Q2 2021 Benchmark Electronics Inc Earnings Call
Okay.
Good day and welcome to the Benchmark Electronics, Inc. Second quarter 2021 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please.
The conference specialist by pressing Star then zero.
After today's presentation there'll be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like.
Signal on the conference over to Lisa of Heat Chief strategy Officer head of Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us today for benchmark second quarter 2021 earnings call. Joining me. This afternoon are Jeff, Thanks, CEO and President and route locker Rajiv CFO.
Like to talk for the market close today, we issued an earnings release, highlighting our financial performance for the second quarter of 2021, and we have prepared a presentation that we will reference on this call the.
The 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 advice on slide 2 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 releases and SEC 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 statements.
For today's call, Jeff will begin by covering a summary of our second quarter results, including New program wins rupee.
Roop will then discuss our detailed second quarter results include.
On a cash and balance sheet summary, and third quarter 2021guidance.
Jeff will wrap up with an outlook by market sector of progress update on our strategic initiatives for the year and second half outlook before we conclude the call with Q&A.
If you will now please turn to slide 3 I will turn the call over.
Our CEO Jeff thing.
Thanks, Lisa good afternoon, everyone and thank you for joining us today.
Throughout the past 18 months, we've rallied to the uncertainty surrounding the pandemic and made decisions to increase our investments in new opportunities, which we believe are starting to bear fruit.
So we've had to make difficult trade offs. During this unprecedented time, but we never lost focus on prioritizing the safety and wellbeing of our employees and meeting the growing needs of our customers.
This approach has served us well as we progressed our strategy and a volatile operating environment.
As you may have seen from the press release this afternoon.
Revenues of $545 million were above the midpoint of our guidance for the second quarter and were up 11% year over year.
Revenues benefited from the continued momentum in the semi cap market as well as stronger demand from customers deploying broadband infrastructure solutions and our telco sector of.
Additionally.
<unk>, we are seeing early signs of recovery in some sub sectors of the industrial markets.
Roop will provide more specific color on the constrained components situation, but our teams are facing of heavy workload and significant disruptions in manufacturing planning based on the continued volatility of extended lead.
The tight supply and allocations that are limiting the ability to meet customer demand.
In the second quarter, we estimate the we left approximately $50 million of demand on the table and most of this demand is rolled into future quarters.
Given the component constraints, we estimate we may leave of $100 million.
Lead times of unfulfilled demand and this quarter demonstrating the strength of end customer orders.
We continue to work closely with our customers to optimize output based on component availability.
During the quarter, we also face disruptions in our Malaysian operations from the ongoing Covid pandemic, where.
The regulations reduced staffing levels to 60% and required of our team to replay on our workforce and shift patterns through most of the the second quarter.
Even with these challenges I am proud to report our teams in Penang delivered on their customer demand and achieve their targets for the quarter.
Thankfully, we hold an onsite vaccination of event for our precision machining operations, allowing near the all of our employees and some suppliers to receive their first vaccine shot.
And are making plans to host the similar events for our EMS team.
Government restrictions have recently.
<unk> East now, allowing 80 per cent of the workforce capacity and our leadership team continues to do a phenomenal job managing through reduced staffing in the internet at work stoppages to keep our employees healthy and maximize production.
Now turning to profit with improving revenue.
GAAP gross margins improved 50 basis points to 8.8% and non-GAAP operating margins improved 20 basis points to 2.5%.
As a reminder, our non-GAAP operating margins include stock compensation expenses, which were approximately 70 basis points in the second quarter.
Earnings per share of <unk> 27 was above the midpoint of our guidance and we had another solid quarter of cash conversion cycle results at 64 days.
Our team continues to pull together execute with excellence and deliver on our growth strategy through the first half of 2021.
We believe this momentum will.
Our non menu through the rest of the year and demonstrate the benefits of scale in our model.
Please turn to slide 4.
In addition to the strong sequential and year over year revenue growth, we had another strong quarter of bookings for the outsourcing of new deal opportunity environment remains strong.
We'll continue the we'd like to highlight a few key wins in the quarter.
In the medical sector, we were awarded new manufacturing programs for cardiac monitoring blood transfusion and in in vitro diagnostics.
Our winning value proposition in this sector resonates with customers and is supported by our 30 year quality.
<unk> track record of building class III life sustaining devices by FDA standards.
