Q3 2020 Benchmark Electronics Inc Earnings Call
[music].
Good afternoon, and welcome to the benchmark Electronics third quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Lisa weeks, Vice President of strategy and Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us today for Benchmark's third quarter 2020 earnings call. Joining me. This afternoon are Jeff Lang, CEO, and President and Roop Lakos G CSF.
After the market close today, we issued an earnings release, highlighting our financial performance for the third quarter, we prepared a presentation that we'll reference on this call.
A press release and presentation are available online under the Investor Relations section of our website at Www Dot bench Dot com.
This call is being webcast live and a replay will be available online following the call.
The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the presentation.
Please take a moment to review the forward looking statements advised on slide two in the presentation.
During our call we will discuss forward looking information.
As a reminder, any of today's remarks that are not statements of historical fact are forward looking statements, which involve risks and uncertainties as described in our press release is an FCC filings.
Actual results may differ materially from these statements most notably from the ongoing impact of the COVID-19 pandemic and benchmark undertakes no obligation to update any forward looking statement.
For today's call, Jeff will begin by covering a summary of our third quarter. Roop will then discuss our detailed third quarter result, including cash and balance sheet summary, and fourth quarter guidance Jeff.
Jeff will wrap up with an outlook by market sector.
Date on our strategic initiatives and a discussion on our mid term financial model before we conclude the call with QNX if.
If you please turn to slide three in the presentation I will turn the call over to our CEO, Jeff Burbank.
Thank you Lisa good afternoon, and thanks to everyone for joining our call today.
I hope, you're all staying safe and healthy during these unprecedented times.
In Q3, we delivered revenue of 526 million, which was up 7% sequentially from Q2 supported by strong demand in our defense semi cap and telco sectors and improved manufacturing productivity.
With improving operational efficiency non-GAAP gross margins rebounded 170 basis points.
8.7% for the quarter.
Improved profit and focused expense management resulted in non-GAAP earnings of 32 cents per share.
Which includes 1.3 million or four cents per share of cold winter related costs.
We believe covert costs are a part of the new operating normal and why we believe they will decline to some degree from current levels. They will likely not completely go away.
After a challenging couple of quarters I'm pleased to report that our manufacturing and engineering services operations have essentially returned to pre coded productivity levels.
Which has supported our improved results for Q3.
This has not been without an incredible amount of work from our Cobot task force and our entire employee population to maintain stringent protocols to ensure we keep our workplace safe and healthy.
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Our cash conversion cycle for the quarter improved to 81 days from 84 days in Q2.
I also want to thank our supply chain team has done an incredible job of managing through many global logistical challenges. This year to continue production for operations in support of our customers.
All in all a solid quarter for benchmark and my continued thanks to the entire team for their hard work in support of our customers.
Please turn to slide four.
As I've mentioned previously our go to market team continues to deliver exciting opportunities aligned to our complex and focused services and solutions that utilize the full breadth of the one benchmark capabilities.
We had another strong quarter of bookings in Q3, where we awarded business that should represent over 200 million a future engineering and manufacturing revenue.
In the medical sector, we were awarded in the New program for a lab free rapid COVID-19 testing device from DNA nudge that has begun production in our Netherlands facility.
We are excited to partner with DNA notch to provide dfx support and high reliability manufacturing for what its turned out to be a very swift product grant.
We also had design and manufacturing process wins with two other companies for a pulmonary treatment device and an optical diagnostic product for renal applications.
In the defense vertical we were awarded a new programs for secure communication radio modules that incorporate our design solutions and manufacturing services for electronics, though would be deployed and military aircraft.
In industrial we were awarded the full system box build for a light our application and we were awarded manufacturing for a new generation of the sole scopes.
In computing, we were awarded the new prototype for Hyperscale computing customer and a new outsourcing award from an existing customer supporting network control and monitoring electronics.
Our new business pipeline continues to be strong across our targeted sectors and subsectors and we remain very encouraged about the prospects for continued wins, where the outsourcing environment for both engineering and manufacturing projects remains favorable.
Now I'll turn the call over to route to discuss the third quarter results.
Sure.
