Q4 2022 Benchmark Electronics Inc Earnings Call
And thanks to everyone for joining us today at Benchmark's fourth quarter fiscal year 2022 earnings call. Joining me. This afternoon are Jeff Bank, CEO , and President and Roop luck of Rajiv CFO . After the market closed today, we issued an earnings release pertaining to our financial performance for the fourth quarter of 'twenty two.
And we have prepared a presentation that we will reference on this call.
The press release and the presentation are available online under the Investor Relations section of our website at 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 in the presentation.
Please take a moment to review the forward looking statements advice on slide two in this 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 due to the ongoing impact of global supply chain constraints macroeconomic conditions.
And Covid benchmark undertakes no obligation to update any forward looking statements for today's call, Jeff will be covering a summary of our fourth quarter and fiscal year results Group will then discuss our detailed financial results and our first quarter and fiscal year 2023 guidance, Jeff will return.
<unk> to provide more insight on sector demand trends business wins and closing commentary.
If you will please turn to slide three.
I will turn the call over to our CEO , Jeff Bank.
Thank you Paul good afternoon, and thanks to everyone for joining our call today hopefully been now you have seen our press release and results for the fourth quarter 2022.
Which again demonstrated our continued execution of our growth strategy.
Referencing slide three revenue in the fourth quarter of $751 million was up 19% year over year.
Our GAAP and non-GAAP gross margin was nine 6%, while our GAAP operating margin was three 6% or four 3% on a non-GAAP basis.
<unk> premiums were approximately $10 million lower than our guidance in the quarter.
As we continue to see these decrease.
Excluding the effects of supply chain premiums, we delivered non-GAAP gross margin of 10, 2% and non-GAAP operating margin of four 6%.
When comparing to most of our peers will exclude stock based compensation from the non-GAAP results. Our non-GAAP margin would be five 2% given the approximately 70 basis points of stock based compensation included in our results.
Finally, we delivered both GAAP and non-GAAP earnings of <unk> 60 per share, which was another record quarter of earnings for the company.
In the fourth quarter, although we saw some greater than expected softening in the semi cap sector late in the quarter, we still managed to grow semi cap well into the double digits year on year.
Coupled with the continued strength in EMS and the diversity of our model, we delivered quarterly earnings at the midpoint of our guidance range.
Turning to the full year on slide four in 2022, we grew revenue, 28% and delivered non-GAAP earnings of $2 nine.
This represented a record earnings performance for the company.
GAAP and non-GAAP gross margins were eight 8%, while GAAP operating margins were three 1%.
On a non-GAAP basis, our operating margins of three 6%, we're up 60 basis points year on year.
Excluding the effects of supply chain premiums revenue grew 20% year over year to approximately $2 6 billion with double digit growth in five of our six sectors.
non-GAAP gross margin expanded to nine 7% and non-GAAP operating margin of 4% was up 80 basis points year over year.
I would like to congratulate the entire benchmark team for their continued execution as we deliver on our strategic objectives.
As many of you are aware, we communicated specific financial targets back in 2020 that indicated what we felt was possible by the end of 2022.
These were established in the middle of the global pandemic and before the full effect of the related supply chain disruptions were known.
Despite these challenges we never lost focus on our execution and ultimately met or exceeded each of these targets across every metric.
However, we recognize this is a journey and while 2020 two's results represented a key way point, we have much room for further improvement.
Now, let me pass it over to <unk> to share a few more details. Thank.
Thank you, Jeff and good afternoon, please turn to slide six for our revenue by market sector.
It'll benchmark revenue was $751 million in Q4, which is 3% lower sequentially and 19% higher year over year medical revenues for the fourth quarter decreased 13% sequentially due to material constraints, but increased 14% year over year due to growth with existing customers and new program ramps semi.
Revenues decreased 5% sequentially, while increasing 9% year over year A&D revenues for the fourth quarter increased 5% sequentially due to increased demand, but decreased 5% year over year as we work to try to offset continued supply chain constraints.
