Full Year 2023 Benchmark Electronics Inc Earnings Call

Good afternoon, and welcome to the Benchmark Electronics, Inc. Fourth quarter 2023 earnings Conference call.

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I would now like to turn the conference over to Paul Matzke, Investor Relations and corporate development of benchmark. Please go ahead.

Thank you Andrea and thanks, everyone for joining us today for Benchmark's fourth quarter fiscal year 2023 earnings call. Joining me. This afternoon are Jeff Bank, CEO, and President and Rick Ward Roger CFO after market close today, we issued an earnings release pertaining to our financial performance for the fourth quarter of 2023, and we prepared a presentation.

Patients that were referenced on this call both of them are available online.

At 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.

He has provided a reconciliation of our GAAP to non-GAAP 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 statements 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.

Actual 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 fourth quarter. Roop will then discuss our detailed financial results and our first quarter guidance. Jeff will then return to provide more insight into demand trends by sector.

As Ms wins, and then closing remarks.

Please turn to slide three I'll turn the call over to our CEO, Jeff. Thanks.

Thank you Paul.

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

The fourth quarter was another period of solid execution for the company.

Despite some revenue softening, which impacted our topline we met or exceeded all other objectives for the quarter. This directly reflects the company's focus on operational execution.

Let me step through a few highlights in the quarter Tony.

Total revenue of 691 million was down high single digits year over year and mid single digits digits sequentially I will point out the supply chain premiums or S. E T have normalized and in the fourth quarter at slightly below 8 million versus 46 million in the same period last year.

Excluding that C. P fourth quarter revenue was down low single digits versus last year.

Despite this challenge our non-GAAP gross margin exceeded 10% growing both sequentially and year over year, coupled with a 9% year on year reduction in non-GAAP operating expense in the quarter, we drove operating margin to greater than 5%.

As a reminder, this margin includes approximately 50 basis points and stock compensation.

I want to congratulate the entire team for delivering such a strong set of results, which allowed us to report 58 cents and non-GAAP earnings per share above the midpoint of our guidance.

Finally, as we've highlighted over the last few quarters, we've implemented a number of actions to drive free cash flow I am pleased to report that we generated 126 million in Q4, and 97 million for the full year well ahead of our objective of $70 million to $80 million.

This was enabled in a large part by a reduction in inventory.

Considering all the end market obstacles facing us and others I'm proud of the team's execution in the quarter and throughout 2023.

Now, let me pass it over to Ruth to share more details on the December quarter, our fiscal year 2023 and guidance for Q1 'twenty 'twenty four.

Thank you, Jeff and good afternoon, please turn to slide six for our revenue by market sector.

Jeff mentioned, our total revenue was $691 million in Q4, the reconciliation of this and our sector level performance that excludes the effect of S. C. P can be found in the appendix section section of the presentation materials turning to slide seven as we look at our sector performance. Our discussion will exclude the effect of S. E T.

Medical revenues for the fourth quarter was down 7% versus the prior year. The decline was due to general softness across the industry driven by inventory rebalancing and demand normalization post pandemic semi cap revenue decreased 5% year over year in line with our expectations A&D revenue was up 15% year over year.

Air due to commercial aerospace remains strong and the defense sector benefiting from the ramp existing programs and broadening of new wins within our customer base.

Industrials revenue for the fourth quarter increased 8% year over year, driven by strength with existing customers, providing energy efficiency solutions.

Advanced computing increased 3% year over year aided by our build of subsystems for a new large high performance computing program that started in Q4 and is expected to continue into first half 'twenty 'twenty four.

And the next generation communications sector revenue was down 31% year over year, our year over year performance was impacted by general softness across the sector due to reductions in capital spending we expect this dynamic may persist throughout 2024.

Please turn to slide eight.

GAAP earnings per share for the quarter was 49 cents for Q4, our non-GAAP gross margin was 10, 3%, a 70 basis point increase sequentially and year over year gross margin benefited from our mix of revenue and improved operational execution, including the previously announced cost.

Actions taken in the first half due to demand softness SG&A expense was $35 6 million flat sequentially and down 10% versus the prior year due to cost actions taken coupled with lower variable compensation.

non-GAAP operating margin was five 1% up 40 basis points sequentially, and 80 basis points year over year benefiting from both improved gross margin and operating expense discipline.

In Q4 of 2023, our non-GAAP effective tax rate was 26%.

Q4, non-GAAP EPS of <unk> 58 cents above the midpoint of our guidance.

non-GAAP ROIC C. In the fourth quarter was nine 3%.

Please turn to slide nine for a revenue comparison by market sector for the full year 2023 versus 2022.

Total benchmark revenue for 2023 was $2 8 billion turning to slide 10, excluding the effect of S. C. P revenue was up 6% year over year Mehdi.

Medical revenues increased 9% from growth with existing customers and new program ramps semi cap revenues decreased 9% in line with our expectations and reflecting better than market performance.

A&D sector increased by 6% due to continued strength in commercial aerospace defense programs that continue to ramp and improve supply availability, enabling us to address more of our previously unmet demand.

<unk> revenues were up 17% primarily from the continued ramp of our prior wins, notably in energy control systems and building infrastructure programs.

Advanced computing was up 10% on the year given the timing of our next generation high performance computing program deliveries.

Nextgen communications revenues were up 16% given first half strength in broadband infrastructure programs.

Please turn to slide 11.

Our GAAP earnings per share for fiscal year, 2023 was $1.79. Our GAAP results included restructuring and other one time costs totaling $9 3 million related to the completion of the Moore Park, California closure right sizing of certain manufacturing sites.

That gain of $4 6 million from legal settlements, both GAAP and non-GAAP gross margin of nine 5% increased 70 basis points due to lower FCP without ICP. Our gross margin was nine 8%. The gross margin expansion was driven by improved operational efficiencies and the proactive cost reduction actions taken by our.

From sites.

Our SG&A was 147 billion down 2% year over year, driven by the cost actions taken coupled with lower variable compensation.

non-GAAP operating margin was four 4% an increase of 80 basis points driven by gross margin expansion.

non-GAAP effective tax rate was 21% for the year and our non-GAAP EPS was $2.04.

Please turn to slide 12 for a discussion of the effects of SPP on a trended basis.

In Q4, S&P declined to $8 million versus $16 million in Q3, 2023, and 46 million in Q4 2022.

Year over year basis S. C. P declined by 209 million to 59 million in 2023.

Looking into 2024, we expect F C P to be immaterial as such beginning in Q1 2024, we will just continue references to performance excluding U S. C P.

Please turn to slide 13 for a discussion of our cash conversion cycle performance.

Our cash conversion cycle days were 98 in the fourth quarter compared to 105 days in Q3, our inventory decreased sequentially by $42 million.