Thank you, Jeff and good afternoon, I hope, everyone and their families continue stay safe and healthy.
Please turn to slide six for our revenue by market sector.
Total benchmark revenue was 526 million in Q3, 7% increase on a sequential basis matter.
Medical revenues for the third quarter were flat sequentially as expected from moderating demand for products involved in COVID-19 therapies, such as ventilators X rays and ultrasound devices.
New product demand is shifting more towards diagnostic devices, such as DNA now just diagnostic box, which we were awarded in Q3.
Semicap revenues were up 14% in the third quarter and up 45% year over year from continued strong demand across our semi cap customers.
Andy revenues for the third quarter increased 18% sequentially due to strong defense demand in surveillance connectivity encryption and digital sub systems and from new program ramps.
Conversely, commercial aerospace demand, which was 30% up 2019 revenues remain muted and declined on certain platforms during the quarter.
Industrial revenues for the third quarter were flat sequentially from continued softness for products in the oil and gas industry, which.
Which was approximately 20% of our 2019 revenue.
In addition demand remains muted for customers that support commercial building infrastructure and transportation markets.
Overall, the higher value markets represented 81% of our third quarter revenue.
In the traditional markets computing revenues were flat sequentially from stable demand and high performance computing and datacenter storage products.
Telco was up 16% from Q2 with improved demand in commercial satellite network infrastructure products Archer.
Our traditional markets represented 19% of third quarter revenues.
Our top 10 customers represented 42% of sales in the third quarter.
Please turn to slide seven.
Our GAAP earnings per share for the quarter was 16 cents. Our GAAP results included restructuring and other onetime costs totaling 7.2 million.
6.3 million of.
These costs are related to the impairment of assets and severance and other items related to that that the decision to exit of certain line of business and our Andy sector related to turbine machining.
The remaining $900000 of restructuring and other onetime costs are due to various restructuring activities around our sites.
1.6 million insurance recovery related to our Q4 2019 read somewhere that.
To date, we have recovered 6.6 million.
Turning to slide eight.
For Q3, our non-GAAP gross margin was 8.7% and 170 basis point sequential increase.
During the quarter gross margin was positively impacted by higher revenues, which enabled improved leverage across our cost structure increased productivity across our sites and lower sequential COVID-19 related costs.
We estimate that we incurred approximately $1.3 million or approximately four cents per share a covert costs in the quarter versus 3.4 million in Q2.
Our EPS DNA was 29.7 million, an increase of 1.2 million sequentially and a decrease of 1.2 million year over year.
We expect that our SJ costs will be relatively flat sequentially between Q3 and Q4.
Operating margin was 3% an increase from 1.2% in Q2 due to the higher revenue and increased gross margin.
In Q3.
Our non-GAAP effective tax rate was 18.6%, which was lower than expected as a result of the insurance recovery recorded in Q3 and the distribution of profits around the globe.
Non-GAAP EPS was 32 cents for the quarter, a non-GAAP ROI see was 5.8%.
Our non-GAAP EPS improved sequentially based on our improved operational performance lower net interest expense and lower tax rate.
Please turn to slide nine for an update on cash flow and a summary of our balance sheet.
Our cash balance was $335 million at September 30, with 161 million available in the U.S.
We continue to have a strong capital structure and our liquidity position provides flexibility to manage our business to support our future strategy.
We generated $6 million in cash flow from operations and use 6 million for capital expenditures.
Our accounts receivable balance was 306 million an increase of 4 million from the prior quarter.
Contract assets were 161 million at September 30, and 154 million at June Thirtyth payables were down 22 million quarter over quarter.
Inventory at September 30 was 353 million down 11 million sequentially.
Turning to slide 10 to review our cash conversion cycle.
Gascon version cycle days were 81 accounts receivable days improved three days inventory days improved six days and customer deposits improved by one day to help support and overall sequential improvement of three days.
Turning to slide 11 for a capital allocation update.
In Q3, we continue to pay a quarterly cash dividend of approximately 5.8 million, we expect to continue the recurring quarterly cash dividends.
There were no share repurchases in Q3, we will consider restarting share repurchases opportunistically in Q4.