Industrials revenue for the fourth quarter were down 8% sequentially, but up 14% year over year throughout the year, we saw increasing demand from energy related products building infrastructure in light of our solutions.
Advanced computing was down 2% sequentially up 55% year over year due to the ramp of high performance computing programs in the next Gen communication sector revenues were up 24% sequentially and 64% year over year due to continued demand strength from existing programs and new ramps.
For broadband infrastructure.
In the fourth quarter, our top 10 customers represented 53% of sales. Please.
Please turn to slide seven.
Our GAAP earnings per share for the quarter was <unk> 60, which.
Represents 71% growth on a year over year basis.
Our GAAP results included restructuring and other onetime costs totaling 800000 related to the closure of our previously announced site and Moore Park, California, offset by a net gain of $2 $3 million from legal settlements for.
For Q4, our non-GAAP gross margin of nine 6% improved 100 basis points sequentially, primarily due to a better absorption across our sites and a reduction in supply chain premiums excluding supply chain premiums our gross margin was 10, 2%.
Our SG&A was $39 $5 million up sequentially, due primarily to higher variable compensation and health care expenses.
non-GAAP operating margin was four 3%. This compares to operating margin of four 6% excluding supply chain premiums in Q4 2022, our non-GAAP effective tax rate was 19, 1%, which was as forecasted.
For the quarter non-GAAP EPS of <unk> 60 was in line with the midpoint of our Q4 guidance up 25% year over year.
non-GAAP ROIC in the fourth quarter was nine 9%, a 10 basis point increase sequentially and 130 basis point improvement year over year.
Let's turn to slide eight for our revenue comparison by market sector for the full year 2022 versus 2021.
Total benchmark revenue for 2022 was $2 9 billion, an increase of $631 million year over year aided by growth in all sectors, except to A&D.
For the year medical revenues increased 28% year over year from growth with existing customers and new program ramps.
Semi cap revenues increased 31% due to increased demand for wafer fab sub systems across our customer base.
The A&D sector declined by 9% due to market constraints, even us and demand continued to improve throughout the year.
Industrials revenues were up 39% primarily from continued demand improvements from oil and gas control systems and building infrastructure programs advanced computing was up 56% from the planned ramp and execution of high performance computing programs that will continue throughout 2023.
Nextgen Communications revenues were up 36%, primarily from new program ramps and continued strength in broadband infrastructure programs.
Our top 10 customers represented 51% of sales for the full year of 2022.
Had one customer supplied materials that was greater than 10% of revenue for the full year.
Please turn to slide nine our GAAP earnings per share for fiscal year 2022 was $1 91.
Representing 93% growth on a year over year basis, our GAAP results included restructuring and other onetime costs totaling $5 7 million related to the closure of our previously announced site more park, California, and other smaller restructuring activities and a net gain of $3 million from legal settlements or non.
GAAP gross margin of eight 8% decreased 30 basis points due to higher supply chain premiums without supply chain premiums our gross margin was nine 7%.
Our SG&A was $150 2 million up year over year, due primarily to higher variable compensation and continued investment in it infrastructure and medical expenses.
non-GAAP operating margin was three 6%.
Excluding the impact of supply chain premiums, our operating margin was 4%.
Our non-GAAP effective tax rate was 19, 1% for the year non-GAAP EPS of $2 nine.
<unk> was 55% higher year over year, turning to slide 10 to review the effects of supply chain premiums on a trended basis over the last eight quarters, we expected supply chain premiums to decline sequentially in Q4, and they did to $46 million versus $74 million in the prior quarter, excluding supply chain premiums our revenue.
In the fourth quarter was $705 million, a sequential increase of $7 million or 1% growth in a year over year increase of $113 million or 19% growth.
Please turn to slide 11 to review our cash conversion cycle performance, our cash conversion cycle days were <unk> 96 in the fourth quarter compared to 79 days in Q3, the largest contributor to the increase was due to the lower accounts payable days, which was impacted by inventory being procured earlier in the quarter, our accounts payable decreased $98 million.