In semi cap, we continue to win new programs, which are additive to our already strong demand in the sector.
In Q2, we had a new semi cap customer of our portfolio where.
Where we will be building process controllers for coating equipment.
With existing customers, we were awarded new design and manufacturing projects for Workstyle handlers and power of rack of electronics.
This quarter, we had great wins in semi cap across precision machining engineering services.
Kind of electronics manufacturer.
In the A&D sector, we were awarded new manufacturing programs for electronic warfare, and defense satellites as well as the design program for Ruggedized electronics for land based combat vehicles.
And industrials we are.
Very excited about of major new customer win to manufacturer of solar battery storage solutions, which could provide meaningful growth to our industrial sector.
And finally in computing and telco, we continue to win new high performance computing programs, where we have unparalleled manufacturing expertise for large.
This form factor high density electronics manufacturing.
High performance computing will be a key contributor to our growth over the next 12 months.
Our new business pipeline remains strong across all of our sectors and we expect these bookings to fuel growth and supportive of our midterm model.
Large for longer term growth plans.
All in all I'm very excited about the meaningful opportunities. We are winning the increased attach rate of engineering services and the level of new prospective wins that our business development teams are engaging in.
With that I'll now turn the call over to Ruth to discuss the second quarter.
For financial results.
Group over to you.
Thank you, Jeff and good afternoon.
Please turn to slide 6 for our revenue by market sector.
Benchmark revenue was $545 million in Q2, which is at the higher end of our guidance driven by continued stronger strong performance in semi cap and improving revenue and.
In industrials and telco met.
Medical revenues for the second quarter were relatively flat sequentially as expected.
We expect medical revenues to be higher for the second half of 2021 as compared to the first half of 2021 due to the new program ramps and improving demand.
Semi cap revenues were up 20.
The 3% in the second quarter and up 60% year over year from continued demand strength from our front end wafer fab equipment customers, where we saw increased demand from each of our top customers are revenue in the sector is primarily precision machining and large electromechanical assembly, which are less impacted from the.
Global component shortages.
A&D revenues for the second quarter increased 8% sequentially and 9% year over year from continued strong demand in our defense programs for surveillance vehicles secure communications and computing and military satellite programs, our commercial aerospace revenue was flat sequentially.
<unk>.
Industrials revenues for the second quarter were slightly better than expected from slight improvements from building infrastructure and commercial construction programs overall, the higher value markets represented 82% of our second quarter revenue.
Revenues from computing and telco sectors, our traditional markets.
Were flat quarter over quarter we.
We saw strong demand in telco from new and existing programs and commercial broadband and commercial satellites, but a high performance computing program that was expected to ramp in Q2 was pushed to the second half of 2021.
Our traditional markets represented 18%.
For scent of second quarter revenues, our top 10 customers represented 46% of sales in the second quarter. Please.
Please turn to slide 7.
GAAP earnings per share for the quarter was 20.
Our GAAP results included restructuring and other onetime costs totaling $1.6 million related to restructuring activities in.
Q2, we completed the closure of our Angleton, Texas site as planned.
For Q2 of our non-GAAP gross margin was 8.8%. This is 20 basis points better than the midpoint of our second quarter guidance, driven by higher revenues and a better mix on a sequential basis, we were up 50 basis points as a result of.
Of our higher revenue improved productivity and utilization somewhat offset by higher variable compensation expenses and higher than expected U S medical costs.
Our SG&A was $34 million, an increase of $3.5 million sequentially due to higher variable compensation expenses and higher U S medical costs.
Non-GAAP operating margin was 2.5%.
In Q2, 2021, our non-GAAP effective tax rate was 23% as a result of the mix of profits between the U S and foreign jurisdictions non.
Non-GAAP EPS was <unk> 27 for the quarter, which is <unk> <unk> higher than the midpoint of our Q2 guidance.
The <unk> sequential improvement non.
Non-GAAP ROIC was 7.5% of 110 basis point increase sequentially and 160 basis point improvement year over year.
Please turn to slide 8 to review our cash conversion cycle our.
Our cash conversion cycle days were 64 in the second quarter an improvement of <unk>.
From Q1.
Turning to slide 9 for an update on liquidity and capital resources for.
The cash balance was $370 million at June 30, with the $135 million available in the U S. Our cash balances decreased $30 million sequentially. The.
The decrease in cash is primarily the result of procuring of higher level.