Cash conversion cycle improved by seven days due to improve working capital efficiency and an increase in advanced payments from customers.

Please turn to slide 14 for an update on liquidity.

Free cash flow generation is a critical focus area to that end in 2023, we reduced inventory and improved working capital efficiency that supported full year free cash flow generation of $97 million, which exceeded our annual goal of 70 to 80 million per year. In 2024, we again expect to generate 70 to 80 million.

Our cash balance on December 31 was 283 million sequential increase of $22 million.

As of December 31, we had 127 million outstanding on our term loan turned 5 million outstanding borrowings against our revolver and 341 million available to borrow under our revolver overall debt net of cash improved sequentially by $124 million because of the strong free cash flow in Q4 of 2023.

Please turn to slide 15 for a discussion of our capital allocation activity.

We invested approximately 78 million in capital spending in 2023, including $11 million in Q4, but it was primarily in support of continued growth in our Mexico facility and enhanced capabilities in our precision technologies business unit, we expect our Capex spending in Q1 2024 should be between 10 and 15.

Million on a full year basis, we anticipate 'twenty 'twenty four capex tended to be in the range of $55 million to $65 million.

In Q4, we paid cash dividends of $5 9 million and totaling 23 million for the full year of 2023.

Since 2018, we paid cash dividends totaling $136 million.

We did not repurchase any outstanding shares in 2023 as of December 31, we had approximately a 155 million remaining in our existing share repurchase authorization.

Starting in Q1, we expect to repurchase shares opportunistically, while considering market conditions.

Turning to slide 16.

For the first quarter 2024, we expect revenue to range from 625 million to $665 million. Our non-GAAP gross margin is expected to be between nine 8% and 10, 2%.

We expect SG&A expense will range between 34 and $36 million.

Our non-GAAP operating margin range, it's forecasted to be four and a half to four 7%. As a reminder, this includes approximately 50 basis points of stock based compensation.

non-GAAP guidance excludes the impact of $1 2 million in amortization of intangible assets and $3 one to $3 5 million of estimated restructuring and other expenses to support incremental steps necessary to proactively manage our cost structure given current market conditions.

Our non-GAAP diluted earnings per share is expected to be in the range of 42 to 48 cents. Other expenses net are expected to be approximately a half million interest expense is expected to decline sequentially given the reduction in revolver debt. However.

Over the near term this will be partially offset by increased foreign exchange headwinds due to the weakening U S dollar.

We have historically managed our exchange rescue a proactive hedging program and we will continue to do so we.

We expect that in Q1, our non-GAAP effective tax rate will be 24% the weighted average share count of $36 million.

Our effective tax rate would be higher in 'twenty, four because of our China tax holiday, which expired as of December 31, 2023, we are applying for another tax holiday, which we hope to receive in 2020 for retroactive to the beginning of 2024 at.

Also in 2020 for some of our foreign jurisdictions will be adopting filler to the global milk minimum tax regulations on a fiscal year basis. We believe the average 'twenty 'twenty four effective tax rate should be approximately 23% and with that I'll turn the call back over to you Jeff.

Thanks, Kurt Please turn to slide 18.

Again, all commentary related to demand trends by sector or excluding S. C. P.

Within semi cap, our fourth quarter performance was up modestly sequentially and in line with our expectations on a full year basis revenue performance was down high single digits. This compared favorably to the overall industry revenue trend, which we believe was down approximately 20%.

As mentioned in prior calls we believe our semi cap sector likely bottomed in the March quarter of 2023, However, based on public commentary from many semi cap Oems, we don't expect to improve demand at the industry level to return over the next few quarters.

This may change in late 'twenty, 'twenty, four, but it's too early to make that call.

Looking forward into 2025 and beyond we continue to believe in the strong secular drivers propelling global semi demand.

Adding to this our government subsidies designed to accelerate the re shoring of wafer production to North America and Europe.

Although we won't see the downstream effects for some time. This is just another example of the long term drivers that serve as the basis of our strong commitment to the sector.

In support of all of these demand drivers and our confidence in our ability to benefit we have been investing heavily in our capabilities and winning new programs, which we believe positions us well to continue to outperform the market.

We had a number of new wins in the quarter, including an important next generation wafer fab equipment program with one of our existing customers.

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

Offsetting this was some incremental demand softening later in the quarter, both as a function of end markets and customer focus on inventory levels.

As such while we had expected performance to be down in the quarter it was down more than anticipated.

For the full year medical delivered high single digit growth driven by our ramping program wins and our improved ability to meet demand.

Despite this success, we expect the demand environment, where challenge our ability to deliver growth in this sector in the first half of 2024.

Looking forward, our new win momentum driven in part by the continued trend toward near shoring bodes well for our future growth.

We continue to secure new wins during this past quarter importantly, not only are we seeing new program wins with existing Vms customers. We continue to benefit from the advantage of our end to end offerings converting engineering engagements into EMS wins as these wins begin to ramp being getting.

Wrapping later in 2024 and into 2025, we expect to see growth return to this sector.

Okay.

Turning to complex industrials, we continued to extend our footprint in key growth markets, including electrification automation and energy management solutions.

One example in Q4 as the program win to manufacture control subsystems going into electric vehicles used primarily in the construction industry.

Operator: Good afternoon, and welcome to the Benchmark Electronics, Inc. fourth quarter 2023 earnings conference call. All participants will be in listen-only mode.

Other key win was for an automated guided vehicle system, specifically designed to address the needs in the hospitality and medical sectors.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key, followed by... After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Paul Manske, Investor Relations and Corporate Development of Benchmark. Please go ahead.

This win again demonstrates the benefit of our broad capabilities as we transition to design engagement into a manufacturing win.

Within energy management, we were pleased to win new manufacturing business in Guadalajara, with an existing customer which is part of their near shoring strategy.

Industrial sector revenue performed slightly better than expected in the fourth quarter up 8% year on year versus our flat guidance.

Paul Manske: Thank you, Andrea, and thanks to everyone for joining us today for Benchmark's fourth quarter fiscal year 2023 earnings call. Joining me this afternoon are Jeff Benck, CEO and President, and Roop Lakkaraju, CFO. After the market closed today, we issued an earnings release pertaining to our financial performance for the fourth quarter of 2023. And we have prepared a presentation that we will reference on this call. Both are available online under the investor relations section of our website at bench.com. This call is being webcast live, and a replay will be available online following the call.

However, as with medical the quarter saw some second half softening due to weakening end demand the near term corrections notwithstanding we are continuing to invest in our industrial sector team given the large opportunity in front of us and how well we're positioned to grow with this customer set.

Yeah.

Now turning to A&D.

We had another strong quarter of revenue performance and new wins in Q4, continuing our momentum in this sector commercial aerospace.