<unk> were 19% lower total inventory declined sequentially in Q4 by $19 million.
Turning to slide 12 for an update on liquidity and capital resources.
In Q4, we used $53 million of cash in operations of invested $13 million in Capex, our cash balance on December 31 was $207 million.
As of December 31, we had $131 million outstanding on our term loan $195 million outstanding borrowings against our revolver and had $251 million available to borrow under our revolver.
Turning to slide 13 to review our capital allocation activity.
In 2022, we invested $47 million in capital expenditures, we expect our capex spending in Q1 2023 to be between 20 and $25 million in.
In Q4, we paid cash dividends of $5 8 million, culminating in $23 million for the full year 2022.
2018, we have paid cash dividends totaling $113 million.
We did not repurchase any outstanding shares in the quarter. The total share repurchase in 2022 was $9 4 million or approximately 400000 shares equal to a reduction of 1% of shares outstanding since the beginning of the fiscal year.
As of December 31, 2022, we had approximately $155 million remaining in our existing share repurchase authorization, we continue to evaluate share repurchases opportunistically, while considering market conditions in 2023.
While cash flow from operations in Q4, 2022 fell short of our projections based on the progress, we're making in reducing our inventory and management of other working capital elements. We continue to expect to generate free cash flow in the $70 million to $90 million range in 2023.
Please turn to slide 14 for a review of our first quarter 2023 guidance, we expect revenue to range from $640 million to $680 million, which at the midpoint represent represents a 4% year over year growth.
As we are no longer including supply chain premiums in our outlook. Excluding these we are guiding to a midpoint equal to 14% year on year growth on a comparable basis.
We expect that our gross margin will be between nine 5% to nine 7% for Q1 sequentially lower due to reduced semi cap revenue higher payroll taxes and merit increases throughout the enterprise.
Our first quarter gross margins are holding up better than our forecasted revenue levels might indicate due to favorable EMS mix continuing through 2023, we do have a number of new program wins that are expected to ramp which will provide some temporary headwinds to gross margins. As we proceed through the second half of 2023.
We expect sequential improvement in margins.
SG&A expense will range between 38% and $40 million, our non-GAAP operating margin range is forecasted to be three six to three 8% for modeling purposes. Our non-GAAP guidance 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 Q1 of approximately 200000.
600000.
The costs relate to continued activities associated with completing the previously announced site closures.
Our non-GAAP diluted earnings per share is expected to be in the range of 39 to 45 or.
Or a midpoint of 42.
Other expenses net are expected to be $6 million due primarily to interest expense. Our interest expense is growing sequentially and year over year as a function of the additional borrowings to support our growth as well as the higher interest rate environment, we expect to reduce our borrowings and our interest expense throughout 2023, as we generate free cash.
Cash flow we.
We expect that for Q1, our non-GAAP effective tax rate will be between 18% and 20% with a weighted average share count of $35 5 million in the period and.
And with that I'll turn the call back over to you Jeff.
Thanks for.
Please turn to slide 16.
First let me provide some additional color on the updates the root provided our first quarter guidance comprehends semi cap sector softness impacting the first half of 2023.
That being the case, we continue to see strength in several other sectors, including medical industrials and Nextgen communications.
In both 2021 and 2022, the effective supply chain premiums obscure the underlying rate of growth in several of our sectors.
For comparative purposes, we're providing a view of the sector is excluding these excluding these premiums which we have presented in slide 16 for your reference.
In semi cap, we closed out a banner year in 2022 growing revenue 30%.
All seen the news from several companies and industry analysts in the space regarding forecast for lower semi cap wafer fab equipment spending attributable to the weakness in the memory markets and global trade restrictions, including those stemming from the U S Department of Commerce.
Our share gains our exposure to logic versus memory, and our involvement with UV systems, partially insulate us from this downturn.