Turning to slide 12 for a review of our fourth quarter 2020 guidance.
We expect revenue to range from 500 million to 540 million.
We expect that our gross margins will be 9%, 9.1% for Q4, and SDMA will range between 29 to 30 million.
This range contemplates the EPS DNA cost reductions that Jeff will review further and as following comments the continued reduced travel offset by the reestablishment of certain employee salaries that had been temporarily reduce.
Implied in our guidance is a 3.3% to 3.5% operating margin range for modeling purposes.
The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs.
We expect to incur restructuring the other nonrecurring costs in Q4 of approximately $2.8 billion to 3.2 million.
Our non-GAAP diluted earnings per share is expected to be in the range of 32 cents to 36 cents or midpoint of 34 cents.
We estimate that we will generate approximately 45 to 50 million cash flow from operations for fiscal year 2020.
Capex for the year will be approximately $32 million to $38 million as we prioritize investments to support our new customers and expand our production capacity for future growth.
Other expenses net is expected to be 2.7 million, which is primarily interest expense related to our outstanding debt.
We expect that for Q4, non-GAAP effective tax rate will be between 18% to 20% because of the distribution of income around our global network.
The expected weighted average shares for Q4 or 36.5 million.
This guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base operations or customers.
Our guidance also assumes no material changes to end market conditions due to cope with 19.
I will now turn the call back to Jeff Jeff.
Thanks for that update.
Following robs comments on our guidance for the fourth quarter I wanted to provide additional color on our view of demand by sector shown on slide 14.
Overall for the fourth quarter, we expect to increase revenues from stronger demand and new programs in defense industrials and telco to offset anticipated declines in medical as we pivot manufacturing from COVID-19 related therapeutics.
To diagnostic trauma and elective surgical devices.
The results in Q4 revenue should be in line with Q3 levels.
We do not expect a seasonal uptrend in Q4 this year as customers are more cautious on increasing their demand signals, given the economic and geopolitical environment.
Now turning to the medical sector. During the first half of this year, we saw demand reductions in our core medical products in the cardiac renal and orthopedic markets associated with trauma and elective surgeries as many of our existing customers and new customers reallocated their manufacturing and sales capacity.
Study in the fight against Cove it.
As reported one of the existing key cardiac customers, it's all medical unlisted benchmark to support a rapid ramp of manufacturing capability to support ventilator production.
In the fourth quarter, we see declining demand for COVID-19 therapy devices, but the corresponding demand recovery for our non covered products isn't expected to start until first half of next year.
This anticipated recovery, along with new medical programs gives us confidence that next year will be another growth year for the medical sector.
In semi cap after a stronger than expected increase in Q3 demand remained stable for semiconductor capital equipment in Q4.
We remain well positioned in the sector with our advanced precision machining and electronics manufacturing.
And further demand outlook.
This sector is expected to remain strong as the semiconductor capital equipment index is predicting another growth year in 2021.
Moving to the N.D. sector outlook, our aerospace and defense sector is comprised of approximately 70% defense related products and 30% commercial aerospace offerings based on 2019 revenue up.
Defense demand across the portfolio remained strong in Q4 as we support many funded programs across the United States Armed forces.
We are anticipating in our commercial aircraft programs, which have declined significantly in first half 20.
Have a limited demand recovery in Q4 and in fiscal year 2021.
As Rob mentioned earlier, we have not seen an uptick in orders and industrials.
For oil and gas and the building and transportation infrastructure markets.
There are many large projects continued to be delayed despite.
Despite soft demand, we do expect an overall increase in industrials in Q4 for new programs and an increased number of global engineering services projects.
Overall, we see stable demand across our computing and telco customer base high performance computing projects are in flight as expected in the second half, but are being offset to some degree with the persistent weakness in higher value enterprise applications as the remote work trend continues.
In telco network infrastructure product demand across a number of our customers remains strong from the continued need for greater bandwidth for data services. After a nice rebound in Q3 demand from our commercial satellite customers remains stable in Q4.
As we've shared in our guidance with this revenue and sector mix forecast, we remain on track to achieve at least 9% gross margins in Q4.