Paul Manske: 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. Please take a moment to review the forward-looking statements disclosure on slide 2 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 that involve risks 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 statement.

Aerospace has remained strong for us since early in 2023, which we believe will continue based on our order book. Meanwhile, within defence, Although some component lead times are not yet back to historical levels. They continue to improve.

This has allowed this has allowed us to more fully meet the continuing increase in demand we're seeing from our customers.

At the same time, we continued to secure new wins in the past quarter, notably one for ground vehicle communications and another for imaging systems used in military training sites.

Paul Manske: For today's call, Jeff will begin by providing a summary of our fourth quarter. Roop will then discuss our detailed financial results and our first quarter guidance. Jeff will then return to provide more insight into demand trends by sector, business wins, and then closing remarks. If you will please turn to slide three, I'll turn the call over to our CEO, Jeff. Thank you, Paul.

This balance of end demand strength.

Design win momentum and gradually improving supply chain has us positioned for continued growth in 2024.

Within advanced computing revenues were consistent with the guidance provided last quarter up low single digits year on year, albeit up considerably on a sequential basis as previously shared after a pause in Q3 last quarter, we began delivering upon our new H B C.

Jeffrey W. Benck: Good afternoon, and thanks to everyone for joining our call today. The fourth quarter was another period of solid execution for the company. Despite some revenue softening which impacted our top line, we met or exceeded all other objectives for the quarter. This directly reflects the company's focus on operational execution. Let me step through a few highlights from the quarter.

Graeme for a large Oems supporting our national lab.

Which will likely be completed in the first half of 2024.

We are working new HTC opportunities to drive future growth, but given the timing of these projects coupled with our growth in the first half last year. We currently expect advanced computing revenue to be down for the first half of 2024.

Jeffrey W. Benck: The total revenue of $691 million was down high single digits year over year and mid single digits sequentially. I will point out that supply chain premiums, or SCP, have normalized, ending the fourth quarter at slightly below $8 million versus $46 million in the same period last year. Excluding SCP, fourth quarter revenue was down low single digits versus last year.

Finally, our next generation communications, we've been highlighting anticipated challenges at the industry level for a few quarters now.

The communications sector is seeing broad pressure and capital spending while at the same time more aggressively managing through their own inventory positions.

Jeffrey W. Benck: Despite this challenge, our non-GAAP gross margin exceeded 10%, growing both sequentially and year-over-year. Coupled with a 9% year-on-year reduction in non-GAAP operating expense in the quarter, we drove operating margin to greater than 5%. As a reminder, this margin includes approximately 50 basis points of stock compensation.

This has resulted in continued end demand weakening, which we believe will persist for several more quarters.

As such we expect sector revenue to be down materially in the first half and likely for the full year.

In summary, please turn to slide 19.

I couldnt be more pleased by our performance in 2023, despite the challenging market dynamics, we continue to invest in future growth building on our business with both new logos and expansion wins from existing customers. We did this while growing non-GAAP gross and operating margins year on year.

Jeffrey W. Benck: I want to congratulate the entire team for delivering such a strong set of results, which allowed us to report 58 cents in non-GAAP earnings per share above the midpoint of our guide. Finally, as we've highlighted over the last few quarters, we implemented a number of actions to drive free cash flow. I'm pleased to report that we generated $126 million in Q4 and $97 million for the full year, well ahead of our objective of $70 to $80 million. This was enabled, in a large part, by a reduction in inventory.

Despite our pace of investment, particularly in support of semi cap, we exceeded our free cash flow target range for the year.

This was aided by a material reduction in total inventory.

Meanwhile, as compared to 2022, we reduced net debt by almost 60% to less than $48 million.

Roop Kalyan Lakkaraju: Considering all the end market obstacles facing us and others, I'm proud of the team's execution in the quarter and throughout 2023. Now, let me pass it over to Roop to share more details on the December quarter, our fiscal year 2023, and guidance for Q1 2024. Thank you, Jeff, and good afternoon.

We continue to make progress, but we are not complacent with our success. There is much more for us to do well.

We made great headway in 2023 towards our target model, a full year gross margins of 10% and greater than 5% non-GAAP operating margin in.

In fact, we achieved these levels in the fourth quarter.

Roop Kalyan Lakkaraju: Please turn to slide six for our revenue by March. As Jeff mentioned, our total revenue was $691 million in total. The reconciliation of this and our sector-level performance that excludes the effect of SCP can be found in the appendix section of the presentation material. Turning to slide 7, as we look at our sector performance, our discussion will exclude the effect of SCP. Medical revenue for the fourth quarter was down 7% versus the prior year.

Our job now is to sustain this gross margin while closely managing our cost during the softening demand environment.

Second we will continue our efforts on inventory reductions in support of delivering free cash flow.

And then finally, we plan to further reduce our debt and interest expense, while returning capital by continuing our dividend program and resuming share repurchases.

We look forward to updating you on our progress as we move through the year.

Roop Kalyan Lakkaraju: The decline was due to general softness across the industry driven by inventory rebalancing and demand normalization post-pandemic. Semi-capital revenue decreased 5% year-over-year, in line with our expectations. A&D revenue was up 15% year-over-year due to commercial aerospace remaining strong and the defense sector benefiting from the ramp of existing programs and broadening of new wins within our. Industrial's revenue for the fourth quarter increased 8% year-over-year, driven by strength with existing customers providing energy efficiency solutions. Advanced computing increased 3% year-over-year, aided by our build of subsystems for a new, large, high-performance computing Our year over year performance was impacted by general softness across the sector due to reductions in capital spending. I expect this dynamic may persist throughout 2024. Please turn to slide eight. Gap earnings per share for the quarter were 49 cents.

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.

To ask a question you May press Star then one on your telephone keypad.

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

To withdraw your question. Please press Star then two.

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

And our first question will come from Jim Ricchiuti of Needham <unk> co. Please go ahead.

Hi, Thanks, good afternoon.

Jeff I wanted to just focus on two of the.

Sectors medical and that is true because I think you were kind of clear on some of the other ones what youre seeing now.

Entirely clear on where you see medical and industrial it's going.

Dolphin I guess.

Midway through Q4, do you see that recovering or is this something that.

Roop Kalyan Lakkaraju: In Q4, our non-GAAP gross margin was 10.3%, a 70 basis point increase sequentially and year-over-year. Gross margin benefited from our mix of revenue and improved operational execution, including the previously announced cost actions taken in the first half due to demand softening. SG&A expense was $35.6 million, flat sequentially, and down 10% versus the prior year due to cost actions taken coupled with lower variable compensation. Non-GAAP operating margin was 5.1%, up 40 basis points sequentially and 80 basis points year-over-year, benefiting from both improved gross margin and operating expense. In Q4 2023, our non-GAAP effective tax rate was 20.6 percent.

