Q3 2021 Benchmark Electronics Inc Earnings Call
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Okay.
Good afternoon, everyone and welcome to the Benchmark Electronics, Inc. Third quarter 2021 earnings Conference call.
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At this time I'd like to turn the conference call over to Lisa weeks SVP of strategy and Investor Relations Ma'am. Please go ahead.
Thank you Jamie and thanks, everyone for joining us today for Benchmark's third quarter 2021 earnings call. Joining me. This afternoon are Jeff, Thank our CEO and president and Bruce locker Rajiv our CFO.
After the market close today, we issued an earnings release, highlighting our financial performance for the third quarter of 2021 and we have prepared a presentation that we will reference on this call. The press release and presentation are available online under the Investor Relations section of our website at Www Dot bench dotcom.
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 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.
And SEC filings.
Actual results may differ materially from these statements most notably from the ongoing impact of global supply chain constraints and the COVID-19 pandemic.
Benchmark undertakes no obligation to update any forward looking statements.
For today's call, Jeff will begin by covering a summary of our third quarter results, including New program wins Roop will then discuss our detailed third quarter results, including a cash and balance sheet summary, and fourth quarter 2021 guidance.
Jeff will then wrap up with an outlook by market sector and a progress update on our strategic initiatives for the year before we conclude the call with Q&A. If you will please turn to slide three I will now turn the call over to our CEO Jeff Bank.
Thank you Lisa and thank you to everyone for joining our call. This afternoon.
I'm really proud of how our team performed in the third quarter admits this unprecedented supply chain crisis.
Despite these challenges we delivered strong results with both revenue and profit growth.
As we announced earlier today revenue of 572 million was in line with our guidance and was up 9% year over year.
Third quarter revenue growth was driven by continued strength in semi cap.
Improving demand recovery in industrials and ongoing program ramps and the high performance computing.
Now turning to profits with improving revenue our non-GAAP gross margins improved to nine 4% and non-GAAP operating margins improved to three 3%, which represents a 38% sequential improvement in operating margins.
As a reminder, our non-GAAP operating margins include stock compensation expenses, which were approximately 70 basis points in the quarter and the third quarter.
Earnings per share of <unk> 39 cents was above the midpoint of our guidance and cash conversion cycle results were 71 days, albeit higher than last quarter, driven by an increase in inventory due to the supply environment.
As mentioned previously.
These results were achieved with the backdrop of ongoing supply chain challenges that made it significantly more difficult to meet all customer demand and delivery expectations.
In the third quarter, we estimated that we were unable to fulfill over $100 million of demand requested in the quarter from our customers.
This demand is being aligned to component availability in Q4 and into the first half of 2022.
While we will expect a fair amount of fulfill demand this quarter to roll into 2022. We also appreciate that some demand will likely paresh as Oems balanced their demand plans against component availability and the new year.
Late supplier Decommit and component delivery timing challenges are also creating inefficiencies for our operations team. We've continued re planning to manage volatile delivery schedules and allocations.
On the Covid front, we are pleased to vaccine availability is improving around the world, especially for our international locations.
Having said that we did continue to experience intermittent disruptions to our global operations based on the need to comply with government requirements and our how our own health and safety policies to protect our employees.
Despite all the challenges.
Proud of how our teams have worked tirelessly and persevere and to improve our position in support of our customers.
Please turn to slide four.
In addition to strong sequential and year over year revenue growth, we had another great quarter of bookings.
We are excited to see more and more of our customers have the opportunity to experience both our world class design engineering capabilities.
And our complex high quality manufacturing skills at our operations around the world.
Our go to market team continues to perform well and we had some meaningful new program wins in Q3.
In medical we were awarded new manufacturing programs for glucose monitoring device and robotic surgery systems.
On the engineering front, we were awarded the design of a new mobile medical cart, which we hope will lead to a near term manufacturing opportunity.