However, we're not entirely immune.
On a near term basis, we have seen many estimates referencing WC capital budgets coming down 20% to 25% in 2023.
Most believe will be first half 2023 weighted.
We expect this downturn to be brief by historical standards and are confident in the multi year demand drivers, including increasing silicon content. The emergence of many new domestic fabs like here in Arizona for TSMC.
And further government investment via measures such as the chips Act.
We believe that we will continue to outperform sector growth rates, given our program wins that will be starting in 2023, but in Q1, we are forecasting a sequential and year over year decline in this sector.
In medical we grew revenue 13% in 2022.
This could have been much more but supply chain challenges acutely impacted our ability to fully meet demand during the year.
Looking forward the anticipated macro resiliency of the medical sector strength of our customers' installed base.
And improving supply.
Together give us confidence in the growth expected for the quarter and full year.
And industrials 2022 saw revenue increased 24% excluding supply chain premiums on the back of growth from existing customer products and continued momentum in new program wins.
We continue to see our business in industrial shift to support automation and energy efficiency solutions.
We expect 2023 to be another growth year for our industrial sector.
Moving to the A&D sector, we're expecting recovery in 2023.
Although commercial Aero demand improved throughout the year, our defense sub sector was and is more heavily impacted by supply chain challenges and legacy systems, where redesign is not an option.
However, demand is solid and we are confident that defense spending will support continued growth.
With steady improvement in component availability and deployment of next generation systems. Later this year, we expect A&D to be a contributor to our growth.
Turning to next generation communications.
We grew revenue in the sector by 24% in 2022 with the last few quarters growing at a much higher rate.
We are well positioned here to benefit from major broadband infrastructure investments.
Satellite communications proliferation, and government sponsored wireless broadband programs.
We expect 2023 will prove to be a significant year for us in this space with our sector growth expected to well exceed corporate average.
Finally, and advanced computing, we've been helping build some of the largest and most sophisticated high performance computing systems in the world.
We have a large project currently underway on a new supercomputer platform that will contribute to the next two quarters performance in this sector.
Is that project complete we're expecting sector growth to moderate resulting in relatively flat revenue for the year.
Turning to slide 17, let.
Let me finish our sector discussion by highlighting some key wins, we secured in the December quarter.
Once again, we saw good balance across the portfolio, reflecting the diversity of complex projects that we take on to help customers navigate through the product lifecycle and accelerate their time to market.
This helped us.
And the year with over $930 million in new bookings, which is a leading indicator of future growth.
In medical we continue to be awarded critical medical device and life Science programs. This quarter, we won new design opportunities for a minimum minimally invasive robotic surgical platform and a novel rapid cancer diagnostic solution as well as the manufacturing win for.
Medics surgery treatment system.
In semi cap, we continue to execute with a number of significant wins are 2022 performance was a record year for us in next generation tool bookings in.
In Q4, we want to manufacturing award for a new wafer handling project and in Engineering services, we had key wins in process control Agee and in cutting edge lithography platform.
And the A&D sector, we won an RF manufacturing program, which will be used in a compact flight computer for a space application.
We also won the design and manufacturing of an advanced communications module that goes into fighter jet.
Finally, we want to secure communications module for military ground vehicles.
In industrial we continue to rack up wins in the energy space that will also positively impact the environment.
This quarter those include manufacturing wins for our wind energy management system and energy efficient heat pumps.
Within engineering, we are designing test development systems for climate controllers.
And advanced computing and next generation Communications. This quarter, we had two key wins in EMS and one in engineering.
Within the Ams, we won the program for a secure biometric reader at existing customer. We also won the business to provide a high performance optical transceiver, which represents a new logo for us.
Finally in advanced computing, we're helping in existing customer engineer, a large functional tester for a high performance computing platform.
In summary, please turn to slide 18.
2022 was another significant year for us as we overcame many challenges delivering record revenue and earnings. We did this with the aid of double digit growth in five of our six sectors.