Now if you'll please turn to slide 15.
We continue to make steady progress on our key strategic initiatives that we laid off.
For 2020.
My staff and I review progress regularly and will share updates with our extended teams to ensure all of benchmark is focused on a common set of goals.
First customer focus is a top priority at benchmark, we are working as an organization using customer feedback to find ways to optimize our engagement model and make it easier to do business with our organization.
This attention coupled with operational performance are the cornerstones for customer satisfaction, which I'm happy to report remains at a high level.
With many of our growth in strategic accounts, we are building deliberate long term technology, roadmaps and business relationships to help inform how we can invest in and be more valuable to our customers in the future.
This customer centric approach is an important foundation and growing our business.
In our sector strategies, we have a keen focus on selecting the vertical sub markets most aligned our value proposition.
Our objective within these markets is to expand its scale with strategic customers by selecting the full breadth of services and capabilities.
This includes focus investment and technology innovations that differentiate benchmark against other competitors and even against prospective customers internal manufacturing to increase our win rates.
This thesis is playing out well across each of our higher value sectors.
In fact over the last year, we've seen improvements in engineering services tied to Dms deals and vice versa.
Next we continue to drive enterprise efficiencies, we're continuing work on our global footprint optimization, where we are winding down manufacturing in some locations and ramping up new production in other locations.
The goal is to gain efficiencies with fewer rooftops.
Selecting locations with operational synergies and aligned with customer preference.
To this end in the third quarter, we made the decision to exit a line of business and our hey induced sector related to turban machining.
This is the right decision when we look at strategic alignment of the impact of facility and the prolonged downturn in commercial aerospace demand driven by the pandemic.
These decisions are never easy, but we are focused on our long term strategy.
In addition, we have a rigorous focus on controlling our cost and expense management through improved processes, Gina centralization activities and intense focus on project and investment prioritization.
We are reshaping our SGN a landscape.
For next year, we are targeting SGN, a at or below a $130 million, even with the hand to temporary salary cuts and corporate furloughs higher travel expenses and higher variable compensation.
The hard work, we have invested in our HR I achieve finance and other shared services.
To enable centralization are yielding a lower cost next year.
Unfortunately, this does requires restructuring activities, which is roop as mentioned will occur this quarter.
Finally, I want to close with our initiative on engaging talent and shifting our culture.
As I've said benchmark has a great cultural foundation that starts with the committed workforce, who wants to deliver for our customers.
Our investments in this initiative will include focused on better self service tools increased empowerment and critical skills development to ensure the talent the organization needs in future leaders can be found within our own diverse team.
This includes the ongoing commitment to advancing diversity and inclusion efforts at all levels in the company, which we are enhancing as part of our ongoing years do you focus for.
For technology companies like benchmark competitiveness requires innovation fresh ideas and creative thinking all areas fueled by diversity.
If you now please turn to slide 16.
The tentative work on these strategic priorities formed the foundation for setting our mid term target model through the year 2022.
The company had a great start and pivoting the higher value markets before my arrival and we are now at our target mix between traditional and higher value splits.
The right markets and customer selection remains key to our strategy.
Setting cove, it and the resulting macro economic uncertainty aside we believe we can grow revenue at a 5% compound annual growth rate over the next two years by growing our current accounts and ramping new programs with our targeted new customers.
While we are overcoming some pretty significant revenue decline headwinds in our aerospace and oil and gas markets and other demand softness in our installed base due to the pandemic recession.
Our growth expectation speak to the strength in our recent bookings and outsourcing wins.
As the economy picks up later in 2021 and through 2022, we expect our growth can accelerate further with this new win momentum and recovery and our customer install base.
With our current mix of business the success of ongoing operational excellence initiatives and our current global footprint, we are targeting gross margins in the range of 9.3% to 9.7%.
On the EPS DNA expense line I'm committed to effective overhead management and have taken the necessary actions to drive an efficient organization that is right sized to support our customers and employees effectively.
As the company expands and needs greater investments in capabilities, we will keep expenses aligned to our future revenue growth.