Leading with engineering design capabilities is a key tenant of our medical strategy and it's working well.
In semi cap, we continue to win new programs that build on our current robust portfolio.
In Q3, we were awarded programs related to our wafer handling system and a wafer inspection tool.
This was the second straight quarter, where we had wins in semi cap that leverage multiple business lines, including precision machining engineering services and electronics manufacturing.
In the A&D sector, we were awarded new manufacturing programs for satellite antennas and advanced imaging sensors, as well as product design and manufacturing for combat system electronics.
And industrials, we were awarded manufacturing for advanced microelectronics related to test and instrumentation products as well as manufacturing for Lidar systems.
In Q3, our customer AI announced that benchmark had been selected as their manufacturing partner partner for optical modules for AI is a next generation adaptive lidar sensor.
We're proud to be a partner for AI and we are continuing to build on our strong core competencies for manufacturing very complex lidar products.
And finally in the computing and telco sectors, we were awarded new manufacturing programs and commercial printers and free space optics, along with a new tests designed program for an optical application.
Overall, our funnel of new business outlook remains strong with all the great work from our go to market engineering services and operations team.
Now I will turn the call over to route to give you more details on our third quarter financial results as well as our guidance for Q4 group over to you. Thank you Jeff and good afternoon. Please turn to slide six for our revenue by market sector.
It'll benchmark revenue was $572 million in Q3, which is 5% higher sequentially and 9% higher year over year.
Article revenues for the third quarter were up 8% sequentially and slightly higher than expected from improving demand in the cardio and respiratory care markets.
As planned our second half medical sector revenues are improving over first half 2021 levels from new programs and improving demand.
Semi cap revenues were up 35% year over year and down slightly in the third quarter due to capacity issues at several external vendors. This demand will be shipped in Q4 when products complete processing through our facilities.
Man levels remain high and our future backlog is increasing for our precision machining and large electromechanical Assembly services, which are primarily related to front end wafer fab equipment.
A&D revenues for the third quarter increased 4% sequentially from stronger demand in defense for secure communications relates to several several brown based customer programs, while our defense programs remained strong A&D sector revenues were down 4% year over year because of our commercial aerospace programs.
Have yet to recover to pre pandemic levels.
Industrial revenues for the third quarter were up 8% sequentially and 26% year over year from continued demand improvements from oil and gas building infrastructure and commercial transportation programs as well as a new program ramp for Lidar applications.
We expect industrials to be up 10% over first half 2021 revenue levels overall.
Overall, the higher value markets represented 81% of our third quarter revenue.
In our traditional markets computing was up 43% sequentially from the planned ramp up high performance computing programs that will continue into next year in.
In the telco sector revenues were down sequentially and year over year, primarily from delays in new program ramps tied to component shortages.
Our traditional markets represented 19% of third quarter revenues.
Our top 10 customers represented 50% of sales in the third quarter.
Please turn to slide seven.
Our GAAP earnings per share for the quarter was 23, our GAAP results included restructuring and other onetime costs totaling $6 4 million related to various restructuring activities throughout our global network of aligned to future business focus.
For Q3, our non-GAAP gross margin was nine 4%. This is 20 basis points better than the midpoint of our third quarter guidance, driven by a better mix and continued productivity improvements across our global facilities.
On a sequential basis, we were up 60 basis points because of our higher revenue.
<unk> productivity and utilization somewhat offset by supply chain inefficiencies.
Our SG&A was $34 4 million, which was sequentially flat from the prior quarter.
Non-GAAP operating margin was three 3% in Q3 2021, our non-GAAP effective tax rate was 21, 7% because of the mix of profits between the U S and foreign jurisdictions.
Non-GAAP EPS was <unk> 39 for the quarter, which is two <unk> higher than the midpoint of our Q3 guidance and 10 sequential improvement.
Non-GAAP ROIC was seven 8% sequentially flat and a 200 basis point improvement year over year.