We expect that momentum will continue in 2023 across most of our sectors and we are guiding to grow at least four of the six.
We recognized some customers are frustrated with the current environment as supply chain issues persists costs have escalated and like our peers, we're not able to meet all of our demand.
In fact, we continue to have approximately $200 million and unfulfilled demand exiting 2022.
We saw gradual improvement last year, but look forward to meaningfully close the gap in 2023 working closely with our OEM customers on solving these critical issues.
Finally, I'd like to highlight the team's effort in ESG.
I'm very proud to say and its report published in November of 2022.
<unk> elevated us to double a rating.
That puts us in the top 10% of Msci's peer group for benchmark. This is obviously a team effort and one for which every benchmark team members should be proud.
In conclusion, I want to say that I am as confident today in the future for benchmark as it was back in 2020.
We've invested for sustainable growth, while further demonstrating our resiliency to overcome unforeseen challenges.
I just want to reiterate despite our near term semi cap headwinds. We believe the long term targets that were introduced at our analyst day in November are still achievable by 2025.
With the anticipated return to semi cap growth beyond 'twenty three.
Coupled with the growing frequency of manufacturing outsourcing discussions in key growth sectors.
And the larger trend towards near sourcing the leading companies of today and tomorrow need partners like us more than ever to help develop and ultimately build their increasingly complex and innovative products.
We look forward to updating you on our progress in the quarters to come.
With that I'll now turn the call over to the operator to conduct our Q&A session.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We're using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
And at this time, we will pause momentarily to assemble our roster.
And the first question will be from Jason Schmidt from Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions just wanted to start with the commentary on the semi cap market. Just curious if you could provide more color on sort of what you're seeing you mentioned that it started to soften at the end of Q4 I mean is this.
Primarily just order softening or have you started to see more cancellations of decommit from customers within that segment.
It was really pushing of orders.
To the to the out quarters.
We did see demand drop and thats kind of been reflected in what we're looking at for 2023, Jason.
As we said it did start we had anticipated some slowdown in fourth quarter and that was kind of considered in our guidance, but I would say it was more pronounced as we got to the back end of the quarter than we had anticipated.
And thankfully with the diversity of the portfolio, we were able to still.
Bring in the earnings and the midpoint of our guidance, but as we look into 'twenty three particularly the first half.
That softness in semi continues we also even since our analyst day.
Further the restrictions on China, and I would say the memory the memory environment didn't get better and so incrementally I think we saw any.
Increased pressure on that the.
The industry a lot of people pick in wafer fab equipment to be down, 2025%, obviously, where we feed into that with some of our large Oems.
That being said, we do think that we will do better than the industry. We have gained a lot of share in the last few years and we do have a number of new wins that will help us there.
And we also.
Wasn't every customer in this segment. So there are some customers still that have backlog that hasnt changed that also contribute to kind of supporting that business, but that being said.
You see us reflecting that that there is headwinds and Seneca.
Okay. No that's helpful and just curious what gives you the confidence that this is really just the first half. The issue is just just assuming I mean supply chain constraints ease a little bit and just given how tough. This first half is the second half should be better or do you.
Have better visibility into some of the orders that you will start to ship in the second half can you just give us some comfort in apps.
<unk> should be better.
Yes, I can give a little color there I mean, we do have particularly in this environment.
We have we do have visibility into the back half of 'twenty, three and we certainly see.
The opportunity for sequential improvement.
On the demand Thats reflected on us of course that can change, but right now we've talked to all of our key customers here.
Everyone's pointing to a very strong 2024.
They want to prepare for that so there is even some thought about what does the what is fourth quarter or the back half of 'twenty three does that incrementally improve from here, but but we're seeing a more pronounced impact in the first half.
Okay, and then just the last one for me and I'll jump back into queue I just wanted to make sure I heard right. So I mean.
Sounds like gross margin will take a step back as these new programs ramp that you expect an improvement in Q3 and Q4 sequentially.
