Q4 2024 Benchmark Electronics Inc Earnings Call
Thank You!
Good afternoon, ladies and gentlemen, and welcome to the Benchmark Fourth Quarter and Fiscal Year 2024 Earnings Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator.
Speaker Change: This call is being recorded on Wednesday, January 29, 2025. I would now like to turn the conference over to Paul Manske, Investor Relations and Corporate Development. Please go ahead.
Speaker Change: Thank you, John, and thanks, everyone, for joining us today for Benchmark's fourth quarter and fiscal year-end 2024 earnings call.
Speaker Change: Joining us today are Jeff Bank, our CEO and President, and Brian Shoemaker, our CFO.
Speaker Change: After the market closed, we issued an earnings release pertaining to our financial performance for the fourth quarter and fiscal year-end 2024 and have prepared a presentation which we'll reference on this call.
Speaker Change: Both the press release and presentation are available under the investor relations section of our website at bench.com.
Speaker Change: This call is being webcast live and a replay will be available online after we conclude.
Speaker Change: The company has provided a reconciliation of our gap to non-gap measures in the earnings release as well as the appendix to the presentation.
Speaker Change: Please take a moment to review the forward-looking statements disclosure on slide 3 in the presentation materials.
During our call, we will discuss forward-looking information.
Speaker Change: As a reminder, any of today's remarks which are not statements of historical fact are forward-looking statements.
Speaker Change: which involve risks and uncertainties as described in our press releases and SEC filings.
Actual results may differ materially from these statements.
Speaker Change: Benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will start with an overview, followed by Brian's deeper dive into the results and our first quarter guidance. We will conclude with Jeff sharing more insight into demand trends by sector, new business wins, and some final remarks. If you will, please turn to slide four, and I'll turn the call over to our CEO, Jeff Fang.
Jeff Fang: Thank you, Paul. Good afternoon and thanks to everyone for joining today's call. The fourth quarter and fiscal year 2024 continue to demonstrate our operational execution and reinforce the business model leverage we have as a company. This was exhibited by an outstanding year in margin expansion and free cash flow generation. Let me step through a few highlights.
Jeff Fang: Fourth quarter revenue of $657 million was in line with guidance as semi-cap, A&D, and complex industrials delivered strong results, which were offset by anticipated weakness in medical and AC&C.
Jeff Fang: Non-gap gross margin in the quarter of 10.4% continued our multiple quarter trend of year-on-year expansion.
Jeff Fang: Non-GAP operating margin was again over 5% but down slightly sequentially due to variable compensation true-ups given our strong annual performance.
Jeff Fang: Turning to slide 5, on a full year basis we grew non-GAAP gross and operating margins by 60 and 20 basis points respectively, which was quite an achievement in the face of mid single-digit revenue declines in 2024. This bodes well for our earnings leverage as we return to revenue growth in 2025.
Jeff Fang: We also reduced inventory in the year by over 130 million, or 20%. This helped enable us to generate over 156 million in free cash flow in the year, even with our ongoing investment of capital to support future growth.
Jeff Fang: I'd like to recognize the team for their efforts on inventory reductions, which helped enable these great results.
Jeff Fang: Looking forward, we expect to see revenue growth across the majority of our sectors in 2025. We will continue to maintain our focus on controlling expenses, improving operational excellence in our factories, and direct working capital to support our customers' growth plans.
Jeff Fang: In fact, as I mentioned in our release, this quarter we intend to break ground on a fourth building in Penang, Malaysia, primarily in support of our semi-capital equipment customers' needs as we continue to gain share and win new programs.
Jeff Fang: As we look forward to 2025, I am encouraged about the growth opportunities in front of us, driven by the previous wins we secured, the anticipated demand recovery in our industrial and medical sectors, and a return on the investments we have made in our capacity and capabilities.
Jeff Fang: Collectively, these dynamics position us well to deliver increased shareholder value in 2025 and beyond. I'd now like to pass the call over to Brian for a deeper dive into our results and outlook. Brian, over to you. Thank you, Jeff, and good afternoon, everyone. Please turn to slide 6 for our fourth quarter 2024 revenue by market sector.
A&B revenue was up 15% year-over-year.