Please turn to slide eight to review our cash conversion cycle performance.
Our cash conversion cycle days were <unk> 71 in the third quarter the increase in cycle days as compared to Q2 was primarily due to investing in higher levels of inventory to support growth, while navigating the constrained supply chain market. Please.
Please turn to slide nine for an update on liquidity and capital resources.
Our cash balance was 291 million at September 30 was 106 million available in the U S.
Cash balances decreased $79 million sequentially. The decrease in cash is primarily the result of higher inventory levels as previously discussed.
We used $42 million in cash flow in operations in Q3, and our free cash flow was use of $55 million after capital expenditures.
As of September 30, we had $131 million outstanding on our term loan.
And our cash net of debt is a positive $160 million. We currently have no borrowings outstanding on our available revolver.
Turning to slide 10 to review our capital allocation activity.
In Q3, we paid cash dividends of $5 9 million and used $9 9 million to repurchase 372000 shares.
As of September 30th we had approximately 164 million remaining in our existing share repurchase authorization.
Please turn to slide 11 for a review of our fourth quarter 2021 guidance.
We expect revenue to range from $560 million to $610 million, which at the midpoint represents a 12% year over year improvement.
We expect that our gross margins will be nine 2% to nine 4% for Q4, and SG&A will range between 33 and $35 million, we are still targeting gross margins for the full year to be at 9%.
Implied in our guidance is a three four to three 6% non-GAAP 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 and other nonrecurring costs in Q4 of approximately 4% to $4 5 million.
Jeff will give you more color on the strategic rationale for this decision, but I wanted to advise that the Q4 restructuring charges associated with this closure are expected to be between $2 5 million and $3 million and are included in the previous guidance, we provided for Q4.
Once the site closure is completed we expect future annualized savings of approximately $4 million per year.
Our non-GAAP diluted earnings per share is expected to be in the range of 37 to <unk> 45.
For a midpoint of 41.
We expect our capex spending for the year to be between 45 and $55 million.
We estimate that we will generate approximately $40 million to $60 million of cash flow from operations for fiscal year 2021. This range contemplates higher inventory to support growth for our customers through Q4, 2021 and into fiscal year 2022 were committed to positive operating and free cash flow generation as part of our business model.
Other expenses net is expected to be $2 4 million, which is primarily interest expense related to our outstanding debt. We expect that for Q4, 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 Q4.
Our approximately $35 7 million.
Before I turn the call back over to Jeff I wanted to comment on our perspective on components quite as you're aware and market demand continues to be strong as Jeff stated earlier, however continued supply chain constraints across all commodity categories are constraining our ability to produce the full demand forecast we ever see.
From our customers. The most significant changes in Q3 were an increase in push outs of previously committed component orders and tighter allocation across the component suppliers to counteract this volatility we have temporarily increased our inventory investment and raw materials to secure components aligned to our future customer demand.
We are actively working with customers to re plan mix and redesign some products to enable alternate component sourcing 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 2020 one in the high single digits.
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.
With that I'll turn it back over to you Jeff.
Thanks for that update roop falling roofs comments on our third quarter guidance I want to provide some additional color on our view of demand by vertical industry.
As shown on slide 13.
For the fourth quarter, we expect sequential and year over year revenue growth from the semi cap and computing sectors with ongoing demand strength and signals from our customers in the front end wafer fab processing capital equipment space. We are now revising our semi cap forecast from 30% to 40% growth over 2020.
Revenues.
If you'll recall as we entered the year expecting a 10% annual growth rate and we revised this outlook upward every quarter driven by continued strong demand for semiconductor capital equipment.
It has taken hard work by our team and our focused investment strategy to support this amazing.
In year increase in demand.
We expect growth to continue in semi cap next year fueled by the Super cycle, and we are investing in additional global capacity to further expand production output next year.
In computing, we expect continued growth in Q4 and high performance computing as we had projected earlier this year due to a number of new programs that our Oems.
