume partially offset by increased variable compensation expense. - Operating income grew 30% year-over-year and EPS grew 36% year-over-year, meeting management's target of growing both metrics at 1.5x to 2x the pace of revenue growth. Balance Sheet and Cash Flow - Ended Q2 with $315 million in cash, $134 million in net cash, and over $500 million in available borrowing capacity, maintaining a strong balance sheet for growth investment and strategic flexibility. - Generated $35 million in operating cash flow and $22 million in free cash flow in the quarter, with a cash conversion cycle of 59 days, an improvement of 26 days year-over-year and 8 days sequentially. - Returned $6 million to shareholders via dividends in Q2; capital expenditures totaled $13 million, primarily for growth initiatives, with full-year 2026 capital spending expected to remain in the range of 2% to 2.5% of revenue. Capacity Expansion - The fourth PT facility in Penang, Malaysia is on schedule and began ramping operations in Q2 2026. - Groundbreaking for the third building on the Ayutthaya, Thailand campus is planned for Q3 2026, with completion expected in Q4 2027 to support regional growth. Market Sector Trends - Semicap: Demand improved through Q2 and momentum has continued into Q3, driven by better end-market conditions and prior program wins; second half 2026 revenue growth is expected to accelerate compared to the first half of 2026 and the prior year period. - A&D: 2026 is a planned transition year following two years of 20% annual growth; A&D led total company bookings in Q2 2026, with continued new business wins in defense and space; full-year 2026 revenue is expected to be flat year-over-year, with growth resuming in 2027 as new programs ramp. - Medical: Continued solid growth with strong new engineering bookings across multiple customers, which act as leading indicators of future production revenue growth; management confirmed the segment bottomed out in mid-2025 as previously projected. - ACNC: Strong performance driven by AI-related program ramps, with improving visibility and continued long-term growth opportunities. Capital Allocation - Management maintains a balanced strategy focused on investing in internal growth, returning capital to shareholders, and maintaining balance sheet strength.

Guidance

- Full year 2026 revenue guidance was raised to $3 billion, representing approximately 13% year-over-year growth and a new all-time high for the company. Management still expects operating income and EPS growth to hit the target of 1.5x to 2x the pace of revenue growth. - Q3 2026 revenue is guided to a range of $755 million to $795 million, representing 14% year-over-year growth at the midpoint. - Q3 2026 non-GAAP diluted EPS is projected to be between 76 cents and 82 cents, with non-GAAP gross margin expected to be 10.5% to 10.7% and non-GAAP operating margin expected to be 5.3% to 5.5%. - Full-year 2026 capital spending is maintained at 2% to 2.5% of revenue, with management indicating this range is also likely to hold for 2027 to support capacity expansion. - Management expects to continue improving cash conversion, targeting inventory turns of 5 to 5.5 turns going forward.

Segment performance

Total Q2 2026 revenue was $756 million, an 18% increase year-over-year. Segment performance: - Semicap: Revenue grew 17% year-over-year and 17% sequentially, with strengthening momentum through the quarter. - Industrial: Revenue increased 13% year-over-year and 20% sequentially, partially boosted by accelerated revenue from the planned wind-down of the Phoenix facility; excluding this one-time event, revenue was slightly above expectations with modest year-over-year growth. - Medical: Revenue grew 22% year-over-year and 4% sequentially, delivering continued solid performance. - ACNC: Revenue grew 71% year-over-year and 21% sequentially, driven by the production ramp of previously announced AI-related program wins. - A&D (Aerospace and Defense): Revenue declined 12% year-over-year and 7% sequentially, impacted by ongoing program transitions that were previously flagged by management.

Risks & headwinds

- Supply chain tightness, particularly for memory components and complex components sourced from major fabs, has resulted in lengthening lead times, requiring proactive management to meet customer order commitments. - A&D revenue underperformance in the first half of 2026 from planned program transitions creates near-term pressure, though management expects a second half recovery and resumed growth in 2027. - Forward-looking results depend on continued strong operational execution to capitalize on improving demand, with no guarantee actual results will match projected growth targets.

Analyst Q&A

• Q: What is driving strong A&D bookings, and what trends is Benchmark seeing in the sector amid geopolitical and budget changes? /

  A: Management notes the defense market environment remains strong, driven by inventory replenishment demand. The company is continuing to win new business in both traditional defense and fast-growing space markets, and A&D led all segments in bookings in Q2 2026, supporting the expectation of resumed growth in 2027.

• Q: What allowed Benchmark to win a recent competitive takeaway in the industrial segment? /

  A: Management attributes the share gain to consistent operational execution from its operations team. Close collaboration with the customer to develop custom creative solutions opened the opportunity to take the business from a competitor and increase Benchmark's share of wallet with the customer.

• Q: How large is the next-gen HPC opportunity in ACNC, and when will it contribute meaningfully to revenue? /

  A: Management does not disclose specific sizing for individual programs, but confirms next-gen HPC will start ramping in late Q4 2026 and is expected to contribute significantly to ACNC growth in 2027. When combined with existing Clustered AI and on-prem cloud programs, the HPC opportunity supports a positive long-term outlook for the ACNC segment.

• Q: What is driving the ongoing growth turnaround in the medical segment? /

  A: Management confirms three core catalysts: broad-based underlying end-market demand improvement after a period of slowdown, channel inventory digestion that has completed, and the contribution of a large prior competitive takeaway win that had a faster-than-usual time-to-revenue due to its lift-and-shift structure, aligning with management's 2025 call that medical had bottomed out.