Q3 2023 Benchmark Electronics Inc Earnings Call

Good day and welcome to the benchmark Electronics third quarter 2023 earnings Conference call.

All participants will be in a listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by the Euro.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I would now like to turn the conference over to Paul Minsky with benchmark Electronics. Please go ahead.

Thank you Betsy and thanks, everyone for joining us today for Benchmark's third quarter fiscal year 2023 earnings call. Joining me. This afternoon are Jeff Bank, CEO, and President and route blocker Rajah CFO. After the market close today, we issued an earnings release pertaining to our financial performance for the third quarter of 2023 and have prepared a presentation.

<unk> that were referenced on this call both of them are available online under the Investor Relations section of our website.

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 to the presentation.

Let's take a moment to review the forward looking statements disclosure on slide two in the presentation. During our call. We will discuss forward looking information as a reminder, any of today's remarks, which are not statements of historical fact are forward looking statements, which involve risks and uncertainties as described in our press releases and SEC filings.

Results may differ materially from these statements benchmark undertakes no obligation to update any forward looking statements for today's call. Jeff will begin by providing a summary of our third quarter results. Roop will then discuss our detailed financial results and our fourth quarter guidance. Jeff will then return to provide more insight into demand trends by sector.

Business wins, and then closing remarks, if you'll please turn to slide three I'll turn the call over to our CEO, Jeff Lang.

Thank you Paul.

Good afternoon, and thanks to everyone for joining our call today.

The third quarter was another period of solid execution for the company. Despite the dynamic market environment, we met or exceeded expectations in the quarter.

This is a direct reflection of our purposeful focus on complex and often in highly regulated markets and team wide emphasis on operational execution.

Let me highlight a few few key accomplishments in the quarter.

Total revenue was 720 million, although down year over year recall that in Q3, 2022 we had 74 million in zero margin supply chain premiums.

Q3, 2023 supply chain premiums were less than 16 million down 58 million versus a year ago.

Excluding as C. P. We grew revenue by high single digits or more in four of our six sectors. The exceptions being semi cap and advanced computing, which were down as expected.

Weather, including or excluding as C. P. We expanded gross margin both sequentially and year over year, primarily through operational improvements we put in place over the last few quarters.

This enabled us to grow non-GAAP operating income an impressive 22% year over year I want to congratulate the entire team for delivering such a strong set of results, which was key to allowing us to report 57 cents and both GAAP and non-GAAP earnings. This was above the high end of our GAAP guidance range.

And 10% above the non-GAAP consensus.

Finally over the last few quarters, we've highlighted steps we've taken to return to positive free cash flow.

I'm pleased to report that we delivered this for the second quarter in a row aided largely by reductions in inventory.

We have generated over $34 million in free cash flow over the last two quarters, considering that and our continuing focus we feel confident we're on a trajectory to achieve greater than $70 million in annualized free cash flow, which is in line with the targets we provided.

Now, let me pass it over to Ruth to share more detail on the September quarter, and our guidance for Q4.

Thank you, Jeff and good afternoon, please turn to slide five for our revenue by market sector total benchmark revenue was $720 million, excluding the effect of STP revenue was up 1% year over year in the period reconciliation of this in our sector level performance can be found in the appendix section of the presentation materials turning to slide.

Six medical revenue for the third quarter was up 8% versus the prior year growth was fueled by strength in existing programs, coupled with improved supply availability, allowing us to more fully meet demand.

Semi cap revenues decreased 10% year over year in line with our expectations. This compares favorably to industry estimates, which have the wafer fab equipment market declining 20% or more in 2023.

<unk> revenue was up 20% year over year due to continued strength in commercial aerospace defense programs that continue ramping and improved supply availability, enabling us to address more of our previously unmet demand.

Industrials revenues for the third quarter increased 9% year over year, driven by strength with existing customers and new customer programs ramping and energy efficiency.

Advanced computing decreased 30% year over year due to the completion of multiple high performance computing programs in the first half as expected.

And the next generation communications sector revenue was up 20% year over year.

Year over year performance was driven by growth in broadband infrastructure programs.

Please turn to slide seven.

GAAP earnings per share for the quarter was 57 cents.

Q3, non-GAAP gross margin was nine 6%, a 50 basis point sequential increase and 100 basis point improvement year over year due to our mix of revenue and improved operational utilization.

Excluding SPP in Q3, our gross margin was nine 8%, which was in line with guidance.

Our SG&A was 35 and a half million down sequentially due to the cost actions taken in the first half of the year, coupled with lower variable compensation.

non-GAAP operating margin was four 7% up 70 basis points sequentially and 110 basis points year over year as a result of improved gross margin. Excluding F. C. P. Operating margin was four 8%.

In Q3, 2023, our non-GAAP effective tax rate was 19, 4% consistent with our expectations for Q3, non-GAAP EPS of <unk> 57 cents was two cents higher than the midpoint of our guidance.

non-GAAP ROIC in the third quarter was nine 4%.

Please turn to slide eight to discuss the effects of S. C. P on a trended basis.

Yeah.

In Q3 F C P declined to $16 million versus $17 million in Q2, 2023, and $74 million in Q3, 2022 and continues to decline consistent with expectations.

Excluding this our revenue in the third quarter was 704 million a sequential decrease of 12 million or 2% in a year over year increase of 6 million or 1%.

Please turn to slide nine to review cash our cash conversion cycle performance.

Our cash conversion cycle days were 105 in the third quarter compared to 103 days in Q2, our inventory decreased sequentially by 31 million. However, the linearity of customer shipments and inventory receipts adversely affected our accounts receivable accounts payable days.

Please turn to slide 10 for an update on liquidity and capital allocation.

In Q3, we generated $38 million of cash from operations and $18 million of free cash flow. Our capex spend is supporting continued growth in our Mexico facilities and enhanced capabilities surfaces and technologies business unit, we expect our capex spending in Q4 of 2023 to be between 10 and $15 million.

What equates to a full year of 2020 through Capex in the range of $70 million to $75 million.

Our cash balance on September 30th was 261 million a sequential increase of $16 million.

As of September 30th we had 129 million outstanding on our term loan 305 million outstanding borrowing against our revolver and 241 million available to borrow under our revolver.

In Q3, we paid a recurring quarterly cash dividend of $5 9 million.

Please turn to slide 11 for a review of our fourth quarter 2023 guidance.

We expect revenue excluding F C. P to range from 675 million to $725 million SG&A expense will range between 35 and $38 million. Excluding F. C. P. Our non-GAAP operating margin range is forecasted to be four 8% to 5%. As a reminder, this includes approximately 55 basis points of stock.