Maybe persist through the first half of the year.

Yes, I think for both of those were kind of in the chart 18, we kind of give you. Some first half guidance. We didn't go out through the full year, just given the dynamic environment, but just looking at the first half we see both of those you know being down from like looking at sequentially, where we ended the second half of last year.

Sure.

And medical while supply constraints ease and allowed us to fulfill the demand we saw we did see.

Forecast come down in the fourth quarter that continued in <unk>.

You know, we certainly believe people are paying a lot of attention to inventory some of it you know probably related to that softness.

Roop Kalyan Lakkaraju: Q4 non-GAAP EPS of 58 cents was above the midpoint of our guide. Non-GAAP ROIC in the fourth quarter was 9.3%. Please turn to slide nine for our revenue comparison by market sector for the full year 2023 versus 2022. Total benchmark revenue for 2023 was $2.8 billion. Turning to slide 10, excluding the effect of SEP, revenue was up 6% year over year. Medical revenues increased 9% from growth with existing customers and new program rails. Semicap revenues decreased 9%, in line with our expectations and reflecting better than market performance.

We will I will say theres still a lot of.

Outsourcing activity and near Shoring continues we're excited about a number of new wins in Mexico for us is as.

Medical Oems look to get closer to point of consumption.

On the industrial side.

Again, I would say, it's similar kind of <unk>.

Broader.

And it depends a little bit by OEM, but certainly saw broader softness that that looks to persist into the first half.

That's an area, where we had done pretty good with wins, we had put a resource on that a few years ago and we still believe we're really well positioned there.

With some of the activity, we're seeing in and.

Roop Kalyan Lakkaraju: The A&D sector increased by 6% due to continued strength in commercial aerospace, programs that continue to ramp up and improve supply availability, enabling us to address more of our previously unmet needs. Industrial's revenues were up 17%, primarily from the continued growth of our prior wins, notably in energy control systems and building infrastructure programs. Advanced Computing was up 10% on the year, given the timing of our next generation high-performance computing program delivery. NextGen Communications revenues were up 16% given the first half strength in broadband infrastructure programs. Please turn to slide 11.

Energy management.

And the automation and test and measurement, but in the meantime, again sort of the softness coupled with people being looking.

Looking at their own inventory in the channel inventory is is putting some headwinds in front of us for the industrial sector, but the softness through the first half in these areas.

The combination.

Both related but it's not just Oems.

Oems some of your Oems Destocking at its new ships, a weaker environment in both these areas yeah I think yeah.

Yeah.

That's a fair assessment.

You know as demand softens, and you say hey, we've got inventory in the channel or you know so they're kind of interrelated, although I will say, there's just a general sense of I'm not going to carry as much inventory now that we're through the pandemic. The lead times have come down on components, you know I can deliver faster. So you know I'm going to look carefully at that but.

Roop Kalyan Lakkaraju: Our GAAP earnings per share for fiscal year 2023 was $1.79. Our GAAP results included restructuring and other one-time costs, totaling $9.3 million related to the completion of the Moorpark California closure, the right sizing of certain manufacturing sites, and a net gain of $4.6 million from a legal settlement. Both GAAP and non-GAAP gross margin of 9.5% increased 70 basis points due to lower SCP. Without SCP, our gross margin would have been 9.8%. The gross margin expansion was driven by improved operational efficiencies and the proactive cost reduction actions taken by our manufacturing site. Our SGMA was $147 million, down 2% year-over-year, driven by the cost actions taken. Combined with lower variable compensation, non-GAAP operating margin was 4.4%, an increase of 80 basis points driven by the gross margin expansion.

Yeah. That's that's some of what we're seeing in both sectors got it just two quick follow ups and I'll jump back in the queue.

No.

Yes.

Progress on gross margins can you continue to deliver on these kind of gross margins and just kind of a soft environment you alluded to it in your presentation I'm just trying to get a sense of your confidence as to whether you can maintain these kind of margins.

Oh, Yeah, Hey page.

Hey, Jim its route, but so maybe I'll start with this.

I think for US obviously, a focus for us has been on getting to that 10% and sustaining that 10%. As we've also said historically, we will see you all kind of bounce around a little bit quarter to quarter, but based on kind of where we're at and kind of the mix of revenue the proactive cost actions, we've taken that kind of 10%.

Roop Kalyan Lakkaraju: The non-GAAP effective tax rate was 20.1% for the year, and our non-GAAP EPS was $2.00. Please turn to slide 12 for discussion of the effects of SCP on a trended basis. In Q4, SCP declined to $8 million versus $16 million in Q3 2023 and $46 million in Q4 2022. On a year-over-year basis, SCP declined by $209 million to $59 million in 2023. Looking into 2024, we expect SCP to be immaterial.

As you know, we're we'd like to be throughout.

Throughout the year I think depending upon how demand continues to profile and as you know where the demand comes in within our factories in these sort of things start to come into play.

So I think theres an opportunity to do so definitely at that 10%. We've got work to do this to sustain that.

On a longer term basis.

Got it and nice progress on inventory, how do we think about that going forward should we see that continue to come down over the next couple of quarters. Yeah. I mean, it's it's clearly yes. This is Jeff again, its clearly a priority for us we've kind of demonstrated that a lot of things culminated.

Roop Kalyan Lakkaraju: As such, beginning in Q1 2024, we will discontinue references to performance, excluding SCP. Please turn to slide 13 for a discussion of our cash conversion cycle performance. Our cash conversion cycle days were 98 in the 4th quarter compared to 105 days in Q3. Our inventory decreased sequentially by $42 million.

In fourth quarter to drive a lot of free cash flow and inventory was certainly.

Really a lead there, but but it's something we're putting a lot of attention on as you can imagine and.

Roop Kalyan Lakkaraju: Cash Conversion Cycle Improved by 7 Days Due to Improved Working Capital Efficiency and an Increase in Advanced Payments from Customers, please turn to slide 14 for an update on liquidity, pre-cash flow generation is a critical focus. To that end, in 2023, we reduced inventory and improved working capital, and reported a full year free cash flow generation of $97 million, which exceeded our annual goal of $70 to $80 million per year. In 2024, we again expect to generate 70 to 80. Our cash balance on December 31st was $283 million, and Jeffrey Benck, Roop Lakkaraju, Jaeson Schmidt, Roop Lakkaraju, Jaeson Schmidt, Roop Lakkaraju, Please turn to slide 15 for a discussion of our capital allocation activities.

Particularly in a softer environment.

We're really looking at it at that in and spending a lot of energy.

We do believe we will continue to drive this down as we go through 'twenty four and then certainly see a reduction even in Korea in the first quarter. So this wasn't like a one time event, but the last few quarters, we started coming down off of what was a peak and I think first quarter of last year. So.