Of inventory to support future revenue growth and to better manage the increasing lead times for components and current broad supply chain constraints in the marketplace.
We generated $4 million in cash flow from operations in Q2, and our free cash flow was the use of $9 million cash after capital expenditures.
1 day of June 30, we had $133 million outstanding on our term loan with no borrowings outstanding on our available revolver.
Turning to slide 10 to review our capital allocation activity.
In Q2, we paid cash dividends of $5.8 million and used $17 million for repurchased 566000.
Average shares.
As of June 30, we had approximately $174 million remaining in our existing share repurchase authorization in Q3, we expect to repurchase shares opportunistically, while considering market conditions.
Please turn to slide 11 for a review of our third quarter 2021 guidance.
6 on we expect revenue to range from 555 million to $595 million, which at the midpoint represents a 9% year over year improvement.
We expect that our gross margins will be 9% to 9.4% for Q3, and SG&A will range between 34 and $35 million the sequential.
The increase.
And gross margins as expected due to higher revenues and improved absorption.
We are still targeting gross margins for the full year to be 9% <unk>.
Implied in our guidance is a 3.1% for 3.4% non-GAAP operating margin range for modeling purposes.
The guidance provided does exclude the impact of amortization.
Nation of intangible assets.
<unk> restructuring and other costs.
We expect to incur restructuring and other nonrecurring costs in Q3 of approximately 800000 to $1.2 million.
Our non-GAAP diluted earnings per share is expected to be in the range of 33.
To <unk> 41.
For a midpoint of 30.
Since.
We expect our Capex plans for the year to be between 50 and $60 million we.
We expect we estimate that we will generate approximately $80 million to $100 million of cash flow from operations for fiscal year 2021.
This range contemplates the higher inventory levels to support growth for our customers.
7 through the year.
Other expenses net is expected to be $2.1 million, which is primarily interest expense related to our outstanding debt. We expect that for Q3, our non-GAAP effective tax rate will be between 19% and 21% because of the distribution of income around our global network. The expected weighted average shares for Q.
<unk> are approximately $35.7 million.
Before I turn the call back over to Jeff I wanted to comment on our perspective on component supply.
As you are aware and market demand continues to be strong. However, we continue to see component supply chain constraints across all commodity categories.
3 overall lead times continue to extend and more components of being placed on allocation by suppliers. Several commodities are impacted yet semiconductors remain the most constrained.
We are maintaining close alignment with our suppliers and distributors to minimize disruptions to existing orders and to secure supply in support of customer demand.
We are actively working with customers to replay on mix and redesign some products to enable alternate component sourcing and.
In general our ability to fulfill upside demand is challenging due to component constraints, but we do believe these actions still give us confidence that we will grow revenue in 2021 in the high single digits.
In.
In summary, our guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base operations or customers guidance also assumes no material changes to end market conditions and our operations due to COVID-19.
And with that I'll turn the call back over to you Jeff.
Thanks for that update roof.
Following <unk> comments on our third quarter guidance I wanted to provide some additional details on our view of demand by sector for the quarter and the remainder of 2021.
This is shown on slide 13.
For the second quarter, we expect revenue to.
Of the up sequentially by about 30.
The strength is led by expected sequential growth in computing and A&D with continued strong demand in semi cap.
After 60% year over year of growth in Q2, we expect our semi cap sector will remain at Q2 revenue levels as demand still remains robust.
We are constrained in the near term by mechanical sub tier suppliers.
Based on signals from our customers in the front end wafer fab processing space demand will remain at high levels for the balance of 2021 and through next year supported by increasing demand for semiconductor capital equipment.
With this.
Just following demand strength and signals from our customers. We are revising our outlook for the for this sector upward from 20% to greater than 30% revenue growth over 2020 levels.
This sector is clearly outperforming our expectations for this year.
In A&D.
Where we grew 8% in Q2, we expect continued growth in third quarter led by increased demand for Ruggedized electronics for ground based military vehicles and secure communication devices.
While commercial Aero demand in the second half the stabilizing we still expect the A&D sector to remain flat.
Flat for 2021 as defense strength does not offset arrow of weakness for the full year.
In the computing sector, we expect strong revenue growth in 2021 from high performance computing projects with the largest revenue growth in the second half of 2021.
If there are no further.
Further component of Decommit or design delays computing could be up over 50% sequentially in the third quarter.