Based compensation, our non-GAAP guidance excludes the impact of $1 2 million in amortization of intangible assets and 800000 to a $1 2 million of estimated restructuring and other costs. Our non-GAAP diluted earnings per share is expected to be in the range of 54 to 60 cents.

Other expenses net are expected to be approximately $9 million.

Due to primarily interest expense, we expect that for Q4, our non-GAAP effective tax rate will be between 19, and 21% with a weighted average share count of $35 9 billion.

I'll turn the call back over to Jeff.

Thanks, Ruth please turn to slide 13.

Again, all commentary related to demand trends by sector or excluding supply chain premiums.

In medical this past quarter, we did a good job meeting demand as the supply chain continues to improve.

Offsetting this however is demand softening from some customers as they rebalance going into year end, considering all of this we're expecting medical sector revenue to likely decline sequentially in Q4, while still growing nicely on a full year basis.

We continue to build on our future success and medical during this past quarter, securing new wins. So we expect to ramp in 'twenty 'twenty four into 2025.

For example, we expanded an existing relationship with a key customer in the heart valve market with several new manufacturing wins at both the sub assembly and system level.

Elsewhere, we had another existing customer awarded us the opportunity to provide sub assemblies that will be integrated into their anesthesia and respiratory devices.

Within semi cap, we believe our semi cap sector likely bottomed earlier in the year. However, based on public commentary from many of our customers. We expect semi cap revenue to remain roughly consistent with current levels through at least the first half of 2024.

Our expectation is to continue to outperform the broader wf he market growth rates driven by our unique customer exposure and new program wins.

For example in Q3, we were awarded an opportunity to manufacture assemblies and fully integrated modules for in epitaxy tool used in the transistor device fabrication process.

We also won both the engineering and manufacturing business at another customer.

That is in support of our high end lithography platform.

While the current downtown in the market downturn in the market appears poised to last longer than recent cycles. The long term growth drivers are undeniable is the market ultimately recovers, we fully expect to participate in more than our share of semi capital equipment growth given our significant investment during this down cycle.

Within A&D commercial aerospace has been improving for us for the last few quarters.

We are now more optimistic about future growth within defense, which is both a reflection of both strong demand and improving supply chain.

At the same time, we continue to secure new wins in the past quarter.

This includes engineering services for test development in the commercial aerospace market yet.

Yet another engineering services win was with a defense program, where we're helping on the development of an RF module.

Meanwhile, in manufacturing, we won a nice piece of business, where we'll be providing our sensor module into a commercial aerospace application.

Again, we're pleased with the momentum we're seeing in A&D in fact, we expect year over year growth to accelerate in Q4 with a strong second half expected. We anticipate A&D sector revenue has the opportunity to grow double digits on a full year basis.

Turning to complex industrials, we continue to extend our footprint in key growth markets, including automation test and measurement and energy efficiency solutions.

Operator: Good day, and welcome to the Benchmark Electronics' third quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Examples of this include both manufacturing and engineering wins for several next generation energy efficiency solutions for residential HVAC applications.

Another manufacturing win I'd like to highlight is in the transportation space, where we'll be providing next generation radios used for locomotive control and communications.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two.

Our industrial sector domestically continues to show resilience.

Operator: Please note, this event is being recorded.

Paul Mansky: I would now like to turn the conference over to Paul Mansky with Benchmark Electronics. Please go ahead.

However, this demand is being offset some by softening in international markets.

As such we're expecting industrial revenue to be down sequentially in Q4, while still growing solidly in the double digits.

Paul Mansky: Thank you, Betsy, and thanks everyone for joining us today for Benchmark's third quarter fiscal year 2023 Earnings Call. Joining me this afternoon are Jeff Banks, CEO and President, and Roop Lakkaraju, CFO. After the market closed today, we issued an earnings release pertaining to our financial performance with a third quarter of 2023. And it prepared a presentation that we were reference on this call. Both are available online under the Investor Relations section of our website at bench.com.

It's year over year, both for the quarter and full year.

And advanced computing revenues were consistent with our guidance provided last quarter recall, we completed.

Significant high performance computing project in the first half that's being deployed by our customer at a federal agency.

As previously shared after a pause in Q3, we're delivering upon our new HBC program that will contribute to our growth in the fourth quarter.

Paul Mansky: This call is being looked at live, and a replay will be available online following the call. The company is provided a reconciliation of our GAT to non-GAT measures in the earnings release, as well as in the appendix to the presentation. Please take a moment to review the forward-looking statements disclosure on slide two in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today's remarks, which are not statements of historical fact, are forward-looking statements, which involve risk and uncertainties as described in our press releases and SEC filings. Actual results may differ materially from these statements. Benchmark undertakes no obligation to update any forward-looking statements.

Finally, the next generation communications last quarter, we highlighted some risk of infrastructure deployment delays amid macro sensitivity. We saw this begin to materialize in Q3, which we expect to continue in Q4 ads.

As such sector revenue is expected to be down sequentially and year over year in Q4, albeit still up on a full year basis, given the strong first half performance.

Looking forward, we are seeing a few more customers across a number of sectors begin to moderate their forecasts, while others, specifically in A&D are seeing incremental strength.

Jeff Banks: For today's call, Jeff will begin by providing a summary of our third quarter results.

Roop Lakkaraju: Rupert will then discuss our detailed financial results and our fourth quarter guidance.

On balance we expect this to translate to total revenue remaining flat at current levels through the first half of 2024.

While it's too early to provide color on full year growth rates were going to maintain our focus on operational execution and productivity improvements as we progressed through the profitability targets reflected in our long term model.

Jeff Banks: Jeff will then return to provide more insight into demand trends by sector, business, wins, and enclosing remarks.

Jeff Banks: If you please turn to slide three, I'll turn the call over to our CEO Jeff.

Jeff Banks: Thank you, Paul. Good afternoon, and thanks everyone for joining our call today. The third quarter was another period of solid execution for the company. Despite the dynamic market environment, we met or exceeded expectations in the quarter. This is a direct reflection of our purposeful focus on complex and often highly regulated markets and team-wide emphasis on operational execution.

In summary, please turn to slide 14.

I'm pleased that once again, we were able to exceed the midpoint of guidance and deliver a 10% upside to non-GAAP, earning estimates we again delivered solid growth in four of our six sectors. At the same time, we grew non-GAAP operating margin by better than a point year over year.