So anyways, yes to your point it's important.

Got it thank you.

Thanks sure.

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

Hi, Good afternoon couple of questions from me just first on the semi cap.

Slide on on Slide 18, where you're talking about sort of flattish trends.

Outperformed last year pretty pretty dramatically versus the overall market, but if they are you still seeing the market down or are you trying to be conservative in terms of talking about first half or like is there a certain programs or are you seeing down versus up et cetera. I can just doesn't seem to compute fully with how the market might be might be flattening out and you guys have been out.

Roop Kalyan Lakkaraju: We invested approximately $78 million in capital spending in 2023, including $11 million in Q4, both primarily in support of continued growth in our Mexico facilities and enhanced capabilities in our precision technologies business. We expect our CapEx spending in Q1 2024 to be between $10 and $15 million. On a full-year basis, we anticipate 2024 CapEx to be in the range of $55 to $65 million. In Q4, we paid cash dividends of $5.9 million and totaled $23 million for the full year 2023. Since 2018, we have paid cash dividends totaling $136 million. We did not repurchase any outstanding shares in 2020.

For me.

What I would say is you know sequentially I think you know in that chart 18, we kind of said, it's kind of flattish at that level, we've been at which is clearly off.

Up off the bottom that we saw a year ago in the first quarter.

But we're just not seeing dramatic.

Dramatic recovery.

And some of the segments that were legacy that we have been really strong and not and certainly not tools that were near end of life. So the wafer fab equipment, you know I think capital spending is still being managed.

Managed pretty close and we just haven't seen that broad semi recovery I think we're we've outperformed what's helped US is we've won incremental new tools, we have a ton of NPI activity going on where we're building new tools and thats, helping us certainly outperform and I.

Roop Kalyan Lakkaraju: As of December 31st, we had approximately $155 million remaining in our existing share repurchase authorization. Starting in Q1, we expect to repurchase shares opportunistically while considering market conditions, starting on slide 16. For the first quarter of 2024, we expect revenue to range from $625 million to $665 million. Our non-GAAP gross margin is expected to be between 9.8% and 10.2%. We expect SG&A expenses to range between $34 and $36 million.

I look to get more constructive here.

I won't say that we're being conservative because we literally have heard a lot of the major Oems, where we play in most of those if not all of those at some level you know they've all kind of said, yes, it's it's kind of flatter now.

Thank you.

We have the potential I don't know why we wouldn't continue to do better than the market. It's just that with the China restrictions and some of the even some of the chips Act.

Roop Kalyan Lakkaraju: Our non-gap operating margin range is forecasted to be 4.5 to 4.7. As a reminder, this includes approximately 50 basis points of stock-based compensation. Non-GAAP guidance excludes the impact of $1.2 million in amortization of intangible assets and $3.1 to $3.5 million of estimated restructuring and other expensive support incremental steps necessary to proactively manage our costs given the current market. Our non-GAAP diluted earnings per share is expected to be in the range of $0.42 to $0.48. Other expenses net are expected to be approximately $8.5 million.

Really not going to see the benefit of that until 'twenty five.

Just moving parts that has a sort of looking at it saying you know what do we see in front of us for first half and it's kind of continuing at the level we've been.

That's really helpful. And then just broadly on the other end markets, where you're seeing pressure.

Do you have sort of have the most confidence level or evidence that things could be bottoming out.

Cyclically in like medical industrial and comms.

Advanced computing sort of episodic, but like any other three were yep.

Roop Kalyan Lakkaraju: Interest expenses are expected to decline sequentially, given the reduction in revolver debt. However, over the near term, this will be partially offset by increased foreign exchange headwinds due to the weakening U.S. dollar. We have historically managed our exchange risks through a proactive hedge program, and we will continue to do so. We expect that in Q1, our non-GAAP effective tax rate will be 24%, based on a weighted average share count

Strong signs of that or.

Upcoming signs just any I mean, we kind of I guess, we've gotten some indication on medical that.

There may be some again, it's early but say hey, there may be returned to normal normal pace.

With inventory looking at second half like we might see some.

Some reflection there where maybe there is like you know we saw it in semi where the first quarter was like we're taking it down and you have that big reaction. So maybe we start seeing that in the fourth quarter with medical industrial I still think it is so broad so many different companies you know, it's a little harder to look at.

Roop Kalyan Lakkaraju: Our effective tax rate will be higher in 2024 because of our China tax holiday, which expired as of December 31st, 2023. We are applying for another tax holiday, which we hope to receive in 2024, retroactive to the beginning. Also, in 2024, some of our foreign jurisdictions will be adopting Pillar 2, the global minimum tax regulations, on a fiscal year basis. We believe the average 2024 effective tax rate should be approximately, and with that, I'll turn the call back over to you, Jeffrey. Thanks, Roop. Please turn to slide 18.

Where the bottom is and then <unk>.

D has been strong and continues strong and I guess, we said that in the thing I know you didn't ask about that but you know certainly that's been a bright spot and do you expect that to continue do you want to add anything Yeah, Hey, Steve. This is Rob I'll just add one thing I think maybe.

Building off of Jeff's comments, if you think about industrial Nextgen comms, it's capex related and Capex considerations I think are weighing on customers' minds and just market in general I think medical has an opportunity to that point for that reason to come back a little bit faster, Jeff Jeff indicated which is another point.

Jeffrey W. Benck: Again, all commentary related to demand trends by sector is excluding SCP. Within SEMICAP, our fourth quarter performance was up modestly, sequentially, and in line with our expectations. On a full year basis, revenue performance was down in the high single digits. This compared favorably to the overall industry revenue trend, which we believe was down approximately 20%. As mentioned in prior calls, we believe our Semicap sector likely bottomed in the March quarter of 2023. However, based on public commentary from many Semicap OEMs, we don't expect improved demand at the industry level to return over the next few quarters. This may change in late 2024, but it's too early to make that call. Looking forward into 2025 and beyond, we continue to believe in the strong secular drivers propelling global semi-demand. Added to this are government subsidies designed to accelerate the reshoring of wafer production to North America and Europe.

Just keep in mind.

Yeah, and the one thing with medical you know just just to you know maybe the example, we built defibrillators right and components and subsystem for defibrillator and you think about like during the pandemic no. One is going to stadiums airports and that's where that's where we.

We saw a huge surge back right when things opened up you started seeing demand there and then people got on a run rate and they said Wow. This is great and this is the new normal and I, just think you've seen that modulate a little bit as you kind of caught up with that and people saying okay.

Still care for its still important not gonna go away, but just not maybe as is crazy upside as there had been.