As we continue to win new projects in this targeted sub sector. We expect continued strength in high performance computing revenues in 2022.
In the medical sector, we're expecting revenue.
To grow sequentially in Q3 and Q4.
For our portfolio, we see revenue growth across our base business in the second half.
Additionally, we have new program ramps contributing in the second half growth.
We still expect medical to have a growth year, but as always new medical program revenue is.
Object to the timing of product qualifications.
In the telco market, where we had good growth in the second quarter, we expect stable demand in the second half of 'twenty, 1, which will lead to 2021 being a solid growth year from strong performance in broadband communication products.
And industrials, we're pleased to see the order book, increasing for our customers supporting the oil and gas market transportation infrastructure and building systems.
With this demand improvement forecasted in the second half.
And the tremendous number of new program ramps in Q4 this sector has.
Has the potential to achieve greater than 10% growth for this year.
If youll turn to slide 14, I wanted to provide a few highlights on our strategic objectives.
We remain focused on our longer term strategic initiatives and progress against these even as we deal with short term challenges.
By the pandemic and this constrained supply environment.
Growing revenue remains the top priority of benchmark. Our go to market team is doing a great job of executing our sector development strategies with wins in our targeted sub sectors, where we have an advantaged position based on our technology and the.
The track record of success with complex programs.
Our booking levels for both manufacturing and engineering services remains strong.
We will continue to invest in a sustainable infrastructure and our talent for sustainable growth.
We are on data collection mode. The support our intended reporting.
Against the global reporting initiative.
Which will increase our transparency and further support our Standalone sustainability report, which we plan to publish next year.
We are also expanding our diversity and inclusion efforts by developing a multiyear continuous improvement road map supported by.
The robust plans and actions with accountability held by the entire senior leadership team.
This roadmap includes the increased training some enhanced policies and recruiting strategies for our internal organization as well as the ongoing commitment to board diversification.
You may have seen our recent.
<unk> announcement, where 1 of our board members Merrily range left our board.
We are certainly appreciated her service and wish her well.
We are proud to welcome Lynn Wentworth to our board filling merrily as open seat.
Lynn is an outstanding director and sits on 3 public companies, where she currently holds 2 board.
And 1 of the audit share position for.
For vast experience of the history of operational execution will provide additional capabilities and insight to our already talented slate of directors.
Lastly, we are laser focused on growing earnings from our second quarter results to the midpoint of our Q3 guide.
Chairs, we're expecting of greater than 30% sequential earnings improvement.
These expected results are enabled by our continued revenue growth trajectory, our target to sustain gross margins at 9% for the full year and our commitment to control our expenses.
Guidance summary on slide 15, I'm very excited about our progress in the first half and remain optimistic about our second half outlook.
Given the continuing strong demand outlook in semi cap improving demand in industrials and expect the second half ramps and high performance computing, we are revising our.
Our full year of growth outlook to high single digits for 2021.
Of course, this assumes no worsening component supply constraints or broader pandemic impacts.
With this revenue growth and mix, we're expecting sequential quarterly improvement in both gross and operating margins.
And in both 3 and for Q.
On the gross margin line, we are still targeting to achieve 9% for the full year 2021.
With these results we are still expecting operating cash flows between 80 and $100 million.
Through the first half of 2021.
We repurchased $30 million of stock.
And may continue to purchase stock Opportunistically as well as continue our recurring quarterly dividend, which we raised last quarter as part of our capital allocation plan.
In closing I remain excited about the overwhelmingly.
1 set of indicators that we're seeing from our teams and our customers.
I want to express my heartfelt, thanks to our team, including our hardworking suppliers for their ongoing support at a very high level.
I am excited about how 2021 is shaping up and look forward to providing you an update in our October earnings.
Paul.
And with that I will turn the call over to the operator to conduct the Q&A.
Operator.
Okay.
Moving now taking the question and answer session to ask the question you May Press Star then 1 on your Touchtone phone.
Thank you.
Earnings Zone, please pickup your handset before pressing the can.
Thanks.
Is that any kind of your question had been that day and we would like to withdraw your question. Please press Star then 2.
At this time Paul.
Generally the with Nomura.
The first question comes from Jason Schmidt with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions just wanted to clarify your comments on the $100 million in demand this quarter potentially being left on the table is that simply due to not being able to ship or.
Had these projects and designs been lost I'm, just trying to get a sense of this revenue will eventually flow to you guys in the out quarters.