Yes, that's right Jason So obviously from a sequential standpoint from Q4 to Q1, we'll see a slight drop, but but still staying strong, but with the new ramps or incremental ramps.
Through the middle of the year, we'll see a little bit of a headwind there and then it's sequentially picks back up.
In the Q3 Q4 timeframe as you had indicated.
Okay.
Perfect. Thanks, a lot guys.
Thanks, Jason.
And the next question is from Steven Fox from Fox Advisors. Please go ahead.
Hi, Good afternoon, I have a few questions first of all just following up on the semi cap question about the second half of this year.
Jeff would you attributed mainly to sort of.
New Fabs coming online no transitions any other color you can provide in terms of what your customers are constantly about 24.
And along those lines there was some incremental.
China restrictions from other governments seem to be on line to be enacted are you considering those in your revised thinking for semi cap and then I had a follow up.
Yes.
I think when you look at 2024, certainly incremental fabs.
Coming online is meaningful.
Right here, we're looking across the way here in Phoenix, where we're headquartered in Intel.
Intel is building a new fab, we got TSMC Thats really just signed up to their second what I would call not just the typical book, but substantial.
Most multi node fab here as well and there's been line indications that other.
Handheld device customers are going to use the most.
By more silicon from.
From the Phoenix area and the fab that's coming on.
All of that you can imagine it's not out of the ground yet the buildings aren't completely completed and obviously once they come online you've got to buy the fab equipment to be able to produce silicon and stuff. So we certainly see that I think is a pretty good pickup also just watching the commentary on memory and.
Right now there is there is there has been a lot of pressure on that but I think people believe that the.
Inventory gets burned off in the first half and there is some incremental positive commentary from that but a lot of what we are we have pretty senior relationships that our customers and we're talking to them on what they're seeing in their much closer to it because.
We don't sell directly to an Intel TSMC, but we obviously, we sell to the wafer fab equipment suppliers in and they're they're just universally bullish on 2024.
It doesn't mean that they can't change that view, but we're just trying to give you divest the best insight we have at this point.
I do think that the advanced nodes.
<unk>.
Growth there to be able to achieve some of the.
The five nanometer in more.
Three nanometer technology is more significantly dependent on that so we are seeing.
Really solid strength and <unk> platforms.
And.
A lot of demand there. So that also is great that we've got that.
Our strong position there and that also supports a little bit our outlook.
So that's kind of where how we see things.
Just one other point you covered everything except for just like the Netherlands.
Oh, yes, China restrictions.
That's that's that's interesting is I cant say that thats fully reflected necessarily because some of that only came out in the last week or two.
Interesting.
I would tell you that.
There was there was a big impact we saw in fourth quarter from China, and those restrictions, but then people got licenses to ship for another year and that kind of muted the impact a little bit. So it's pretty dynamic so it's a little bit hard to it first there is like Oh. This is another big impact, but then.
<unk>.
I saw the other one moderate a bit so we're kind of waiting to see kind of how that plays out.
And where people's wins are with those fab.
Customers. There's also been a commitment on if you've seen but for incremental fabs to be built in Japan, and Europe outside of China, and so while we're seeing a lot go on domestically with the chips Act.
There is the increased fabs.
Support and commitment by the governments outside of China.
That's really helpful.
And then as a follow up the new bookings numbers pretty impressive $930 million can you just sort of aggregate from just a high level standpoint tell us whats going on with your new win rates.
<unk> been most successful.
What may be the key drivers behind the latest bookings number that you just gave US. Thanks, Yes, I mean, we've been on we've been a pretty good trajectory.
I think about three or four years ago, we might have done $600 million in bookings.
And then we got to 800 or 900 had another strong year. This year it does.
Very a lot and and so we've gotten away from this quarterly reporting on it but we did want to give some indication that hey, we're still winning at a pretty good rate.