Jeffrey W. Benck: Although we won't see the downstream effects for some time, this is just another example of the long-term drivers that serve as the basis of our strong commitment to the sector. In support of all these demand drivers and our confidence in our ability to benefit, we have been investing heavily in our capabilities for winning new programs, which we believe positions us well to continue to outperform the market. We had a number of new wins in the quarter, including an important next-generation WaferFab equipment program with one of our existing customers.

That's helpful. And then just if I could squeeze one last one in one.

One of your one of your peers seems to be.

Walking towards providing EPS, excluding SBC and so I mean, you guys may get lonely with your own Etfs approach I was curious if any chance of you guys' changing how you report your EPS.

Yeah, we we did notice that.

The only peer that was kind of aligned with us on on including.

Including stock based comp and the non-GAAP results sort of indicated there was a shift there so to that end, we we got to assess our current approach and we will provide an update when we conclude that and.

Jeffrey W. Benck: In medical, this past quarter, we did a good job meeting demand as the supply chain continues to improve, offset this with some incremental demand softening later in the quarter, both as a function of end markets and customer focus on inventory levels. As such, while we had expected performance to be down in the quarter, it was down more than anticipated. For the full year, Medical delivered high single-digit growth driven by our ramping program wins and our improved ability to meet demand.

We will look to get back on that but obviously peer comparisons are important to us, but we've got to decide what's right for us and we did we did pick up on that so so thanks for bringing it up great.

Great we will keep them in EMEA. Thanks.

Yeah.

The next question comes from Jason Smith of Lake Street. Please go ahead.

Jeffrey W. Benck: Despite this success, we expect the demand environment will challenge our ability to deliver growth in this sector in the first half of 2024. Looking forward, our new wind momentum, driven in part by the continued trend toward near shoring, bodes well for our future growth. We continue to secure new wins during this past quarter. Importantly, not only are we seeing new program wins with existing EMS customers, but we continue to benefit from the advantage of our end-to-end offerings, converting engineering engagements into EMS wins. As these winds begin ramping later in 2024 and into 2025, we expect to see growth return to this sector. Turning to complex industrials, we continue to extend our footprint in key growth markets, including electrification, automation, and energy management solutions. One example in Q4 is a program to manufacture control subsystems going into electric vehicles used primarily in the construction industry. Another key win was an automated guided vehicle system specifically designed to address the needs of the hospitality and medical sectors.

Hey, guys. Thanks for taking my questions no it's going to vary by segment, but just curious at a high level. If more of the issue is the man for current programs that you've already won you noted for customers not wanting to hold a lot of inventory any more or is the bigger issue new pro.

Grams that you thought would currently be ramping just getting pushed to the right.

I think it's I think it's some of both I mean, I've certainly seen you.

When people are watching expenses closely and I think we've seen some some ramps moved to the right, but but but but really when you consider the bulk of our revenue is with existing programs and these are multi year programs. I think we've just seen that overall demand modulate and.

I don't know that we've actually measured both I'm, just giving you a little my gut feel from what we're seeing that that it's probably I would probably lean more.

Towards.

The base business and then some of the new stuff coming in.

Is.

Some of Thats in flight, but not fully ramped yet and it's not always the best environment to launch new stuff, but I don't think that stops I just think that we're seeing that.

With that folks are being careful about their development expense and so that has an impact sometimes on timelines.

Jeffrey W. Benck: This win again demonstrates the benefit of our broad capabilities as we transition the design engagement into a manufacturing win. Within energy management, we are pleased to win new manufacturing business in Guadalajara with an existing customer, which is part of their near-shoring strategy. Industrial sector revenue performed slightly better than expected in the fourth quarter, up 8% year-on-year, versus our flat-guy gains.

Okay. That's helpful. And then are you seeing any change in attach rates for your design and engineering services, just given the changing macro.

We're almost we're almost 80% not quite to what the target. We had set so we haven't that attach rate has been pretty pretty pretty good I'm pretty happy with that obviously.

We have we had a couple of wins, we referenced even one where we've done the engineering on a G V product and and now it's moving into manufacturing. So that's that we love that the whole product realization and how do we help customers get to market faster with their OEM designs or design that we might help develop or develop the whole thing.

Jeffrey W. Benck: However, as with medical, the quarter saw some second half softening due to weakening end demand. However, the near-term corrections notwithstanding, we are continuing to invest in our industrial sector team given the large opportunity in front of us and how well we were positioned to grow with this customer set. Now turning to AMD.

And we've got a couple of great proof points. There. So still an important metric for US then and really hasn't shifted materially from from how we did last quarter.

Jeffrey W. Benck: We had another strong quarter of revenue performance and new wins in Q4, continuing our momentum in the sector. Commercial airspace has remained strong for us since early 2023, which we believe will continue based on our order load.

I don't really see that.

That being a trend or anything.

Gotcha and then just the last one for me no. It's mix dependent tiered program dependent but can you remind us what capacity is for the Mexico facility and then what current utilization is today.

Jeffrey W. Benck: Meanwhile, within defense, although some component lead times are not yet back to historical levels, they continue to improve. This has allowed us to more fully meet the continuing increase in demand we're seeing from our customers. At the same time, we continued to secure new wins in the past quarter, notably one for ground vehicle communications and another for imaging systems used at military training sites. This balance of end demand strength, Design Wind Momentum, and Gradually Improving Supply Chain has us positioned for continued growth in 2024. Within advanced computing, revenues were consistent with the guidance provided last quarter, up low single digits year on year, albeit up considerably on a sequential basis.

Hey, Jason that's that's yeah I can give you generally we don't give specific utilization in these sort of things with that said what I would reinforces our continued investment in Mexico as you would imagine there's been quite a bit of reassuring.

And with existing Oems, who want to expand new programs in Mexico, and so we've seen the benefit of that so we've been aggressively investing over the last couple of years.

In our in our capacity and availability there and we're seeing that capacity get used up as we are as we've gone over the last few periods and into 'twenty four and into 'twenty five yes, it's funny, we've seen growth in Mexico, but we've also added capacity would continue to add capacity and it's been an investment areas. So we're not.

Jeffrey W. Benck: As previously shared, after a pause in Q3, last quarter, we began delivering upon a new HPC program for a large OEM supporting a national lab, which will likely be completed in the first half of 2024. We are working on new HPC opportunities to drive future growth, but given the timing of these projects, coupled with our growth in the first half of last year, we currently expect advanced computing revenue to be down for the first half of 2024. Finally, in Next Generation Communications, we've been highlighting anticipated challenges at the industry level for a few quarters now. The communication sector is seeing broad pressure on capital spending while at the same time more aggressively managing through their own inventory position. This has resulted in continued end-demand weakening, which we believe will persist for several more quarters. As such, we expect sector revenue to be down materially in the first half and likely for the full year.

It's not like we're seeing.

You know the fact that we've invested has allowed us to sort of stay in front of that so we're not like that capacity by any means.