We have continued to win new projects in this complex targeted sub sector, which supports our expectation for continued strength in high performance computing revenues throughout 2022.
And industrials, we are pleased to see demand increasing in the second half of 2021 from our oil and gas and building infrastructure customers with improving demand in a number of new program ramps. We now expect approximately 10% growth in this sector for the full year of 2021.
In the telco market, we expect a strong second half across the portfolio with strength from broadband infrastructure products.
However, a component shortages are prohibiting near term revenue upside in this sector.
And a N D demand for the defense programs remain strong, albeit with some quarterly fluctuations based on product certifications and supply chain.
While we expect defense demand strength to continue in Q4 and into next year, our commercial aerospace portfolio has yet to see signs of any recovery.
For our commercial aerospace sub sector, we are primarily position on the multi aisle aircrafts.
Do you use for long haul international flights, which are lagging in demand recovery.
As such we expect the A&D sector to remain flat for 2021 as defense strength does not offset all of aerospace weakness.
In medical sector revenues grew sequentially in Q3, but we are expecting flat revenues in Q4, while we have seen strong demand improvement in our base business component availability is impacting our ability to fulfill all open customer orders and achieve the revenue growth. We had previously expected for this year.
On a positive note improving demand as well as completion of new program qualifications are setting up medical to be a strong growth sector in 2022.
If you'll turn to slide 14, as we head into the final quarter of 2021 I wanted to provide a few highlights on our strategic objectives that were set for the year.
Growing revenue remains a top priority at benchmark and I am pleased that our expected revenue growth in 2021 is pacing ahead of our midterm model.
Revenue growth begins with strong bookings in line with our targeted sector focus our rich technical capabilities and our ability to tackle complex manufacturing problems.
New programs, along with continued demand expansion in semi cap medical industrial and computing give.
It gives us great momentum headed into next year.
We are continuing to invest in a sustainable infrastructure and our talent for the future.
We have momentum in our ESG and sustainability initiatives and we are well into our project plan to deliver our corporate sustainability report next year aligned to our proxy.
All with the objective of increasing our transparency for investors and customers.
We are also advancing our diversity equity and inclusion efforts aligned to our multi year continuous improvement road map.
Recently, we launched our global inclusion council that will be comprised of team members from different levels departments and regions within the organization.
The charter of this team is to discuss the company's role in D. Eni and to provide advice to integrate inform and shape the eni strategy at benchmark.
I'm really excited about the tremendous amount of employee support we have received for this council and I believe our employee voices are critical to the success of this program.
Lastly, we're focused on growing earnings and the Q3, we grew earnings over 40% sequentially. These results were enabled by our continued revenue growth trajectory and our commitment to control our expenses.
For the full year 2021, we expect non gross margins of 9% and the earnings growth greater than 30% over 2020.
Yeah.
As part of the strategic planning process for 2022 and beyond we analyzed our network of operations, including current and future utilization of our global sites as part of this process, we consider many factors including scale geographic placement.
Current and future costs and customers' long range of needs for increased volume manufacturing.
As Roop mentioned earlier the outcome of this is that we have decided to close our Moore Park, California, EMS operations with a target closure date by the end of 2022.
As a result of this action, we will be reducing our workforce in California by approximately 200 employees and reducing our global footprint by 3%.
We will transfer customer programs from the site to other manufacturing locations in our network, which will in turn improve our overall asset utilization and efficiency.
These decisions that impact our teams are never easy.
I want to thank our loyal employees at the more park location for their past and future support to benchmark and to our customers for their ongoing support during the transition process.
In summary on slide 15 based on the continued strong demand in semi cap and high performance computing with improving demand in industrials, we expect revenue growth in the high single digits for the year.
With this revenue growth and mix, we are anticipating 9% gross margins in 2021 and year over year earnings growth of over 30%.