Commercial aerospace, demand remains strong.
both within aviation and space applications.
Jeff Fang: Meanwhile, we continue to see robust demand within defense, including existing program momentum and a number of new program wins.
Jeff Fang: ACNC decreased 48% year-over-year as expected. This decline was driven by a couple of large HPC programs being completed earlier in the year combined with continued weakness in our communications business.
Please turn to slide 7.
Jeff Fang: Revenue in the quarter of $657 million was flat sequentially and down 5% year-over-year. Our gap earnings per share for the quarter was $0.50.
Jeff Fang: Our non-GAF EPS was $0.61, which was above the high end of our guidance range of $0.53 to $0.59.
Jeff Fang: As a reminder, our non-GAAP results exclude stock-based compensation, amortization of intangible assets, and restructuring expenses.
Jeff Fang: For Q4, our non-GAAP gross margin was 10.4%. This represents a 10 basis point increase year over year. Non-GAAP SG&A expense was $35.1 million, up 9% sequentially, and up 6% year over year due to higher variable compensation.
Jeff Fang: Non-GAAP operating margin was 5.1%, down 20 basis points sequentially, and down 40 basis points year-over-year, driven by higher variable compensation expense.
Jeff Fang: Our fourth quarter non-GAAP effective tax rate was 22.4%. Non-GAAP ROIC in the fourth quarter was 9.9%.
Jeff Fang: Please turn to slide 8 for our Revenue Comparison by Market Sector for the full year 2024.
Jeff Fang: Semi-cap revenue increased 12% year-over-year supported by improving demand and new customer wins. Industrial revenue decreased 4%. The decline was driven by reduced demand from existing customers, partially offset by new program ramps.
Jeff Fang: Medical revenue was down 19% versus the prior year due to the previously mentioned inventory rebalancing and in-demand weakness within medical devices.
Jeff Fang: A&D revenue was up 20%. Commercial aero demand remained steady while space demand continues to grow. Within defense, we see prod-based strength from existing programs as well as the launch of new program wins.
Jeff Fang: Finally in 2024, we repurchased $5 $1 million of our outstanding shares at the end of the year, we had approximately $150 million remaining in our existing share repurchase authorization.
Jeff Fang: Please advance to slide 14.
Jeff Fang: Let me now turn to our guidance for fiscal Q1 ending in March.
Jeff Fang: Yes.
Jeff Fang: We expect revenue to be within a range of $620 million to $660 million.
Jeff Fang: We expect non-GAAP gross margin to be between 10% and 10, 2%, which is consistent with our performance over the last several quarters.
Jeff Fang: non-GAAP SG&A expenses are expected to be within a range of 34% to $36 million with.
Jeff Fang: With those assumptions, we would expect non-GAAP operating margin to be between four 5% and four 7%.
Jeff Fang: On a GAAP basis, we expect expenses to include $4 million to $5 million of stock based compensation and two 6% to $2 8 million of non operating expenses, including amortization restructuring and other charges.
Jeff Fang: Our non-GAAP diluted earnings per share is expected to be in the range of 48 to 54.
Jeff Fang: Interest and other expenses are expected to be between $4 million to $5 million we.
Jeff Fang: We expect our Q1 effective tax rate will be between 23 and 24%.
Jeff Fang: Our weighted average share count is expected to be approximately $37 $3 million.
Jeff Fang: We are planning to spend between 15% and $20 million on Capex in Q1, and $65 million to $75 million for the full year.
Jeff Fang: The majority of our Q1 spending is in support of our Penang for.
Jeff Fang: <unk> building, which breaks ground in the current quarter with an expected completion in 2026.
Jeff Fang: Finally, we are anticipating free cash flow in Q1.
For the full year, we expect this to amount to $50 million to $80 million inclusive of the elevated capex spend associated with the investment in the new building in Malaysia, and with that I would like to turn the call back over to you Jeff.
Jeff Fang: Yes.
Jeff: Thanks, Brian.
Speaker Change: Please turn to slide 15 for a discussion of our performance and outlook by sector.
Speaker Change: Our semi cap revenue grew an impressive 18% year over year in Q4, and 12% on the full year. This was driven by new wins share gains and some recovery in specific sub segments of the semi cap industry.