Yes, Greg clarifying question Jason.
This is really given the component constraint environment.
Not demand that is going away it's.
Frankly some.
As upside demand that we've taken from the recovery starting in many of the sectors and a lot of that is in within lead time and as you know lead times of extending so it's difficult to close on.
Cleared of builds to be able to get the revenue.
And some of it I would say would come from.
From the rollover from last quarter as well because we left some unfulfilled demand on the table.
We're pleased that assessing at the majority of that will roll into fourth quarter and probably some into the beginning of 'twenty 2.
Some of it.
There was some portion of that that could.
Some of it of suitable but for the most of our we intend to capture of that that lost revenue in the third quarter.
Okay, that's really helpful and just given the tightness out there and the need for spot buys and just general inflationary pressures just curious what youre seeing from that standpoint, and if you are.
Pairing those higher cost if you're passing them along.
Yes, everyone's dealing with you know the cost of expediting some components of gone up in price given the tightness of supply. So we're definitely seeing it.
We're in hand to hand combat you know trying to keep costs down at the same time trying.
Trying to get precious supply.
As you can imagine we work really close with our customers to make those decisions and on.
In many cases, we are asking customers to help us with that.
Just given the nature of the relationship and the way our contracts are structured but.
It's a difficult time no question of everyone's a bit frustrated wish there was more we could do but at the same time, we're also talking to customers about making sure they have their forecasts out in <unk>.
It's certainly not too soon to work on 2022 and those of the the discussions we're having.
Okay, and then just the last 1 from me and I'll jump back in the queue. I'm curious for you guys would be willing to share how much of the computing segment is comprised of what you guys consider high performance computing I'm, just trying to get a sense of it seems like that high performance computing really is more.
Or is it really could be on.
Under that kind of higher value markets, rather than the traditional markets.
Yes, we have had the debate some of our competitors take computing telco you know the higher value segments in the classified all of those high value certainly we see high performance compute.
As you know higher than the traditional compute business from.
Some of margin it's on the higher side, although that segment of overall is below our corporate average for margins I would say.
The HBC.
The oil break it out but just directionally.
It's meaningful.
It's it's it's not $10 million right. So so it's a pretty big number in there because we've got multiple customers, we're supporting in that segment.
You want to add anything yes, Jason just maybe I'll add to Jeff's comment there on H P. C. If you remember it can be somewhat project based as well right. So it's it's a bit lumpy.
And so the percentage of what it represents of computing can vary by quarter. We as we had indicated we saw a push out of the demand into the second half. So we'll expect to see the mix of that the a bit stronger in Q3 and Q4 as well.
Okay I appreciate the color. Thanks.
Thanks, guys.
The numbers.
As a reminder, if you have a question please Paul.
Hang on to be joining of the queue.
The next question comes from earning of Santos Chen with Sidoti. Please.
Please go ahead.
Hi, and thank you for taking my question.
And congratulations on a good quarter, despite the environment and.
Yeah talking about the high single.
Did you just talked about.
For 2000, plus of taking that a bit how should we think then of the session.
Hello.
The projects being pushed out and how you're working on.
I'll close the.
With your customers now on.
Lead times from Stephanie I assume you had better visibility into 2022 assets.
Do you foresee it just isn't so much of it to be stronger just doesn't put them on the way too early to talk about that.
Yes. This is Jeff I'll start.
We have good momentum right now on the business and we felt.
Questionable with the visibility through second half to to call. The ball higher in terms of revenue growth. This year, it's a bit early for 'twenty 2 I mean.
It's great to see the momentum, we'd certainly think some of that will carry into next year, but we feel good about the midterm model we've put out.
That looked really out through 2020.
Welcome.
I think you'll see us come back as we get a little further into the year end and give you more color on what that looks like and some of the things that have to factor in there as you know semi cap is going through tremendous strength right. Now we think that continues into 'twenty 2 we'd like to get a little further along and see what that profile looks like and <unk> and.
2 so what you know what if anything are we not able to fulfill through the end of the year.
Is there going to be demand that rolls into next year that that isn't perishable and that we still may be dealing with this constrained environment.
Which looks like it could go on and right now we're saying.
From our visibility looks at least through first half of 'twenty 2 of that could be.
<unk>. So so directionally I would say we feel good about where we are against the model but.
A little bit too early to really call the growth rate for 'twenty 2 yet.