The resulting non-GAAP operating margin target range will be between 3.4% to 3.8%.
With this model, we feel comfortable that we can grow earnings faster than revenue.
As operating margins improved we see resulting improvement in ROI see.
I am confident and remain excited about our team's ability to capitalize on the growth opportunities in our diverse end markets, where our deal pipeline and win rate is increasing and we remain focused on executing our ongoing initiatives to increase incremental value for our customers employees and shareholders.
And with that I will now turn the call over to the operator to conduct our Q and a.
Operator.
We will now begin the question and answer session.
You asked a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
And our first question comes from Jason Smith of Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions I just wanted to start Jeff you mentioned customers are being a bit more cautious than hence why you won't see that seasonal uptick in Q4, I know there is a variety variety of different moving parts given the business segments, but can you just discuss have you seen any significant change in your overall visibility.
The or just comment how visibility has changed from three months ago.
Yeah, Thanks, Jason good to hear from you.
I think I'll start with saying a little bit that.
So we are seeing probably more stabilization and demand and not quite the level fluctuation certainly in Q2 was pretty crazy and then Q3. It. It there was still a lot of movement, but but in the end we landed where we felt we would what whereas we look at Q4, you're absolutely right. There is there is quite a few moving parts.
So when we see continued strength in semi cap and defense products and and those segments, what probably was a little different than the way we thought about it a few months ago was that we've seen a little bit of softness and medical.
In fourth quarter with some of the Covance specific products that.
We had some upside and certainly we enjoyed some of that in some of that will continue and part of Q4, but we see some of that coming to an end as has the folks you know build up inventories and did what they needed to do I think we're getting decent visibility to it so it's not like.
You know it's not like this is a complete surprise, but it's certainly shifted a bit over the last couple of months.
Thats is what causes when you look at our guide being.
More in line with Q3.
Then what might be higher seasonal Q4, and I would say that that's the bigger driver, we're still bullish on medical and have not only a great win instead of wins that were ramping but that'll really be happening for us more and 21.
Okay, and then just going off that sticking with the medical business. I mean are you starting to see the funnel build back up for Covidien related Ur cobot adjacent projects.
For 2021.
I would say when you you know we have a very diverse medical business and we've highlighted 12.
12 products that we build the fight co bid and and we have some exciting new therapeutic and we talked about DNA nudges, a rapid coded test that's non.
Right on point point of care and and they've got a great position in Europe and Super excited about that so theres examples like that.
We did build a number of ventilators ventilators for multiple customers and you know the course of treatment for profit is shifted right and people are going to ventilators as a last resort. So that's an area where there was a ton of demand and people were built enough stores and we've seen that that come back down to normal levels.
So there's some kind of moving within that when I think about our medical business, though we really have been broadly winning.
Everything from you know I talked about a renal product to other diagnostic products.
New ultrasound devices, new mobile MRI is an x. ray devices. So.
Well, we have a very diverse set of products that arent you wouldn't necessarily put under a coded banner I just think that we knew some of the co bid activity was going to provide upside in the second half of this year, but we did we didnt see that necessarily sustaining I think some of the new diagnostic coated products now.
This year could be could be nice incremental business for us, but probably probably not as much of the emergency room things is hopefully we keep more people out of emergency rooms right.
In the new year.
Okay. No. That's very helpful. And then just last one from me and ill jump back into queue 1.3 million and Covidien related costs. In Q3 is that a good figure to use just for the foreseeable future or until something changes and just related Lee the goal for US you need to be.
Under 130 million next year that includes any potential cold winter related costs correct.
Yes, Jason this is roop good to talk to you. So I'll start with your latter first and at that hundred 30 million would include some amount of what I'd characterize or we'd characterize as new normal sort of cost right cleaning protocol et cetera, So thats inclusive of that within that $130 million and 1.3 month.
Got a 130 million annual asphalt cost the 1.3 million.
It is probably a little bit higher.
Obviously lower than Q2 came down we think it will probably normalize just under a million dollars is where we'd expect maybe 800000 to a million dollars.
As we move forward.
Okay.
Thanks, a lot guys.
Thanks, Jason North.