Because of the competitive so we don't actually share what the win rate is but I feel like we are winning our fair share of what we're going after we've been a little more selective I would say as we've increased capacity, which really trying to make sure that we're taking business that fits our margin profile. That's got the complexity and the value add that makes sense for us.
We did there was the nugget in there that we talked about we had a really strong year in semi cap next generation tool wins, they are not going to contribute to 'twenty three.
Unfortunately, because it takes time for that to come online, but we were pretty encouraged with that particularly since we're investing in some incremental capacity and some new buildings related to semi cap. So that was a very strong quarter for us really good participation in industrial and medical as well.
But it's pretty balanced across its not like one is a fraction of the other but.
But we do think it's important that we continue that win rate, obviously, if we want to grow at the.
Double digits that we've that we've put out in the long term model.
Great. That's all very helpful. Thank you.
Yes, no question.
Problem.
And the next question is from Jim Ricchiuti with Needham <unk> Company. Please go ahead.
Hi, Good evening this is actually Chris <unk> on for Jim.
Yes.
With respect to semi and the.
The comment that you.
Do you expect to perhaps outperform the industry.
Could you talk about some of the factors.
That could lead to that outperformance and higher than market growth.
Yes, I mean, I think we touched a little bit, but I can certainly reinforced.
We.
We have over the last few years has been gaining share and there were places where I think some of our Oems had single source some tools and.
With our vertical integration capability, where we can machine.
We can start with the machine piece of aluminum or welding a frame and then being able to build all the sub assembly work into it and vertically integrated has allowed us to participate in and some solutions, where they have been produced for a while but we hadn't been a part of that we've also won some next generation tools and while those aren't going to ramp.
Significantly affect if anything we've seen a little bit of movement and next gen tools, we are still.
We're doing some pilots and some NPI.
New product introduction work that that will give us some incremental business and then the.
The fact that we are.
A few years ago, we were pretty dominant with one large player in semi cap and now we really have diversified across the space quite a bit and so just participation in UV.
Where it.
It seems like in this environment.
A bit more resiliency, there and those kind of solutions.
Is enabling us to.
Really mitigate a bit of the impact, but as we said, we're not immune to it but we do we do think that we will grow well depending on how much they're down that will be down.
Yes, Chris and one additional point, maybe just to reinforce a lot of the news that has come out as memory focused or more heavily influenced by the memory situation we have.
Greater weighting towards logic and memory, so that obviously helps us keep some of that demand up strong as well.
Yes, good point, great. Thank you very much and you had mentioned that with respect to A&D that weapon system replenishment could be a tailwind.
What have you seen there to date are there.
Are you having conversations around that or is that something that you're just getting ahead of it.
Yes, I mean, I think it's obviously.
We do we do support subsystems for defense contractors that are supporting the war effort going on over in Europe .
And.
We've certainly seen some orders dropped in within lead time, because there is incremental demand the bigger challenge I think for us and particularly in A&D is that a lot of the systems. They have a long life cycle and there is a really careful about alternatives.
And.
And even.
Second source parts in that so it's not given us quite the flexibility to even look at brokers or other places to get components and so we struggled a bit with that but nonetheless, some of that business is perishable as as you can imagine.
Those munitions are used and then youll see replenishment of orders there. So that's kind of what we were indicating.
Sure.
Great very helpful. Thank you.
Thanks, Chris.
And once again, if you have a question. Please press Star then one.
Next question will be from Anja Soderstrom from Sidoti. Please go ahead.
Thank you for taking my questions.
Can you just elaborate a little bit about what youre seeing in the component.
Kevin Jason that yes, yes.
Expect that to improve throughout the year, but.
And at what pace.
But there have been have him address.
Find it challenging.
Yes.
What I would have said as Honeywell like a year ago. It was so broad based across it.
So many classes of <unk>.
What.
We're seeing more now is that there are specific analog devices and specific custom semiconductors and stuff that actually believe it or not more legacy node it.