As Roop discussed earlier, we are revising our operating cash flow downward based on our inventory investments, but we still expect positive operating cash flow for the year.
In closing I'm very excited about our progress thus far in 2021, and our expected outlook for the full year I want to express again, my deep appreciation to our teams and hardworking suppliers, who are working tirelessly to support our customers.
I look forward to giving you an update on our results for 2021 and our views on 2022 in our earnings call in February.
And with that I'll turn the call over to the operator to conduct our Q&A.
Yes.
Ladies and gentlemen at this time, we will begin the question and answer session.
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We will pause momentarily to assemble the roster.
Yeah.
Our first question today comes from Jason Smith from Lake Street. Please go ahead with your question.
Hey, guys. Thanks for taking my questions just wanted to start with the supply constraints, obviously, you're really well known out there and seem to be pretty broad based but you specifically called out medical just curious if you could sort of rank order, where you're seeing the most headwinds I mean, it does sound like the semi cap.
<unk> constraints will be easing in Q4, but what are you seeing sort of in the other kind of higher value markets.
Hey, Jason good to talk to you.
I'll start and have Jeff add.
From a constrained we did call out some comments on medical but the constraints, we're seeing really across all the sectors.
To some degree because again the constraints are cutting across all commodity areas of the supply chain and so we.
That's also part of the reason we've invested in the inventory that we have to help support the demand we're seeing from an end market standpoint, as we move forward and I think that investment will allow us to two.
Address the demand we're seeing as we move forward.
Let me just add a little bit on the semi cap, obviously, not as many components necessarily because we do precision machining.
Metal a lot of the work we do there.
We had a lot of outside process supplier issues in.
In the quarter and third quarter that we believe we're working our way through some of those has to do with coatings and cleaning and other things more COVID-19 related not really necessarily part of the broader component criticality, which you could argue COVID-19 had a factor there too Jason but it but it was a little bit dip.
When you think of that supply chain for for that type of business. So that's probably what we were I know thats, what we were referring to because semi cap.
Didn't didn't see the sequential growth, even though its way up year over year.
And Jason maybe the only other thing specific to medical if you think about it the constraints are really keeping us from seeing upside in medical.
And that's probably more specific to point out for you.
Okay. No. That's really helpful. And then just to clarify your comments on.
Seeing some decommit or is that just you.
Your expectations, just given how long these constraints have laughed and are expected to last or are you actually seeing some decommit today.
Yes.
It's a great question. It's it really is D commenced a re planning of the component.
And pushing them out that's affecting us and again this is especially affects us where we've got the demand builds expected and when they when they delayed it pushes R. R. <unk>.
Build schedules out right and defers that revenue opportunity so.
We then re planet and we work with our customers to try and get allocation of those components to see if we can score finish building it or or getting it more near term versus long term is kind of like two dynamics going on year, one dynamic as lead times are extending so if you have upside within lead time, it's harder to get that product for customers right because.
He just has just taken longer to get the components you need but we have seen.
And within quarter demand that was lined up and had been on order for a long time, where suppliers say.
I'm not going to be able to deliver it when I thought it was so we've seen anyone flying out of la sees the port of long Beach with all of the container ships hanging out there trying to unload so there's there's a lot of.
Risk in the supply chain.
As you can see from the results and move to manage its been able to manage through that pretty well, but but certainly it's a crazy environment.
Okay and last one from me and I'll jump back into queue, Amy semi cap has been.
Really nice bright spot for you guys. This year and it sounds like based on your commentary that's expected to continue how far does visibility extend for some of these programs I mean is it sort of into the first half of next year or does it extend all the way through calendar 'twenty two.
Yeah, we would normally say.
Six months kind of visibility, what's a little bit different is with this current environment, we're extending our horizon, we're asking customers to give us visibility for four to five quarters, just given that you wanted to get.
Product on order components on order. So we have I would say a little better visibility through a lot of 'twenty, two which is what's really weighing in on our confidence that not only is the backlog strong, but the forecast looks like it's pretty solid through 2022.