Our next question comes from Andreas Soderstrom of Sidoti. Please go ahead.
Hi, everyone. Thank you for taking my questions.
So just a follow up on your comments around that the medical you said, you see that might be ramping with Widmore Adam.
Elective related production in 2021 will that be a an early events that this doesn't 21 or is it more in second half.
You know it's funny, we believe the ramp will start in first half we just it's probably not at the beginning of the year and someone thats a little bit of unpredictable you know just a little bit and how.
The macro economy performs you know because we sort of extort we'd start to see elective surgeries come back in and some of those other activities I think we're probably seeing less of that at the end of this year. We've obviously got new programs that are outsourcing that that are coming to fruition and they will they will.
Will help US next year I, you know when I look at a medical and I'll have route kind of add on it you know we see next year being a pretty strong growth year for us overall in aggregate but.
The timing you know is it certainly will build as we as we go through 21, you want to add and yes, thanks, Jeff and so I think you've answered it well there the only thing I would add is to.
To your specific comments first half second half, we'll see it start to ramp with those new program ramps in Q1 and carrying through the year.
For overall sequential growth annually is what we expect on yet.
Okay, and then the fourth quarter is going to be rather soft in Tulsa medical correct.
Correct.
Yes, yes.
Yeah, you're correct. Okay. Thank you for that additional color and EM.
In terms of Mexico, where are you standing and now with the capacity and how you are ramping national Nextel, Mexico has been one of the more challenging regions and we still have some its the one side. We've said, we're essentially back that productivity levels pre covert Mexico's maybe the one exception, where we still have.
Some restrictions with some hiring folks that are out it's.
It's not materially changing what our ability to deliver for customers are so we're not necessarily you know missing customer forecasts are commits on it but it's still a little bit of inefficiency because the sites. There you know do have a small percentage of the population that that you know.
Isn't allowed to come into the office speaker into the plant because of their their risk classification. So I would say that you know we're watching it closely because everyone around the world is seeing upticks and we don't know exactly what the full fall will bring but.
Well, we've been able to manage through it so far and we're kind of staying close to it.
And you know, it's not anything like it was back in second quarter, but still a little bit more.
More disrupted there than anywhere else in the world.
If I can how impactful is that an additional costs Leo and.
Well.
Hi, Paul.
Uh huh.
Well, it's kind of embodied in that 1.3 that that we've talked about right that that was quite a bit less than when were 4 million a few quarters ago. So, whereas we believe that you know it'll it'll be like group set under that million dollar level and that will include.
Paying people that may stay home or whatever is required to protect the folks there and so you know it's not a major driver now that could change if you know restrictions change and things amp up because of the caseload and all that certainly.
It certainly feels like people are trying to figure or figure our way through it without shutting down.
Companies in facilities, and all that but but thats. The I guess, that's the risk, but right now that's not how we're thinking about it were thinking that its and at that million dollar level.
And on your maybe just.
Just add that the EPS you in a range being relatively flat between Q3 Q4 contemplates that at our overall margin.
Being 9% to 9.1% in Q4 also contemplates that so it's kind of all inclusive.
Okay. Thank you.
And then and Jen Oh, I'm supposed to thinking about them.
Manufacturers as well.
Moving out of China is that something you see I know you have a small footprint in China is that something you're seeing very beneficial to have a bigger footprint than in the U.S. and Mexico and elsewhere in Asia.
Yes, we certainly have seen an increase in people wanting to source not.
Not only domestically, but but also in regions that are closer to where the end demand is so if you for example used to build everything in China and even some of it was coming back to the Americas.
You might see that now going to Mexico as an alternative so we've seen incremental demand.
In our Mexico facilities, where people want to low cost region alternative, but maybe you don't want to be all the way over in China.
Our our own China plant.
We have moved some customers within our own network.
If they want to stay in Asia, and maybe Thailand or printing is a great alternative to them, but we've also got a number of customers in China that are ultimately selling into that market and so we're building the product for that region and they're not impacted by tariffs, because it's not coming back and and Thats.
That's why you know, it's still makes sense for us to tap support in the in the region.