It might be like 16 nanometer product 90 nanometer, where the particular semiconductor manufacturer maybe has increase in capacity, but on the new nodes. So there's a reluctance to to build to build more capacity in old nodes, but broadly we are seeing lead times come down and have seen.
That shrink quite a bit.
We still have pockets that are very difficult that in fact in data build so we would also say look it's not a it's not wide open but what I'm finding is incrementally we're solving more problems than we were a year ago, which which probably provides a bit of opportunity, where we might be able to get something.
Clear or be able to deliver something on a shorter lead time than in the past.
So it's incrementally better, but we're still going to be dealing with this through 2023, we didn't mean to indicate that hey, it's all bets are off the other thing is our.
Our willingness to.
Buffer inventory right, we're being more vigilant on bringing inventory down and so.
So now as you see upsides right you may not.
You sound like Youre setting out a ton of excess inventory to go do other things with so we have to align these things up but.
But that's kind of what we're seeing I don't know if you want to add anything to it.
Sure.
Thank you.
In terms of that labor.
The challenges.
Has that been.
Developing.
It's interesting.
Yes.
If there is when I when I look around at some of the people that are doing les.
<unk> resource actions it feels like the market place is going to soften up particularly in consumer related business saw maybe even some in.
More.
Compute in the on the laptop side and things like that so I'm anticipating that we're going to see more available resource as you can imagine and our own semi cap business, we're going to we're going to moderate what resource we bring on there at one point, we were going after a lot of incremental resource in <unk>.
What the demand shift where we're also going to be balancing what we do but.
I anticipate the labor market will continue to improve as people get through <unk>.
The cuts that they want to make we still have needs and we are growing in four to six sectors and some of our facilities are on a pretty significant ramp with new product and we will need incremental because not all of that in the U S of course.
So I think that we will we will still be pushing that.
And inflation puts pressure on that rate as wages go up in that but I think we're going to be seeing an improved.
Resource environment.
As we as we go through the year.
I will just add to Jeff's comment I think he mentioned it but I think it's important where we are seeing additional load in growth is in some of our international sites and so labor will continue to be challenging and bringing on the level of resources and the skill set.
In Mexico in Malaysia, and some of these locations as well beyond some of what might become available here in the U S.
Okay. Thank you.
In terms of that.
Program with most of them from existing customers, adding new logos and can you also talk about the competitive landscape.
It's pretty it's pretty balanced so we have a number of new logos I think we referenced one or two on the call.
We're winning some incremental business as well.
I think in this environment.
We don't see a ton of customers looking to necessarily.
Which EMS providers.
Because of the of the supply constraints.
<unk> had a particular partner pursuing that.
Is it the right time to make a change there are a lot of what we're seeing is customers that.
Were in sourced and have said hey in this environment in this economy.
The best to do this so.
As in the past, we have found ourselves competing more with internal manufacturing or our plans for that.
And so we have seen.
Follow on wins with folks that are already with us, but then also.
New decisions to.
Build a product.
Out of the chute with US we also have seen pre.
Good attach rate.
I noticed the stat I saw from the team just a few weeks ago that we had.
Over 75% of our new wins had an engineering component to it which is pretty encouraging because we help develop the product that were who better to build than if we do some of the engineering there thats been a belief of ours of long standing belief that that makes sense for us.
I also I would say in the in the competitive environment, it's been pretty rational we haven't seen.
As we've seen the whole space look at profitability and margins I haven't seen any competitors do something irrational that has made it inherently more difficult to compete in an <unk> kind of environment.
So I think from that standpoint, that's encouraging.
Okay. Thank you that's all for me.
Thanks Sonya.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Paul Lansky for any closing remarks.
Thank you Chad and thank you everybody for participating in Benchmark's fourth quarter 2022 earnings call before we go I'd like to remind listeners that we'll be presenting next at the Sidoti Virtual conference being held March 20.
Through the 23rd with that thank you again for your support and we look forward to speaking with you soon.
Good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.