Okay. Thank you and I'm, sorry, I jumped on the end the call on Tim might have them.
Addressed this but in medical what do you see.
And then all of sometimes the ramping of the elective.
Centrally of procedures for native production.
Yes, so like the surgeries, we are seeing recovery there.
But it did come a little bit later than some of the other segments. The bounce back I would say, maybe a little bit quicker and so we're <unk>.
That being a little more supply constrained in there because the demand kind of came back later later in the.
Really even the first quarter, we werent totally calling yet so now we're in kind of of lead time Crunch. So we've got a number of new ramping programs that.
We're excited about some of those are really going to be based on the timing of when those hit but but right now.
Thats really weighing on medical in 'twenty 1.
Okay. Thank you and then in terms of when you contract with can you just.
Give us on color on.
Probably some weather, though so with new logos and expansion with existing customers.
It's a great question, we had the kind of initiatives the.
We want to go deeper with the customers we have but at the same time, we want.
Set of new logos every quarter.
I would say it was a healthy mix of both.
About half of the deals that we highlighted were from existing customers and half for new logos.
We talked about the power the power.
For storage solution solar solar storage that's of great new customer we're super excited about.
We've got some industrial customers that are brand new debt.
That are going to be meaningful down the road for us.
But we also saw some semi cap on A&D customers that of repeat that.
Kind of going deeper with so it's a healthy mix as you go kind of across the the sectors that that we that we highlighted this quarter.
Okay. Thank you and also.
I'm, just curious given your sort of increasing them.
The of revenue.
Guidance for this year, but you're maintaining the question you said you're today goodbye.
That's putting the pressure on them.
<unk>.
On yeah, we apologize you kind of broke up just a little bit there.
Would you mind asking your question 1 more time.
Yes, so you're taking up your revenue guidance of bids.
For this year, but you're maintaining the gross margin of hard at this debt due to the supply chain constraints, the putting some pressure on the gross margin.
So really it's a combination right as you know we.
Our mixed dependent in 1 of the things that we have forecasted on our comments is that we expect to see some growth in the high performance computing sector or the computing sector with the high performance computing programs that we'll be executing in the third and fourth quarter. So the mix of the traditional markets will be a little heavier and those margins tend to be.
A little bit less than our corporate averages. So when you think about the mix that's affecting it the other side of that is the constraint mark of constrained market is affecting some of the higher value markets like in medical to Jeff's point just now.
On delaying some of the ramp in growth there. So it's kind of the mix.
Of both that's.
Now, we're not able to fulfill some of the demand on the higher value markets because of the constrained market and then the higher computing revenue that we expect to see in the third and fourth quarter.
Okay. Thank you and then 1 last question how much of them that your revenues derived from Michele approximate the kidney.
Right from I didn't catch the end of that question how much is the revenue.
Yeah, how much of your revenue is originated from Malaysia.
On the ambitious Paul Malaysia.
It's not something we've disclosed publicly overall.
And remember.
Remember, we've got both MFS and precision machining, if you think about our footprint, maybe as a proxy which isn't the exact but we've got about 10% of our footprint in Malaysia.
And the Malaysia.
The Malaysia has been challenging due to the COVID-19.
Restrictions and also disruptions.
Where we've had temporary shutdowns in and.
And the like the.
Our team has done a phenomenal job over there I just gotta do we'll call out the.
We saw risk I think our analysts so highlighted the risk in the quarter with some of the disruption of some of our peer group pre announced because of it.
They've done a phenomenal job working.
Feverishly and carefully to stagger the teams and work over time and be able to deliver for customers. So while COVID-19 is really silvering that the rest of the world does not as far along I know, we're seeing rates spike up a little bit in Americas, 2 but.
Both Malaysia, and Thailand continues to be of a key watch.
<unk> for us and working closely with our teams and encouraging vaccination events.
Trying to get through that but.
Team did a great job on Q2.
Okay. Thank you that was on.
Thank you on yet.
Yeah.
The next question comes from Gene <unk> with Needham. Please go ahead.
Hi, This is a ton of the daily Dawn and Virgin everyone else at Dawn.
Hi, Taylor, how are you Hey, Tyler.
Again, well that's on the great quarter. It seems like it's I guess, it's rare to see from companies.
Got it on scale.
Obviously, you guys are.
I missed out on some demand, but really really came out strong. Despite all the headwinds that you guys are facing so.