Okay that makes sense. Thanks, a lot guys.
Thanks for your good questions.
Our next question comes from Jim Ricchiuti from Needham <unk> Company. Please go ahead with your question.
Hi, Thank you good afternoon.
I joined a little bit late but I may have heard on this is what I'd like to just clarify did I.
You guys say talk about roughly on the order of $100 million of demand that you were unable to fulfill on the quarter because of the component challenges.
That's right Jim.
Remember we use.
Okay. That's just so.
So a big number that's fine I just wanted to.
Get a little better sense as to I don't know if you can talk a little bit to the.
The profitability of that that business in.
Perhaps which which verticals it was more pronounced in.
Yeah, I wouldn't say, it's necessarily more pronounced in one particular vertical or another Jim it.
Probably semi cap was the least affected other than some of the comments that Jeff just mentioned.
$100 million or so thats pushing out as really cutting across all of the sectors to some degree and cutting across our network of sites as well so its fairly consistent from that standpoint.
And then in terms of actual.
Business that you think may be perishable I Miss.
Is there a way to quantify that.
That's hard to pinpoint.
We hear from customers that they still want the product that we had a pretty big.
Pushed from last quarter that was done on similar.
So you could argue that's the sort of rolling forward right as we fulfilled demand and continue to grow.
Now that some of the demand is rolling through the year end boundary right. We know we can't fulfill everything in this quarter, either we will have some rollover.
Just being pragmatic, saying look you're going to have Oems look at okay, what what am I able to close on with benchmark in terms of what they can supply and we're thinking that they will reset a bit what their expectations are that being said they have strong demand in <unk>.
Probably continue to keep the pressure on and we do believe a large amount will roll into 'twenty. Two 'twenty. Two we just don't it's really hard to say right now definitively that we're going to see that $100 million upside show up in Q1 that would be unrealistic to characterize it that way I think.
Have a.
Since then that that there is people are going to look at the new fiscal year and go through their operating plan and think about what theyre going to set for their own targets and I think we're going to see some adjustment there.
Got it.
Apart.
The component challenges, which are certainly not.
Insignificant I'm wondering to what extent youre being impacted by rising costs elsewhere, which we've all been hearing about and yet to what extent is is.
Are you seeing pressure on just in terms of labor costs labor costs as well I mean, certainly it's impacting some folks with U S operations.
Yes, I mean, we were definitely seeing.
Cost on the material side right.
<unk> pressure there.
Much of which we would look to pass onto customers.
From a labor standpoint, theres definitely labor wage pressures.
In the various jurisdictions, we are in the U S and to a certain extent even internationally, but it's things that our teams are doing a very good job of.
Effectively managing and supporting our customers our employees through that.
Yes, we have had to make some adjustments on starting salary and.
Certain domains, depending on we got to stay competitive we got to make sure the benefits package is competitive.
Things like four one K match and medical benefits. So when we look at all of that we got to make sure. The whole package makes sense for our employees, but we know it's beyond just the monetary piece right and so kind of environment and how we care for our employees is important but it's but it is definitely.
There is more pressure on resource and as we grow we're going to need to add additional resource then there's a war on talent in.
It's something we were paying quite a bit of attention on it and also it is putting some pressure on the cost side of things.
<unk> described we also.
No theres a lot of leverage in our model as well as we continue to grow revenue. So that's helping us a bit on margins.
Up to now.
Not be fully impacted.
These other increase in cost by the increase in cost.
Okay.
I may have missed this but you had talked in the past about.
The ramp up the scale up in that high performance Computing program, which I think was with second half and I don't know.
How much of that.
Is it skewed more to Q4 and is that scaling the way you anticipated.
Yes. It is in fact, we were up over 40% sequentially in Q3, so it definitely happened.