Jeff Banks: Let me highlight a few key accomplishments in the quarter. Total revenue was 720 million. Although, down year over year, recall that in Q3 2022, we had 74 million in zero margin supply chain premiums. In Q3 2023, supply chain premiums were less than 16 million, down 58 million versus a year ago. Excluding SVP, we grew revenue by high single digits or more in four of our six factors. The exceptions being semi-cap and advanced computing, which were down as expected.

Excluding F C. P. non-GAAP operating margin was up 80 basis points to four 8%, which includes approximately 55 basis points and stock based compensation.

non-GAAP operating income growth in the third quarter was 22%, which was our 10th consecutive quarter of double digit growth year over year.

Turning to working capital and free cash flow aided by our continued focus on reducing inventory we delivered the second consecutive quarter of positive free cash flow and expect this trend to continue.

Jeff Banks: Whether including or excluding SVP, we expanded growth margin both sequentially and year over year. Primarily through operational improvements, we put in place over the last few quarter. This enabled us to grow non-gap operating income at an impressive 22% year over year. I want to congratulate the entire team for delivering such a strong set of results, which was key to allowing us to report 57 cents in both gap and non-gap earnings. This was above the high end of our gap guidance range and 10% above the non-gap consensus.

Finally, it's clear, we're adding a more uncertain economic environment.

Based on this we're being judicious about where we're making investments and managing our expenses closely.

I remain confident that our diversified portfolio will help us to weather this and come out stronger as the market turns.

We will maintain a sharp focus on investment in future growth, while protecting our ability to continue to deliver positive operating leverage and cash flow.

With that I'll now turn the call over to the operator to conduct our Q&A session.

Jeff Banks: Finally, over the last few quarters, we've highlighted steps we've taken to return to positive free cash flow. I'm pleased to report that we delivered this for the second quarter in a row, aided largely by reductions in inventory. We have generated over 34 million in free cash flow over the last two quarters. Considering that and our continuing focus, we feel confident we're on a trajectory to achieve greater than 70 million in analyzed free cash flow, which is in line with the targets we've provided.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Roop Lakkaraju: Now, let me pass it over to Ruth to share more detail on the September quarter and our guidance for Q4.

The first question today comes from Maxim <unk> from Lake Street Capital markets. Please go ahead.

Roop Lakkaraju: Thank you, Jeff, and good afternoon. Please turn to slide five for our revenue by market sector. Total Benchmark revenue was 720 million, excluding the effect of SCP. Revenue was up 1% year over year in the period. Reconciliation of this and our sector level performance can be found in the appendix section of the presentation materials.

Hey, guys I want to make sure I didn't hear you correctly.

You note that revenue was flat.

Flat first half of 2024, and I know you didn't give guidance.

Yes, that's right. He backs this route but that's right we kind of indicated that based on kind of macro in different sector kind of trends right. Now we expect it to be generally flat through the first half.

Roop Lakkaraju: Turning to slide six, medical revenue for the third quarter was up 8% versus the prior year.

Roop Lakkaraju: Growth was fueled by strength and existing programs, coupled with improved supply availability, allowing us the more fully-need demand.

And is that based off of the Q4 numbers for Q3.

Roop Lakkaraju: Semicap revenue decreased 10% year over year in line with our expectations.

Well I think it's Q4 effectively.

Okay.

Okay. Thank you and then so my second question is can be.

Looking at medical was that expected to be down.

Roop Lakkaraju: This compares favorably to industry estimates which have the way for fabric equipment market declining 20% or more in 2023.

I was wondering if you're seeing any slowdowns and push outs.

Maybe that's playing a part in that.

The sequential decline.

You know, there's a couple of dynamics going on in medical we we've.

We've seen you know obviously through the pandemic there was quite a bit of a slowdown in that area and then after that we saw a lot of catch up in places where you know.

We played for example into defibrillator market as well, which really isn't elective surgery related but you know stadiums airports places people aren't going.

Roop Lakkaraju: And revenue was up 20% year over year due to continued strength and commercial aerospace defense programs that continue ramping and improves supply availability, enabling us to address more of our previously unmet demand.

Really wasn't seen the demand right for those kinds of devices well. That's an example, where there was quite a catch up and we saw really substantial growth over the last two years, whereas we got you know more normalized so I think what we see is just sort of modulation here, where it's still you know demand is still solid, but we do see <unk>.

Roop Lakkaraju: Industrial revenue for the third quarter increased 9% year over year, driven by strength with existing customers and new customer programs ramping in energy efficiency.

<unk>, where folks are being a little more careful given the macroeconomic and they're saying, okay. We're going to watch this closely and maybe rebalance a little bit, but I won't say, we see all elective surgery devices that might play in there necessarily being uniquely slower.

And then you know previously I think theres a little bit of there was there was an element of catch up and now we're sort of catching our win here.

And you know things things are flattening a bit and then we'll see where we go from here, but we feel we're bullish long term on the sector just given the the growth in outsourcing that that it really is poised to continue.

Okay. Thank you and then just looking at supply chain premiums are down.

Q2, I was just wondering if youre seeing any material changes going into Q4, maybe that's more of a first half 2024 story just doesn't seem like the macro is picking up with supply chain efficiencies ticking up.

We thought it was more or less half of the year.

<unk>.

Yeah, Matt I mean supply chain premiums, we anticipated coming down they have come down.

Sequentially throughout 2023, and obviously on a year over year basis are considerably down. So we do expect that to continue into the future in terms of that supply chain premium value coming down I also wanted to me I would just add to <unk> comments as Jeff.

Really just customers you know the supply chain incrementally better it's better this quarter than it was last quarter, we see less need for customers to necessarily you now have to look at paying a premium to get product that we otherwise would have got so we sort of see that modulate theres still some areas those constraints, it's hard to believe.

Leave that two years later, we do still see supply chain constraints in some small pockets here and there, but it's dramatically better which is really a direct reflection as rich set of why we see the supply chain premiums getting them down so substantially as we think about next year. You know, we think we could see things really get back to normal or.

It's a few million dollars a quarter not not anywhere near where we've been.

Okay, and then just last week.

In Q I quickly here just wondering if you guys are seeing.

Cancellations within your pipeline.

Yeah.

I mean, obviously we.

When we take an order right, we ended up securing material and to go build that product and <unk>.

And contractually customers are obligated for further responsibility of that Theres always some push ins and pull outs just depending on what the needs are so I don't see anything unusually Ottawa orders than what we normally see as you get out two or three quarters. There is more flexibility in where customers can do.

<unk> related to demand balancing but.

This environment, we haven't seen you know some.

Something substantially different.

Terms of that demand profiling.