Yes congrats.
But yes, the 1 I guess, maybe just 1 question.
Just kind of looking at given what you guys talked.
These come out sort of the the market verticals.
You are forecasting for the rest of this year, it looks pretty strong, especially.
Youre seeing the semi cap and medical I'm wondering.
Just thinking about Q4, I mean, historically, we've seen a bit of a slowdown in Q4 relative to Q3, but just based on your guys' guidance.
Off of that what youre seeing in some of the demand being pushed out.
Is there a chance of Q4 comes in a little bit stronger than what we've seen in the past.
Well certainly you know I think we're kind of Directionally was saying that we're going to see.
We're shifting the high single digit growth for the year, we would anticipate.
<unk> been able to growth sequentially from Q3 to Q4, which I think is not always something that we've seen to your point. So I think we do have some strength in the back half and and as we've talked about the compute sector with some of the high performance computing per of projects.
You know of did move from the first half second half of that that helps us.
And kind of certainly semi cap, we got some temporary constraints there that are limiting of some of the sub tier suppliers and disruptions in Malaysia that were not on our own house. So we look to clear some of that and that should help on the fourth quarter as well. So we've got we've got pretty good momentum going into the fourth quarter. So we'll see how it plays out but.
But directionally I think you're thinking is off.
Okay.
Great.
I guess, 1 thing to it than any of you.
Talked a lot about this but.
Because of their saw some spikes I know you guys seemingly are hopefully of navigated the worst of it but.
You know there is there some hasn't C with customers they are pushing out.
But maybe into 2022, just because of a little bit of that.
And I guess apprehensive from the.
The Delta spikes.
No I wouldn't say that the customers I mean, the demand is strong and customers if they can get it sooner and obviously with what we left on the table in Q2.
Rather than what we are projecting we potentially could have on the table.
Customers would like to get the product as quickly as possible. So we're not seeing push outs as a result of some of the COVID-19 spikes or anything like that at this point in time, if anything I think the customers are excited to get going on new projects and we've got more people wanted to visit our facilities and engage with our engineering teams.
And I think people are trying to get things done that maybe they put off a little bit but it's it is challenged by component constraints and even on development projects. You know if you've got engineering prototypes and samples you're trying to build.
There's the component constraints are not immaterial, so that's making the tough but theres certainly.
I have not seen 1 project push because.
The worried about Covid and Theyre going to wait at this point.
Okay.
Helpful Inside of appreciate that and the 1 last question you mentioned, the solar and storage when I believe and just wondering if you could talk a little bit about that potential there because obviously growing segment.
<unk> really across the world you see it a lot on the U S. The MTS as the Sunrun, but just wondering if you could kind of just talk and speak to that potential a little bit for you guys.
Like any new booking for us right. It typically can take.
It could take a year and a half of 2 years just to get into revenue and then ramp from there.
I were.
Excited about.
Operating with them 1 of the market leaders here.
That's in the space I think it's an exciting space people have leveraged the generators for a long time and this isn't alternative right to be able to with with all of the storms and increase the storms across.
Certainly in the U S.
The power of Brown outs are more and more common so.
I'm gonna have the energy backup and be able to run.
And store energy during the day and be more fuel.
Fuel efficient I think is an exciting market so.
I think we're really optimistic.
Cross, but it's a bit early to say what it could be.
We're because of the new customer on in the end of market leader as I said kind of see it being a meaningful contributor, but but but not really you know we're going to get into it probably in 'twenty, 2 and we'll see where it goes from there.
Okay. That's.
<unk> I appreciate it but less of it for me. Thanks.
Thanks, again, and congrats on the great quarter.
Thanks, Scott I appreciate the feedback thanks for joining.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Lisa weeks for any closing remarks.
That's all thank you again for joining our call today. If you have any follow up questions regarding our earnings release, please don't hesitate to reach out and I'll be happy to follow up I wanted to put in a reminder, that benchmark will be supporting the Needham Industrial Tech conference on August 9 the Oppenheimer technology Internet and Communications conference on August.
Lake Street Best ideas growth conference on September 14th and we look forward to engaging with all of you at these events.
Please have a great afternoon, and we'll look forward to speaking with you on our third quarter results call in October. Thank you.
Okay.
The conference has now concluded thank you for attending today's.
Today's presentation and you may now disconnect.
Yeah.
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