Okay perfect. Thanks, a lot guys. Thanks.

Thanks, Jason.

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 Andrew.

Thank you everyone for participating in Benchmark's fourth quarter 2023 earnings call before we go I'd like to remind listeners will be attending the Sidoti small cap virtual conference on March 13th.

Please remember to check the events section of the IR website at <unk> Dot com slash of investors for updates to the schedule.

Thank you again for your support and we look forward to speaking with you soon.

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

Yeah.

[music].

Jeffrey W. Benck: In summary, please turn to slide 19. I couldn't be more pleased with our performance in 2023. Despite the challenging market dynamics, we continue to invest in future growth, building on our business with both new logos and expansion wins from existing customers. We do this while growing non-gap revenue and operating margins year on year. Despite our pace of investment, particularly in support of SEMICAP, we exceeded our free cash flow target range for the year. This was aided by a material reduction in total inventory. Meanwhile, as compared to 2022, we reduced net debt by almost 60% to less than $48 million.

Yes.

[music].

Jeffrey W. Benck: We continue to make progress, but we are not complacent with our success. There is much more for us to do. We make great headway in 2023 towards our target model of full-year gross margins of 10% and greater than 5% non-GAAP operating margins. In fact, we achieved these levels in the fourth quarter. Our job now is to sustain this gross margin while closely managing our costs during the softening demand environment. Second, we will continue our efforts on inventory reductions in support of delivering free cash flow. And finally, we plan to further reduce our debt and interest expense while returning capital by continuing our dividend program and resuming share repurchase.

Operator: We look forward to updating you on our progress as we move through the year. With that, I'll now turn the call over to the operator to conduct our Q&A session. To ask a question, you may press star, then 1 on your telephone keypad.

Operator: If you are using a speakerphone, please pick up your handset before pressing the. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question will come from Jim Ricchiuti of Needham & Co. Please go ahead. Hi, thanks. Good afternoon.

Jim Ricchiuti: So, Jeff, I wanted to just focus on two of the sectors, medical and industrial, because I think you're kind of clear on some of the other ones what you're seeing. Not entirely clear on where you see medical and industrials going. It's often, I guess, midway or so through Q4.

Jeffrey W. Benck: Do you see that recovering, or is this something that maybe persists through the first half of the year? Yeah, I think for both of those, we kind of in chart 18, we kind of give you some first half guidance. We didn't go out to the full year, just given the dynamic environment.

Jeffrey W. Benck: But just looking at the first half, we see both of those, you know, being down from, like, where we ended the second half of last year. In medical, while supply constraints eased and allowed us to fulfill the demand we saw, we did see forecasts come down in the fourth quarter that continued in one queue. You know, we certainly believe people are paying a lot of attention to inventory, some of it, you know, probably related to that softness. But I will say there's still a lot of outsourcing activity, and nearshoring continues. We're excited about a number of new wins in Mexico for us as medical OEMs look to, you know, get closer to the point of consumption. On the industrial side, again, I would say a similar kind of broader, it depends a little bit by OEM, but certainly saw broader softness that looks to persist into the first half. That's an area where, you know, we did pretty good with wins.

Jeffrey W. Benck: We, you know, we put a resource into that a few years ago, and we still believe we're really well positioned there with some of the activity we're seeing in, you know, energy management and automation and test and measurement. But in the meantime, again, you know, sort of the softness coupled with people being, you know, looking at their own inventory and the channel inventory is putting some headwinds in front of us for the industrial sector. But the softness through the first half in these areas is both a result and a combination.

Jeffrey W. Benck: They're both related, but it's not just the OEMs, some of your OEMs are destocking; it's there's just a weaker environment in both these. Yeah, I think that's a fair assessment. It's, you know, as demand softens, then you say, hey, we've got inventory in the channel, or, you know, so they're kind of interrelated. Although I will say, there's just a general sense that I'm not going to carry as much inventory. Now that we're through the pandemic, the lead times on components have come down, and I can deliver them faster. So, you know, I'm going to look carefully at that. But, but yeah, that's some of what we're seeing in both. Got just two quick follow-ups, and I'll jump back in the queue.

Jim Ricchiuti: You know, nice progress on gross margins. Can you continue to deliver on these kind of gross margins? It's kind of a soft environment, and you alluded to it in your presentation, just trying to get a sense of your confidence, whether you can maintain these kind of margins. Yeah. Hey, Jim, it's Roop.

Roop Kalyan Lakkaraju: So maybe I'll start with this. You know, I think for us, obviously a focus for us has been on getting to that 10% and sustaining that 10%. As we've also said, historically, we'll see kind of that bounce around a little bit, quarter to quarter. But based on kind of where we are at, and kind of the mix of revenue, the proactive cost actions we've taken, that kind of 10% is, you know, where we'd like to be throughout the year, I think, depending upon how demand continues to profile. And as you know, where demand comes in within our factories, and these sort of things start to come into play. So I think there's an opportunity to do so definitely at that 10%.

Jeffrey W. Benck: We've got work to do to sustain that over the longer term. Got some nice progress on inventories. How do we think about that going forward? Should we see that continue to come down over the next couple of quarters? Yeah, I mean, it's clearly, this is Jeff again. It's clearly a priority for us.

Jeffrey W. Benck: You know, we've kind of demonstrated that. A lot of things culminated in the fourth quarter to drive a lot of free cash flow, and inventory was certainly really a lead there. But it's something we're putting a lot of attention on, as you can imagine. And particularly in the software environment, we're really looking at that and investing a lot of energy in it. We do believe, you know, we'll continue to drive this down as we go through 24 and certainly see a reduction even in the first quarter. So this wasn't like a one-time event, but in the last few quarters, we started coming down off of what was a peak in I think the first quarter of last year. So anyways, yeah, to your point, it's important.

Steven Fox: Thank you. Sure. The next question comes from Steven Fox of Fox Advisors; please go ahead. Hi, good afternoon.

Steven Fox: A couple of questions for me, just first on the SEMICAP, slide on, on slide 18, where you're talking about sort of flattish trends. You guys outperformed last year pretty dramatically versus the overall market. But if, are you still seeing the market down? Or are you trying to be conservative in terms of talking about the first half? Or like, are there certain programs where you're seeing down versus up, etc.

Jeffrey W. Benck: Like, it just doesn't seem to compute fully with how the market might be flattening out, and you guys have been out. What I would say is, you know, sequentially, I think, you know, on that chart 18, we kind of said it's kind of flattish at that level we've been at, which is clearly off, up off the bottom that we saw a year ago in the first quarter. But we're just not seeing a dramatic recovery, you know, in some of the segments that were legacy that we've been really strong in, not and certainly not tools that were near the end of life. So the way for fab equipment, you know, I think capital spending is still being managed pretty closely. And we just aren't seeing that broad semi-recovery.