Yeah, Matt So I would just add I mean, I think as a general comment that's right and obviously in certain sectors that we're not seeing any kind of demand re profiling right. So we've talked about A&D strength.

Continuing in the fourth quarter and we expect into 2024. So it really is kind of a sector by sector a little consideration.

Alright, thanks, guys.

Thanks, Brett.

The next question comes from Steven Fox with Fox Advisors. Please go ahead.

Hi, Good afternoon couple of questions from me first of all just following up on that last the last couple of questions. There with regard to the flat revenues for the first half of the year how much when you talk about the weakness how much is just.

Mature programs, just producing less units for our customer as opposed to like maybe slower ramps for kind of a wait and see what the macro is.

Roop Lakkaraju: Advanced computing decreased 30% year over year due to the completion of multiple high-performance computing programs in the first half as expected. In the next generation communications sector, revenue was up 20% year over year. Our year over year performance was driven by growth and broadband infrastructure programs. Please turn to slide 7.

Any color on that and then I had a couple of follow ups.

I think what what I would say on that is that the legacy program. So typically.

We arent typically on programs that are very short lived maybe a little bit different in advanced computing, where we might have in HBC build that comes to conclusion.

I think what what I would say there is we have had some elongation in some of the new product ramps, where it's taken a bit longer and maybe customers are being a little more careful about development engineering spend so we see some you know some prolonged gated development cycles.

I won't say, it's substantially pronounced in one area and maybe.

Really across those sites, where they're multiyear kind of projects anyways.

I think if anything I think you know you have customers that might have had their own unfulfilled demand and you know they are kind of catching up with that and now looking at you know how much how much inventory do you all want to have where do I want to go with my own portfolio and they're just being cautious about that given given the environment.

Okay. That's helpful and then I'm, sorry, if I interrupted.

Okay, Alright, and then along those lines I think you mentioned that even with flattish standards I forget the exact words, but you talked about further margin.

Progression.

Are you trying to say that like your margins go up in the first half from where you exit or you. Just what are you talking more broadly what what in general do you think about sort of how the environment is impacting margins.

Yeah, I mean, I think what we're saying is more generally we continue to focus on operating.

Operating margin expansion and that will continue as we get into 2024, it's a little bit early to give you a lot of specifics at this point in time as we work through things but.

With the operational efficiencies and utilization focus productivity, we do anticipate it operating margin continue to strengthen.

Into future periods.

Our own model we projected.

Higher margins, obviously, it goes out through 'twenty five Steve as you know, but we just we see opportunities that we can continue to go where we can continue to improve things even in a flatter environment. So I think it's more just a reflection of that that we've been on a nice trend of growing operating income faster than revenue.

We look forward, we know we want to continue that and think that while we've closed the gap substantially to where we.

We needed to be we still have room that we can be better.

Great that's helpful and if I could just squeeze one more in on the semi cap bottoming.

Sure.

I was just curious if that is the fact, you had a bunch of expansion plans in place to address all the all the wins you have has has that been impacted as sort of the bottoming delays are you delaying your own equipment orders or anything like that thank you.

You know that's a.

That's a good one I didn't touch on it earlier, but that was an area, where we were maybe seeing some more push outs a few quarters ago I would say, it's stabilized a lot over the last two quarters.

We sort of think about our own bottoming of the business or what we saw you see from our results.

We still think we're outperforming the market even in a downturn because we're downtown and the market's down 20%. So we feel pretty good about our competitive position. We also saw some programs delayed and pushed to the right not lost still feel good about the new product introduction work and Theres a lot of that going on.

So that gives us a lot of confidence around our capital investments, but we have invested pretty significantly here. We've got two new buildings, one that's online and one that's in process and our low cost region is supporting that industry and we still feel like that makes 100% sense and not everyone has weathered and the <unk>.

Same area and able to kind of keep the pedal to the model. We think that this is going to service extremely well as we come through the other side of this down cycle and Steve I would just add you know the timing of our investments are geared towards aligning with the kind of production. So if you look at our Mesa facility, which we invested in coming into the year, It's online it's producing.

For our customers. The others were also timing out such that take time to when revenue comes so we're able to manage through that effectively and and align it to the demand upswing.

Great. That's all very helpful. Thank you.

Thanks I appreciate it.

The next question comes from Chris <unk> with Needham <unk> co. Please go ahead.

Okay.

Hi, This is Chris on for Jim Good afternoon.

Hey, Chris It sounds like Hey, the defense on the supplies is loosening up a little bit and that was a bit of a tailwind for you is that supply.

Resolution way, where you'd like to see it or is there still.

Some more.

So more activity that you'd like or some more improvement that you'd like to see there and if you could talk about that thank you.

Yeah.

Certainly, it's gotten a lot better and it's freed up our ability to increase the ramp.

Of products that we've been building.

That's a market that I would say.

We saw maybe slower recovery rate with the commercial Aero was really down obviously people aren't flying particularly on the wide body jets in and obviously that market has kind of come back with a vengeance.

And then the defense space, we're seeing incremental demand.

Roop Lakkaraju: Our gap earnings per share for the quarter was 57 cents. The Q3, a non-gap growth margin was 9.6%, a 50 basis point sequential increase and 100 basis point improvement year over year due to our mix of revenue and improved operational utilization. Excluding SEP, in Q3 our growth margin was 9.8%, which was in line with guidance. Our FGNA was 35.5 million down sequentially due to the cost actions taken in the first half of the year coupled with lower variable compensation.

Because as you might expect just given what's going on around the world.

We have seen improvement in some of that what I would say is some of the demand came in late in the cycle when things were pretty constrained and plugging.

Roop Lakkaraju: Non-gap operating margin was 4.7% up to 70 basis points sequentially and 110 basis points year over year as a result of improved growth margin. Excluding SEP, operating margin was 4.8%. In Q3 2023, our non-gap effective tax rate was 19.4% consistent with our expectations. For Q3, non-gap EPS of 57 cents was 2 cents higher than the midpoint of our guidance. Non-gap ROI-3 in the third quarter was 9.4%.

Plugging in alternative parts re qualifying that as a really challenging proposition in A&D. So in some cases, we had to wait.

Roop Lakkaraju: Please turn the slide A to discuss the effects of SCP on a trended basis. In Q3, SCP declined to $16 million versus $17 million in Q2 2023, and $74 million in Q3 2022 and continues to decline consistent with expectations.

40 weeks to be able to get material and do all that in.

So that started over a year ago. So we are seeing pretty pretty good improvement in.

Roop Lakkaraju: Excluding this, our revenue in the third quarter was $704 million. A sequential decrease of 12 million or 2%, and a year-over-year increase of 6 million or 1%.