We just have the one facility as you said so it's not like we've got a huge exposure that half of our production capacity. There in fact, we have more approaching half in the us which is pretty appropriate given our mix and our focus on the defense sector as well as the FDA medical products.
We definitely see we'd have we don't see people moving away from you us manufacturing and there and there does seem to be more people that are looking to outsource.
And stay domestically and so that's a good trend for us.
So.
Hey, maybe that being a driver for new logos coming on board I was hit my way to existing customers you see this Tom the pipeline the pipeline definitely has improved for us we've seen about a 30% improvement in overall pipeline of opportunities. Some of that is though the trend that outsourcing in general more people are like in a in a tough.
Economic environment people are deciding Where's Where's my differentiation, maybe I'm really good at product development, but why why do we need to build my own product, maybe I'm not as competitive as what benchmark could do for me or I might need help with engineering for test development and I can rely on someone like benchmark to do both engineering and manufacturing.
So that trend is serving us well plus in the high value markets. We participate the penetration of outsourcing really hasn't reached 50%. So there's still a lot of companies building their own products that that this is a time to really decide whether they want to continue doing that.
On top of that though yes, there is an adder for companies that may be manufacturing in Asia that they want to come back to the U.S. and be in region.
And that's that's a piece of the incremental demand that we're seeing but I think there's a couple of good secular trends that are really supporting it I wouldn't put it all on that moved from from China back to us, but when you when you add it all together it bodes pretty well for the future potential and new logos.
Coming on and we're seeing some bigger companies say in our mix, which is great and we're also seeing repeat business.
From companies that are strategic to us and that speaks to their customer satisfaction, which right. Now is we're doing pretty well and our measures on that so thats encouraging.
But I think.
And then we're done.
Lastly, just to go back to Jason's question about about what are you seeing sort of end market demand and the customer said and as it relates to your AD revenue guidance for Florida next.
Two years, so that I can agree with maybe add to some 21 being a little bit muted up 5%, but I would expect that to maybe accelerate in 2022 S. We hopefully are sort of seeing a light at the end of the tunnel there.
Well, what what I think we were all trying to judge the macro environment and what I think we wanted to do is look we didn't want to go out three years right. In this environment that seems pretty far away, but we did want to give a little bit of a mid term model over the next two years through 22, how are we thinking about the business. We also wanted a good show.
There that you know, while we brought us DNA down dramatically this year because of all the furloughs pay cuts and things. We did that we also did some structural things that through this quarter to bring our footprint down so as we restore some of those temporary actions, we keep SGN a at a manageable level and in line kind of with revenue.
The opportunity, but when you think about the growth prospects for the company.
I think we you know Rupert I would I would also say that you know a lot of what we're looking at is based on the wins that we've won and new business coming on that will ramp over the next two years the headwinds that we're happy that we're facing are the macroeconomic environment. The you know some of the existing.
Industrial products like oil and gas, we don't see we don't see commercial aerospace coming back in 21, and so those are those are actually bringing our growth rate down, but we have enough momentum that we are overcoming that as you get to 22 I would be inclined to say.
If that macro environment improves then you're going to like the upside growth a lot because you know we're growing organically based on new business not counting on upper really significant upswing in the macro environment and the return of the current customers because we haven't lost any customers through the downturn, but.
Oil and gas is up 20, 30% aerospace is up 40% even.
Even even some of the elective surgery medical you know, we see off 10, 15%. Maybe so is that all comes booming back which hopefully it's in late hopefully it's the second half 21, maybe it's 22.
I think that could be a sweetener and certainly help the demand outlook.
In line with your your your comments.
Okay. Thank you very much that's all from me.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Lisa weeks for any closing remarks.
I just wanted to put in a reminder, that benchmark will be supporting a number of virtual conferences before our next earnings call in February on November 19th we will support the NYSE industrial Investor Day on December eight the Raymond James Technology Investors Conference and on January 13th we will support the Needham growth call.
And we will look forward to engaging with you. During these events in the meantime, if you have any further questions. Please feel to reach out to us and we'll be happy to follow up. Thank you and hope you all have a great day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.