And its continuing because it what's happened is we've actually filled in with some additional wins in that segment from other customers and also other programs with the large customer that we had there so where.
We're going to see a strong quarter again, particularly year over year in compute in Q4, but we also are looking at 2020 to saying it is.
It's going to hold up pretty nicely because of some of the fill and that we've had.
In the back half of 'twenty two on the other programs. So it kind of went from one larger program to.
Now, there's quite a bit of activity there and we've had good momentum and success.
Got it thank you.
Okay.
And once again, if you would like to ask a question. Please press star and then one so enjoy your questions you May press star two.
Our next question comes from Andres Soto shrunk from Sidoti. Please go ahead with your question.
Hi, just my opinion.
Hi.
Yes.
So I have some follow up on that a lot of good questions asked already and have some fall off then under supply constraints, how did you see that progress.
And what do you see going into the fourth quarter.
I assume it doesn't work.
During the quarter, but what are you seeing in the effluent water.
Yeah and then.
Yes, you broke up just a little bit, but I think we've got your comment or question.
The constraints in the third quarter I think got worse, we think that worse than.
Those constraints are going to continue into the fourth quarter as we think about it and really as we look into 'twenty. Two we think that the constraint market. So we're going to continue throughout 'twenty two so.
It's gotten worse in the third quarter, that's all the more.
Reason, we look at what our teams were able to accomplish it's quite extraordinary I would say.
And in the fourth quarter is going to be challenging, but we think we've got that factored into our guidance as we thought about the fourth quarter, yes that is probably a little subtle change. We said we saw mid next year, maybe things start to ease we're now sort of looking at probably dealing with this for all of 'twenty two.
Hopefully less impactful as we get to the back half, but where I think you heard Intel's comments about all of 'twenty two being constrained so.
Unfortunately, we.
We're part of that so we feel the effects of that so we are thinking it's all 22.
Hopefully Q3 Q4 are some of the tougher.
Constrained environment, but we know it's continuing.
So how much now is part of them.
Is it like in terms of component constraints versus the supply chain issue with all the ships being stuck.
The land.
It's more it's more that it's more of the components first because fabs are full.
The component suppliers don't have more capacity either having to allocate maybe they are allocating to automotive because the government pushing that and maybe medical doesn't get as it doesn't get allocated as much and stuff I think that is the predominant thing, but no question as shipments have increased and.
Things are coming late certainly the like the port issues and the trucking issues are exacerbating the problem, but I think the foundation. It it really starts with just frankly not enough capacity of.
Components and that really goes across the range anymore. It's not limited to memory. Your passives are just semiconductors, we're seeing it everywhere, we're seeing plastics sheet metal.
Even ingots of aluminum theres some restrictions on that so.
Okay.
So I'll ask about that labor inflation, how do you see there.
The ability of labor in the NIM vaccination will allow.
Is it improving.
Sure.
I wouldn't say I wouldn't say it's Matt.
Rubin.
I wouldn't say, it's improving but.
We have in some cases had to get you know agency help to help us find a specific skill.
And set up a better.
A war room with their own our own team to recruit talent, where we need it when we've got you know specifics.
Specific skill sets.
There is a concern a bit about.
Does the vaccine mandates and the implications that those could have.
We're still working through that for us and.
It's a complex issue and there is a lot of.
Noise in the system about that but.
It's something that we're going to learn more in the coming weeks here I think as we go.
Okay. Thank you.
I think that almost all from me actually.
Okay.
Okay. Thanks.
And ladies and gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to Lisa weeks for any closing remarks.
Thank you again for joining our call today, if you have any follow up questions regarding our earnings release today. Please don't hesitate to reach out and I'll be happy to follow up I also wanted to put in a reminder, that benchmark will be supporting the NYSE virtual industrials access day on November 16, and the Needham growth Conference on January 11, 2022.
And we look forward to engaging with you at these events as well as our earnings call in February.
You all and hope you have a great afternoon.
And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.