Ability to close on supply gaps to to support the growth I would say in the last few quarters.

Roop Lakkaraju: Please turn the slide 9 to review our cast and version cycle performance. Our cast and version cycle days were 105 in the third quarter, compared to 103 days in Q2. Our inventory decreased sequentially by 31 million.

We could have we could produce more if we could have got more and at this point.

We're looking that looks much better in terms of aligning to what the what the needs are.

Roop Lakkaraju: However, the linearity of customer shipment and inventory receipts adversely affected our accounts received both in accounts payable days.

Great. Thank you and then just as you know you had mentioned the uncertain economic environment and.

I'm curious.

How does that impact the pace of discussions with either new or existing customers, who are looking to outsource has that had any impact on.

Roop Lakkaraju: Please turn the slide 10 for an update on liquidity and capital allocation. In Q3, we generated $38 million of cash from operations and $18 million of free cash flow. Our ca- ca- ca- ca- expend is supporting continued growth in our next-build facilities and enhanced capabilities, our persistent technologies business unit. We expect our ca- ca- expend in 2-4 2023 to be between 10 and 15 million. This will equate to a full year of 2023 ca- ca- expend in the range of 70 to 75 million.

Their thought process or or maybe catalyzing, the decision to outsource manufacturing or anything any any trend.

Roop Lakkaraju: Our cash balance on September 30th was $261 million, a sequential increase of $16 million. As of September 30th, we had $129 million outstanding in our term loan, $305 million outstanding borrowing against our revolver, and $241 million available to borrow under our revolver. In Q3, we paid our recurring quarterly cash dividend of $5.9 million.

That you've noticed.

I think in a challenging economic environment.

You'll find Oems really analyzing what theyre, good what's their strength and where do they want to put their investment and.

In many cases they look at you know why are we building product that we could be outsourced on and we're spending our money here and so.

Many ways I think we've seen pretty good experience were.

Customers are more willing to reevaluate what what their approaches in terms of outsourcing.

If there's anything that might impact the delay on the new platform provides is really probably the product development cycle. You know hey, we want to be careful on spending and we're going to push out the product design a quarter you will see some movement, there, but but we feel in general that there's a lot of opportunities.

Roop Lakkaraju: Please turn to slide 11 for a review of our fourth quarter of 2023 ca- expend. We expect revenue, excluding SEP, to range from $675 million to $725 million. SGNA expense will range between $35 and $38 million. Excluding SEP, our non-gap operating margin range is forecasted to be 4.8 percent to 5 percent. As a reminder, this includes approximately 55 basis points of stock-based compensation.

Roop Lakkaraju: Our non-gap guidance excludes the impact of 1.2 million in amortization of intangible assets in 800,000 to 1.2 million in estimated restructuring in other costs. Our non-gap diluted earnings per share is expected to be in the range of 54 to 60 cents. Other expenses net are expected to be approximately 9 million due to primarily interest expense.

Our broader pipeline has it.

Materially changed in terms of what the market opportunity is so we're not overly concerned about there being enough to do.

Roop Lakkaraju: We expect that for Q4, our non-gap effective tax rate will be between 19 and 21 percent, but awaited average share count of $35.9 million.

Jeff Banks: And with that, I'll turn the call back over to Jeff. Thanks, Group.

Great. Thank you very much. Thank you very much thanks, Chris.

Yeah.

The next question comes from Anya just strong with Sidoti. Please go ahead.

Hi, and thank you for taking my questions some of them have been addressed already but.

Jeff Banks: Please turn to slide 13. Again, all commentary related to demand trends by sector are excluding supply chain premiums. In medical, this past quarter we did a good job meeting demand as the supply chain continues to improve. Partially off-threading this, however, is demand softening from some customers as they re-balance going into year-end. Considering all of this, we're expecting medical sector revenue to likely decline sequentially in Q4, while still growing nicely on a full-year basis.

Semi cap it seems like that's going to be a little bit neither return on acceleration and the growth there but.

And can you remind me how that margins on the semi cap business compares to the overall business and could it be a nice tailwind there will start coming back and some margin.

Jeff Banks: We continue to build on our future success and medical during this past quarter, securing new wins that we expect to ramp in 2024 into 2025. For example, we expanded an existing relationship with a key customer in the heart valve market with several new manufacturing wins at both the sub-assembly and system level. Elsewhere, we had another existing customer award us the opportunity to provide sub-assemblies that will be integrated into their anesthesia and respiratory devices.

Jeff Banks: Within Semicap, we believe our Semicap sector likely bottomed earlier in the year. However, based on public commentary from many of our customers, we expect Semicap revenue to remain roughly consistent with current levels through at least the first half of 2024. Our expectation is to continue to outperform the broader WFE market growth rates driven by our unique customer exposure and new program wins. For example, in Q3, we were awarded an opportunity to manufacture assemblies and fully integrated modules for an epitaxi tool used in the transistor device fabrication process. We also won both the engineering and manufacturing business at another customer that is in support of high-end lithography platform.

Hi on yet so so yes, we've indicated semi cap margins are some of our strongest gross margins overall in operating margin. So when the revenue comes back as we've indicated.

Jeff Banks: While the current downtown in the market, downturn in the market, appears poised to last longer than recent cycles, the long-term growth drivers are undeniable. As the market ultimately recovers, we fully expect to participate in more than our share of Semicapital Equipment Growth given our significant investment during this down cycle.

Later in the 'twenty four we expect that to be a strong tailwind to our overall.

Jeff Banks: Within A&D, commercial aerospace has been improving for us for the last few quarters.

Operating performance in operating margin.

Semi cap is kind of interesting too.

Jeff Banks: We are now more optimistic about future growth within defense, which is both a reflection of both strong demand and improving supply chain. At the same time, we continue to secure new wins in the past quarter. This includes engineering services for test development in the commercial aerospace market. Yet another engineering services win was with the defense program where we are helping on the development of an RF module. Meanwhile, in manufacturing, we want a nice piece of business where we will be providing a sensor module into a commercial aerospace application. Again, we are pleased with the momentum we are seeing in A&D. In fact, we expect year-of-year growth to accelerate in Q4.

I was just kind of.

Yeah.

The semi cap market is generally.

Right now.

A lot of our folks are out in public talking about 2024 being flatter.

We have you know the industry hasn't been particularly good at calling the downturn, we're not typically very good at calling the upside either so you see us investing you see is preparing and we've really protect a lot of resource.

Contemplating a pretty significant upswing as it comes back but.