Jeffrey W. Benck: I think where we've outperformed, what's helped us is we've won incremental new tools, we have a ton of NPI activity going on where we're building new tools, and that that's helping us certainly outperform. And you know, I look to get more constructive here. I won't say that we're being, you know, conservative because we literally have heard a lot of the major OEMs where we play in most of those, if not all of those, at some level, they've all kind of said, yeah, it's kind of flatter now. I think we have the potential; I don't know why we wouldn't continue to do better than the market. It's just that with the China restrictions and some of the even some of the chip act, you know, we're really not gonna see the benefit of that till 25.

Steven Fox: There's just moving parts that have a sort of looking at it and saying, you know, what do you see in front of us for the first half, and it's it's kind of continuing at the level we've been at. That's really helpful. And then just broadly on the other end markets where you're seeing pressure, where do you have sort of the highest confidence level or evidence that things could be bottoming out? Cyclically in like medical, industrials, comms, I know advanced computing sort of episodic, but like in the other three where, you know, you have strong signs of that or, you know, upcoming signs.

Jeffrey W. Benck: I mean, I guess we've gotten some indication on medical that there may be some, again it's early, but say, hey, there may be a return to normal normal pace with inventory looking at the second half. We might see some some reflection there where maybe there's like, you know, we saw it in the semi where the first quarter was like, we're taking it down, and you have that big reaction so, you know, maybe we I still think it's so broad, so many different companies, you know, it's a little harder to look at where the bottom is and then A&D has been strong and continues to be strong, and I guess we said that in the thing. I know you didn't ask about that, but, you know, certainly that's been a bright spot and I expect that to continue. Do you want to add anything?

Jeffrey W. Benck: Yeah, hey Steve, this is Roop. I'll just add one thing. I think maybe, you know, building off of Jeff's comments, if you think about industrial, next-gen comms, that's CapEx related, and CapEx considerations, I think are weighing on customers' minds and just the market in general. I think medical has an opportunity at that point for that reason to come back a little bit faster, just as Jeff indicated, which is another point to, Yeah, and one thing with medical, you know, just, you know, maybe an example: we build defibrillators, right, and components and subsystems for defibrillators. And you think about, like, during the pandemic, no one was going to stadiums and airports, and that's where, you know, we saw a huge surge back, right, when things opened up.

Jeffrey W. Benck: You start seeing demand there, and then people get on the run rate, and they say, wow, this is great, and this is the new normal. And I just think you've seen that modulate a little bit as you kind of catch up with that, and people say, okay, still care about it, still important, not going to go away, but just not, you know, maybe as crazy, you know, upside as there had been. That's helpful.

Steven Fox: And then just if I could squeeze one last one in, one of your peers seems to be walking towards providing EPS, excluding SBC. And so, I mean, you guys may get lonely with your own EPS approach. I was curious if there is any chance of you guys changing how you report your EPS. Yeah, we did notice that the only peer that was kind of aligned with us on including StockBase Comp in their non-GAAP results sort of indicated there was a shift there. So, you know, to that end, we have to assess our current approach, and we'll provide an update when we conclude that. And, you know, we'll look to get back on that. But obviously, peer comparisons are important to us, but we've got to decide what's right for us.

Jeffrey W. Benck: And we did pick up on that. So thanks for bringing it up. Great. We'll keep doing the math. Thanks.

Jaeson Allen Min Schmidt: The next question comes from Jaeson Schmidt of Lake Street. Please go ahead. Hey guys, thanks for taking my questions. I know it's going to vary by segment, but just curious at a high level if more of the issue is demand for current programs that you've already won, you know, customers not wanting to hold a lot of inventory anymore, or is the bigger issue new programs that you thought would currently be ramping just getting pushed to the right? You know, I think it's I think it's some of both.

Jeffrey W. Benck: I mean, I've certainly seen, you know, people are watching the expense closely, and I think we've seen some, some ramps move to the right. But I, but I, but I, but really, when you consider the bulk of our revenues, you know, with existing programs, and these are multi-year programs, I think we've just seen overall demand modulate. And, you know, I don't know that we've actually measured both.

Jeffrey W. Benck: I'm just giving you a little my gut feel from what we're seeing that it's probably I would probably lean more towards the base business. And then some of the new stuff coming in, you know, is some of that's in flight, but not fully ramped yet. And it's not always the best environment to launch new stuff.

Jeffrey W. Benck: But I don't think that's stopping. I just think that we're seeing that, you know, folks are being careful about their development expenses. And so that has an impact sometimes on, Okay, that's helpful.

Jeffrey W. Benck: And then are you seeing any change in attach rates for your design and engineering services, just given the changing macro? You know, we're almost, we're almost at 80%, not quite to the target we had said. So we haven't, that attach rate's been pretty, pretty, pretty good. I'm pretty happy with that. Um, obviously, uh, we have had a couple wins. We referenced even one where we'd done the engineering on an AGV product and now it's moving into manufacturing. So, you know, that we love the whole product realization and how we help customers get to market faster with their OEM designs or designs that we might help develop or develop the whole thing. And, and we've got a couple of great proof points there. So still an important metric for us then, and it really hasn't shifted materially from how we did last quarter. Um, and I don't really see that, uh, that being a trend or anything.

Roop Kalyan Lakkaraju: Gotcha. And then just the last one for me, no, it's mixed dependent or program dependent, but can you remind us what the capacity is for the Mexico facility and then what its current utilization is today? Hey Jaeson, that's, I can give you a general idea; we don't give specific utilization and these sort of things. With that said, what I would reinforce is our continued investment in Mexico. As you would imagine, there's been quite a bit of reshoring and with existing OEMs who want to expand new programs in Mexico, and so we've seen the benefit of that. So we've been aggressively investing over the last couple of years in our capacity and availability there, and we're seeing that capacity get used up as we go over the last few periods and into 24 and into 25. Yeah, it's funny, we've seen growth in Mexico, but we've also added, we'll continue to add capacity, and it's been an investment area. So you know, we're not, it's not like we're seeing, you know, the fact that we've invested so much is to sort of stay in front of that. So we're not like at capacity by any means.

Jaeson Allen Min Schmidt: Okay, perfect. Thanks a lot, guys. Thanks, Jaeson, no worries.

Paul Manske: This concludes our question and answer session. I would like to turn the conference back over to Paul Manske for any closing remarks. Thank you, Andrea, and thank you, everyone, for participating in Benchmark's fourth quarter 2023 earnings call. Before we go, I'd like to remind listeners we'll be attending the Sudoti Small Cap Virtual Conference on March 13th. Please remember to check the events section of the IR website at bench.com slash investors for updates to the schedule.

Operator: With that, thank you again for your support, and we look forward to speaking with you soon. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

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