BENCHMARK ELECTRONICS INC Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Jeff Benck noted first quarter revenue of $632 million, with semi-cap and A&D sectors showing double-digit growth. The company achieved sixth consecutive quarter of >10% non-GAAP gross margin and eighth quarter of positive free cash flow. Non-GAAP operating margin was down due to revenue decrease, but confidence in driving margins to 5% and above with revenue growth remained.
• Bryan Schumaker discussed revenue of $632 million, down 4% sequentially and 6% year-over-year. Non-GAAP EPS was $0.52, in line with guidance. Non-GAAP gross margin was 10.1%, non-GAAP operating margin 4.6%. Cash flow details included $32 million in operating cash flow, $27 million in free cash flow, cash balance of $355 million as of March 31, 2025.
• Jeff Benck highlighted sector performance: Semi-cap grew 18% year-over-year, A&D continued strong with defense and space programs, medical had demand softness but progress in new wins, AC&C faced challenges due to program timing issues, and industrial had strong new bookings but awaited ramp-in.
• Emphasized the company's North American footprint (36% U.S. manufacturing, over 55% North American) and global trade compliance team's work in navigating tariff uncertainties.

Segment Performance:

• Semi-cap: Up 18% year-over-year in Q1, contributing to revenue growth. Revenue was led by double-digit growth in this sector.
• A&D: Up 15% year-over-year in Q1, with defense programs driving performance and traditional products also strong.
• Medical: Down 12% quarter-over-quarter due to demand softness in medical devices.
• AC&C: Down 12% quarter-over-quarter, driven by timing-related weakness in HPC and communications.
• Industrial: Down slightly quarter-over-quarter but had the strongest new bookings in Q1, including wins in various subsectors like digital display, geospatial, gaming, etc.

Guidance:

• Second quarter revenue expected to be in the range of $615 million to $665 million. First half revenue expected to decline mid-single digits year-over-year, with mid-single digit growth expected in the second half.
• Non-GAAP gross margin expected to be between 10.2% and 10.4%, non-GAAP operating margin between 4.8% and 4.9%.
• Non-GAAP diluted earnings per share expected to be in the range of $0.52 to $0.58.
• Q2 capital spending expected to be $15 million to $20 million, negatively impacted by a $10 million legacy tax assessment and $20 million final installment of 2017 transition tax. Confidence in continuing positive free cash flow trend post-Q2.

Risks:

• Tariff-related market uncertainty causing customer decisions to be temporarily impacted, with potential delays in new program ramps and fluidity in executive orders affecting supply chain optimization.
• Legacy tax assessments, such as a $10 million legacy tax assessment related to a 2016 custom audit in Mexico and $20 million final installment of 2017 transition tax, impacting cash flow in the short term.
• Slower-than-expected recovery in certain sectors like medical, with demand softness persisting longer than anticipated.

Question and Answer: Q: Jim Ricchiuti from Needham & Company asked about customers pausing and pulling in, net result on the company and pullings into Q2 and second half.

A: Jeff Benck said things are balancing out, with some customers nervous about second half tariff uncertainty but no overly biasing impact.

Q: Jim Ricchiuti asked about initial headwinds from customers evaluating supply chains.

A: Jeff Benck mentioned bids taking longer due to customers contemplating different regions like Mexico, Thailand, etc., with over 95% of products qualifying for USMCA.

Q: Steven Fox from Fox Advisors asked about first half down mid-single digits and second half up mid-single digits, and reversal of fortune.

A: Jeff Benck said medical may have stronger second half, some current customers showing signs of life, and late-year compute and telco with new 5G wins.

Q: Steven Fox asked about high end compute programs and their return.

A: Jeff Benck said next generation chipset and platform moving right, but some fill-in with smaller systems in second half.

Q: Steven Fox asked about Semi-Cap growth and impact of negatives.

A: Jeff Benck said semi-cap had strong growth but faced restrictions on China sales and fab equipment, with headwinds and tailwinds balancing.

Q: Jaeson Schmidt from Lake Street asked about bookings sequentially and rebound in medical.

A: Jeff Benck said bookings up year-on-year but some delayed, medical rebound from channel inventory work-through and new program launches.

Q: Anja Soderstrom from Sidoti asked about medical inventory levels, capacity utilization in U.S. and North America, cash flow improvement, and currency hedging.

A: Jeff Benck said medical inventory normalized, capacity utilization high with open space, cash flow improvement with aim to get north of five inventory turns, and some currency hedging in place.

Q: Melissa Fairbanks from Raymond James asked about new program pivots, competitive takeaways, and M&A.

A: Jeff Benck said can pivot in six months, competitive takeaways good news, and M&A considered for tuck-in capabilities without acquiring factories at premium.

Q: Jim Ricchiuti from Needham & Company asked about Penang facility ramp and M&A in verticals.

A: Jeff Benck said Penang facility groundbreaking, not exclusive to semi-cap, and M&A considered for augmenting capabilities in high value add areas without diluting.