Exactly calling the timing is something that we've been spent a lot of energy on we just we know right now it's really it doesn't look to be a first half thing and that's weighing pretty heavily on to how we think about our growth profile.

And we'll all be watching at quarter to quarter to see how that how that shifts but no doubt.

Jeff Banks: With the strong second half expected, we anticipate A&D sector revenue has the opportunity to grow double digits on a full-year basis.

It will be back and people continue to talk about just how significant it could be but.

Jeff Banks: Turning to complex industrials, we continue to extend our footprint in key growth markets, including automation, test, and measurement, and energy efficiency solutions. Examples of this include both manufacturing and engineering wins for several next-generation energy efficiency solutions for residential HVAC applications. Another manufacturing win I would like to highlight is in the transportation space where we will be providing next-generation radios used for local mode of control and communication.

Jeff Banks: Our industrial sector domestically continues to show resilience. However, this demand is being offset by softening international markets. As such, we're expecting industrial revenue to be down sequentially in Q4, while still growing solidly in the double digits year over year, both for the quarter and full year.

Jeff Banks: In advance computing, revenues were consistent with our guidance provided last quarter. Recall we completed a significant high performance computing project in the first half that's being deployed by our customer at a federal agency. As previously shared after a pause in Q3, we're delivering upon a new HVC program that will contribute to our growth in the fourth quarter.

The best is yet to come there.

So could you approach to being and maintaining readiness for that comeback been pressuring margins in the coming quarters until we see that come back on.

Jeff Banks: Finally, the next generation communications last quarter, we highlighted some risk of infrastructure deployment delays and made macro sensitivity. We saw this begin to materialize in Q3, which we expect to continue in Q4. As such, sector revenue is expected to be down sequentially and year over year in Q4, albeit still up on a full year basis given the strong first half performance. Looking forward, we are seeing a few more customers across the number of sectors begin to moderate their forecasts, while others specifically in A&D are seeing incremental strength. On balance, we expect this to translate to total revenue remaining flat at the current levels through the first half of 2024.

Jeff Banks: While it's still early to provide color on full year growth rates, we're going to maintain our focus on operational execution and productivity improvements as we progress through the profitability targets reflected in our long-term model.

Yes, I mean, I think it's you can see right now we're in them.

Jeff Banks: In summary, please turn to slide 14. On pleased that once again, we were able to exceed the midpoint of guidance and deliver a 10 percent upside to non-gap earning estimates. We again delivered solid growth in four of our six sectors. At the same time, we grew non-gap operating margin by better than a point year over year. Excluding SDP, non-gap operating margin was up 80 basis points to 4.8 percent, which includes approximately 55 basis points in stock-based compensation.

Market, where semi cap has been softer throughout 'twenty three but we've expanded margins as you saw on your so I think there's an opportunity for us to continue to.

Jeff Banks: Non-gap operating income growth in the third quarter was 22 percent, which was our tenth consecutive quarter of double-digit growth year over year. Turning to working capital in free cash flow, aided by our continued focus on reducing inventory, we delivered the second consecutive quarter of positive free cash flow and expected this trend to continue.

To improve on our operating margin performance.

It's a little early to give you a lot of details there as.

As we kind of finish up the year, but.

Jeff Banks: Finally, it's clear we're adding a more uncertain economic environment. Based on this, we'll be in judicious about where we're making investments and managing our expenses closely. I remain confident that our diverse survived portfolio will help us to weather this and come out stronger as the market turns. We will maintain a sharp focus on investment in future growth while protecting our ability to continue to deliver positive operating leverage and cash.

With the growth that we've seen in the other sectors over the year over year from 'twenty two to 'twenty three the load we are seeing across our factories to improved absorption of our focused operational productivity.

Operator: With that, I'll now turn the call over to the Operator to conduct our Q&A session We will now begin the question and answer session.

We're positioned well to continue to drive improving operating performance.

Operator: To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Okay. Thank you and just remind me too well.

<unk>.

Significant footprint in Mexico.

Operator: At this time, we will pause momentarily to assemble our roster.

We just have to have a currency headwind for you.

Okay.

Could you could you repeat that you said do we have a footprint in Mexico. The answer is yes, but where are you on this.

Okay.

They've been suffering from the increased pieces Adam.

Do you have a nice Mexico footprint that could be impacting your margins as well.

So from an FX there.

Focus has changed FX there.

Got a weak globally hedge different currencies and have different programs in place in Mexico is one place, where we do that and we do quite a hedge program tends to be quite effective.

So we.

We're obviously monitor and manage that very closely and there's been a lot more volatility more recently with kind of Mexico is economic improvement in growth. So, but we do have a hedge program.

Okay. Thank you that was all for me.

Sonya.

This concludes our question and answer session I would like to turn the conference back over to Paul Lang for any closing remarks.

Thank you Betsy and thank you everybody for participating and benchmark third quarter 2023 earnings call before we go I'd like to remind listeners we will be attending two conferences between now and our Q4 results.

On December 4th we will be at the Raymond James TMT Conference TMT and consumer Conference in New York and then on the 16th of January will be presenting at the 2016 annual Needham growth Conference. Please remember to check the event section of the IR website at IR Doc bench Dotcom flash investors for updates to the sketch.

Max McEllis: The first question today comes from Max McEllis from Lake Street Capital Market. Please go ahead. Hey guys, I want to make sure I didn't hear you correctly, but did you note that revenue was expected to be flat during the first half of 2024? I know you didn't give 2024 guidance, but I just want to make sure I heard that correctly. Yeah, that's right. Hey Max, this is Rube, but that's right. We kind of indicated that based on kind of macro and different sector kind of trends right now. We expected to be generally flat through the first half. And is that based off of Q4 numbers or Q3 revenue? Well, I think it's Q4 effectively. Okay, thank you.

With that thank you again for your support and we look forward to speaking with you soon.

Yes.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Jeff Banks: And then so my second question is going to be just looking at medical with that expected to be down quarter over quarter. I was wondering if you're seeing any slowdowns or maybe pushouts from elected surgeries and maybe that's playing a part in the sequential decline. You know, there's a couple of dynamics going on in medical.

Yeah.

Jeff Banks: We've seen, you know, obviously through the pandemic, there was quite a bit of slowdown in that area. And then after that, we saw a lot of catch up and places where, you know, we played, for example, in the defibrillator market as well, which really isn't elected surgery related. But, you know, stadiums, airports, places, people were going really wasn't seeing the demand right for those kind of devices. Well, that's an example where there was quite a catch up and we saw a really substantial growth over the last, you know, two years as we got, you know, more normalized.

Yes.

Jeff Banks: So I think what we see is just sort of modulation here where it's still, you know, demand still solid. But we do see pockets where, you know, folks who've been a little more careful, given the macroeconomic and they're, you know, saying, okay, we're going to watch this closely and maybe rebalanced a little bit. But I won't say we see, you know, elective surgery, devices in my play and they're necessarily being uniquely slower than, you know, previously.

[music].

Jeff Banks: I think there's a little bit of, there was, there was an element of catch up and now we're sort of catching our wind here. And, you know, things, things are flattening a bit and then, you know, we'll see where we go from here. But we feel, you know, we're bullish long-term on the sector, just given the growth and outsourcing that it really is poised to continue. Okay. Thank you.

Max McEllis: And then just looking at supply chain premiums, they're down, I think about a million from Q2.

Roop Lakkaraju: I was just wondering if you're seeing any material changes going into Q4 or maybe if that's more of a first half 2024 story. It just doesn't seem like the macro is taking up with supply chain, I should say is picking up, is who we thought it was, more or less the first half of the year. Yeah, Matt, I mean supply chain premiums, we anticipated coming down, they have come down sequentially throughout 2023 and obviously on a year of your basis are considerably down.

Roop Lakkaraju: So we do expect that to continue into the future, in terms of that supply chain premium value coming down. I also wanted to just add to Roop's comments with Jeff, you know, really just customers, you know, the supply chain's incrementally better, it's better this quarter than what's last quarter. We see less need for customers than necessarily, you know, have to look at paying a premium to get product that we are those what it got so we still see that modulate.

Roop Lakkaraju: There's still some areas, there's constraints, part of the lead that two years later, we do still see supply chain constraints and some small pockets here and there, but it's dramatically better, which is really a direct reflection as we've said, why we see the supply chain premiums getting down so substantially.

Roop Lakkaraju: As we think about next year, you know, we think, you know, we can see things really get back to normal, you know, it's it's a few million quarter, not, not anywhere near where we've been.

Max McEllis: Okay, and then just last one for me, and then we'll jump back in the queue.

Jeff Banks: I click on here, just wondering if you guys are seeing any decommit or cancellations within your pipeline. I mean, obviously, we, you know, when we take an order, right, we end up securing material and to go build that product and, you know, contractually customers are, you know, obligated for the responsibility of that. There's always some push-ins and pull outs just depending on what the needs are. So I don't see anything, you know, unusually out of order than what we normally see as you get out to three quarters. So flexibility and what customers can do related to, you know, demand balancing, but, you know, this environment, we haven't seen, you know, something substantially different in terms of that demand profiling.

Roop Lakkaraju: Yeah, Max, I would just bad. I mean, I think as a general comment, that's right. And obviously in certain sectors, you know, we're not seeing any kind of demand repro filing, right. So we talked about AMD strength and that's, that's, you know, continuing in the fourth quarter and we expect into 2024. So it really is kind of sector by sector of all consideration.

Max McEllis: All right, thank you guys. Thanks Max.

Steven Fox: The next question comes from Steven Fox with Fox Advisor. Please go ahead. Hi, good afternoon. A couple of questions from me. First of all, just following up on that last, the last couple of questions there. With regard to the flat revenues for the first half of the year, how much when you talk about the weakness, how much is just more mature programs, just producing less units for customer as opposed to like maybe slower ramps for kind of a wait and see what the macro is.

Steven Fox: Any color on that and I had a couple of follow up. I think what what I would say on that is that, you know, the legacy programs of typically, you know, we, we aren't typically on programs that are very short led. Maybe a little bit different advanced computing world might have an HPC build that comes to conclusion. You know, I think what what I would say there is that we have had some elongation and some of the new product ramps where it's taken a bit longer and maybe customers are being a little more careful about development engineering spend.

Steven Fox: So we see some, you know, some prolongated development cycles. I won't say it's substantially pronounced in one area and maybe, you know, really across those sites where there are multi-year kind of projects anyways. I think if anything, I think, you know, you have customers that might have had their own unfulfilled demand and, you know, they're kind of, you know, catching up with that and now looking at, you know, how much, how much inventory do I want to have?

Steven Fox: Where do I want to go with my own portfolio and you're just being cautious about that given given the environment? Okay, that's helpful. And then along, I'm sorry if I interrupted. No, that was good. Okay, sorry. And then along those lines, I think you mentioned that even with flatish sales, I forget the exact words, but you talked about further margin for progression. Are you trying to say that like your margins go up in the first half from where you exit or you just were you talking more broadly?

Steven Fox: What in general do you think about sort of how the environments impacting margins? Yeah, I mean, I think what we're saying is more generally, we're continuing to focus on operating margin expansion and that'll continue as we get into 2024. It's a little bit early to give you a lot of specific set this point in time as we work through things, but with the operational efficiencies and utilization focus, productivity, you know, we do anticipate operating margin continues to strengthen into future periods.

Steven Fox: You know, our own model, we, you know, we projected higher margins, obviously, it goes out to 25, Steve, as you know, but, you know, we just we see opportunity that we could continue to go where we can continue to improve things even in a flatter environment. So I think it's more just a reflection of that that we've been on a nice trend of growing operating income faster than revenue. And, you know, as we look forward, we, you know, we want to continue that and and think that while we close the gaps substantially. We're really to where, you know, we, we needed to be we still have that we can do better. Great, that's helpful.

Steven Fox: If I could just squeeze one more in on the semi cap bottoming process. I'm just curious if that's the fact you had a bunch of expansion plans in place to address all the other wins you have has, has that then impacted as sort of the bottoming delays? Are you delaying your own equipment orders or anything like that?

Jeff Banks: Thank you. You know, you know, that, that's a, that's a good one. I didn't touch on earlier, but that was an area where we were maybe seeing some more pushouts a few quarters ago. I would say it stabilized a lot of last two quarters as we sort of think about our own bottoming as a business or where what we saw. You see from our results, you know, we're, we still think we're outperforming the market, even in the downturn because, you know, we're down 10, the market's down 20.

Jeff Banks: So we feel pretty good about our competitive position. We also saw some programs delayed and pushed to the right, not lost, still feel good about the new product introduction work. And there's a lot of that going on. So that gives us a lot of confidence around our capital investments, but we have invested pretty significantly here. We've got two new buildings, one that's online and one that's in process and in a low cost region is supporting that industry.

Jeff Banks: And we still feel like that makes 100% sense. And not everyone has weathered in the same area and able to kind of keep the pedal to the metal. We think that this is going to serve us extremely well as we come up to the other side of this down cycle. And Steve, I was just that, you know, the timing of our investments are geared towards aligning with kind of production. So if you look at our massive facility, which we invested in coming into the year, it's online, it's producing for our customers. The others were also timing out such that they time to when revenue comes. So we're able to manage through that effectively and align it to, you know, the demand.

Steven Fox: Great, that's all very helpful.

Operator: Thank you.

Operator: Appreciate it.

Chris Grenga: The next question comes from Chris Grenga with Needham and Co. Please go ahead. Hi, this is Chris on for Jim. Good afternoon. It sounds like, Hey, the defense on the supplies is loosening up a little bit. Now was a bit of a teller for you. Is that supply? Resolution where you'd like to see it? Or is there still some more some more activity that you like, or some more improvement that you'd like to see there?

Chris Grenga: If you could talk about that. Thank you. Yeah. You know, certainly it's gotten a lot better and it's freed up our ability to increase the ramp of products that that we've been building. You know, that that's a market that I would say. We saw maybe slower recovery right with the commercial arrow was really down. Obviously, people weren't flying. And particularly on the wide body jets and and obviously that market's kind of come back with a vengeance.

Chris Grenga: And then the defense space. We're seeing incremental demand. As you might expect, just given what's going on around the world. We have seen improvement in some of that. What I would say is some of the demand came in late in the cycle when things were pretty constrained. And, you know, plugging in alternative parts, re qualifying that as a really challenging proposition. And Andy, so in some cases, we had to wait the 40 weeks to be able to get material and do all that.

Chris Grenga: And, you know, that started over a year ago. So we are, you know, seeing pretty, pretty good improvement in, you know, ability to close on supply gaps to, to support growth. I would say in the last few quarters, you know, we could have, we could have produced more if we could have got more. And at this point, you know, we're looking, that looks much better in terms of aligning to, you know, what the needs are.

Chris Grenga: Great. Thank you. And then, just as you know, you had mentioned the uncertain economic environment. And I'm curious. You know, how does that impact the pace of discussions with either new or existing customers who are looking to outsource? Has that had any impact on their thought process or maybe catalyzing the decision? To outsource manufacturing or anything, any, any trend that you've noticed, you know, I think in a, in a challenging economic environment, you find OEMs really analyzing what they're good at, what's their strength?

Chris Grenga: And where do they want to put their investment? And in many cases, they look at, you know, why are we building the product that, you know, we could be outsourced on and we're spending our money here. And so in, in many ways, I think we've seen pretty good experience. Where customers are more willing to reevaluate what their approaches in terms of outsourcing. If there's anything that might impact the delay on a new platform, it's really probably the product development cycle, you know, hey, we want to be careful on spending and we're going to push out the product design a quarter, you know, we'll see some movement there.

Chris Grenga: But, but we feel in general that, you know, there's a lot of opportunities. Our broader pipeline has it, you know, materially changed in terms of what the market opportunity is. So, you know, we're not overly concerned about their being enough to do. Thank you. Great. Thank you very much.

Chris Grenga: The next question comes from Anja Soderstrom with Cedodi. Please go ahead. Hi, and thank you for taking my question. Some of them have been addressed already, but in terms of summer cap, it seems like that's going to be a little bit later return or acceleration in the growth there. But how does that remind you how there are margins on the summer cap business compared to the overall business, and could it be a nice tailwind there once that come back from some margin expectations?

Chris Grenga: Hi, Anja. So yeah, as we've indicated, some of our strongest margins overall and operating margins. So when the revenue comes back, as we've indicated, you know, later in the 24, we expect that to be a strong tailwind to our overall, you know, operating performance and operating margin. Semicat's going to be interesting too. Oh, sorry, I was just going to add that. The Semicat market is generally, you know, right now, a lot of folks are out in public talking about 2024 being flatter.

Chris Grenga: We, you know, the industry hasn't been particularly good at calling the downturn, and we're not typically very good at calling the upside either. So, you know, you see us investing, you see us preparing, and we really protect a lot of resource, contemplating a pretty significant upswing as it comes back. But exactly calling the timing is something that we've been spent a lot of energy on. We just, we know right now it's really, it doesn't look to be a first half thing, and that's weighing pretty heavily on to, you know, how we think about our growth profile.

Chris Grenga: And, and we'll, you know, we'll all be watching it quarter to quarter to see how that, how that shifts. But no doubt, you know, it will be back, and people continue to talk about just how significant it could be, but the best is yet to come there. So, could you approach to being maintaining readiness for that come back, been pressuring margins in the common quarters until we see that come back, or?

Chris Grenga: Yeah, I mean, I think it's, you can see right now we're in a market where semi-cap has been softer throughout 23, but we've expanded margins as you saw on you. So, I think there's an opportunity for us to continue to improve on our operating margin performance. We'll early give you a lot of details there as we kind of finish up the year, but, you know, with the growth that we've seen in the other sectors over the year over year from 22 to 23, a load we're seeing across our factories to improve absorption or our focus operational productivity. Yeah, we're positioned well to continue to drive improving operating performance.

Anja Söderström: Okay, thank you.

Anja Söderström: Just remind me to whether you have significant footprint in Mexico or in other regions that could have a currency headwind for you. Could you repeat that? You said, do we have a footprint in Mexico? The answer is yes, but they've been suffering from the increased pesos. I don't know if you have a large Mexican footprint that could be impacting your margins as well. Yeah, so from an FX, if the focus is changing FX there, we've got a, we globally hedge different currencies and have different programs in place, and Mexico is one place where we do that, and we do quite, our hedge program tends to be quite effective. So, you know, we, we're obviously monitoring and manage that very closely, and there's a lot more volatility more recently with kind of, Mexico's economic improvement and growth. So, but we do have a hedge program.

Anja Söderström: Thank you. Okay, thank you. That was all from me.

Anja Söderström: Thank you.

Operator: This concludes our question and answer session.

Paul Mansky: I would like to turn the conference back over to Paul Mansky for any closing remarks. Thank you, Betsy. Thank you, Arvind, for participating in Benchmark's third quarter, 2023, Ernie's call. Before we go, I'd like to remind listeners, we will be sending two conferences between now and our Q4 results. On December 4th, we will be at the Raymond James TNT conference, TMT and Consumer Conference in New York. And then on the 16th of January, we'll be presenting at the 26th Annual Medium Growth Conference. Please remember to check the events section of the IR website at ir.bench.com slash investors per updates to the schedule. With that, thank you again for your support and we look forward to speaking with you soon.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.