Speaker Change: Despite the mixed recovery across the broader sector, we see signs of continued growth and it remains supportive of analysts long term forecasts pointing to the semiconductor industry, reaching one trillion in size by the end of the decade.
Speaker Change: It's obvious the current semi cap cycle has not followed historical patterns. However, we are continuing to invest in the long term based on our available capacity and share gains, we remain well positioned to grow faster than the broader market and.
Speaker Change: In fact, we are anticipating double digit growth in both the first quarter and for the full year.
Speaker Change: The breadth of new wins, this past quarter that encompass both precision technology and engineering provides us greater confidence in our continued momentum in this sector.
Speaker Change: And medical similar to the last few quarters inventory related demand softness has weighed on sector performance with quarterly and full year revenue declining versus the prior period.
Speaker Change: We expect to sort of prove over the next few quarters. This is leading us to a forecast of flat revenue environment for medical in 2025.
Speaker Change: However, we continue to pick up new wins in both life Sciences and class III medical devices.
Speaker Change: Which is a solid indicator of our long term growth opportunity in this sector.
Speaker Change: Take time to ramp given the highly regulated nature of the markets, but we believe this is a good leading indicator of our future growth in this traditionally strong sector for benchmark.
Speaker Change: Turning to complex industrials, we saw a return to year on year growth in Q4, although the full year was still a slight still down slightly looking into 2025, we expect low to mid single digit growth in this sector for the year with modest year on year growth in the first quarter.
Speaker Change: Macroeconomic challenges persist, but we see plenty of greenfield opportunities, both as a function of our unique capabilities and the sectors continued shift towards outsourced manufacturing.
Reflecting this the fourth quarter was particularly strong in terms of bookings, which consisted of competitive takeaways business expansion and new wins. This included a competitive win in commercial gaming and another in audio control systems, both from new customers.
Speaker Change: A&D is performing very well for us as defense continues to experience strong demand, while commercial air has recovered and provided stability.
Speaker Change: Both the fourth quarter and full year 2024 saw strong double digit year on year growth as we benefit from the expansion of existing programs and prior new business wins.
Speaker Change: This past quarter.
Speaker Change: <unk> was our second biggest bookings sector within the company, which was balanced across defense and space and encompass both manufacturing and engineering programs in.
Speaker Change: In the quarter, we closed an opportunity that expands upon an existing program for us at the department of Homeland Security, where we have been providing surveillance systems that enable better border protection.
Speaker Change: Looking forward, we expect continued double digit year on year growth from this sector.
Speaker Change: Lastly, <unk> revenue declined 23% year over year in the December quarter, and 30% in the full year.
Speaker Change: As we've been saying for several quarters now sector pressures are expected to persist at least into the first half of 2025.
Speaker Change: This is being driven by two key factors.
Speaker Change: One is the delay in timing of the Nextgen HBC platforms due to our planned technology transition.
Speaker Change: And the other being the time required to ramp in existing communication customers new product line that we won.
Speaker Change: Looking forward, we see new product introductions across both subsectors that should enable a return to growth late in the year.
Speaker Change: At the same time, we're proud to have been a key supplier in support of building three of the top five fastest supercomputers in the 64th edition of the top 500 list published in November.
Speaker Change: We look to expand our participation in this market as the next gen platforms that are introduced.
Speaker Change: In summary, please turn to slide 16.
Speaker Change: Our fourth quarter and full year 2024 results once again demonstrated benchmark <unk> ability to manage through volatility while delivering on our commitments.
Speaker Change: With the stakeholders and our valued customers.
Speaker Change: To that end, even though revenue contracted modestly during the year benchmark continued to drive non-GAAP gross and operating margin expansion.
Speaker Change: At the same time, we've generated positive free cash flow over the last seven quarters and expect this quarter to BRL.
Speaker Change: This speaks directly to our top to bottom focus as a company to execute our financial objectives, even in times of macro uncertainties like we've seen over the past year.
We're anticipating an improved demand environment as we progress through 2025 that should support our return to revenue growth for the year with earnings growth outperforming revenue.
Speaker Change: Finally, our execution has allowed us to continue to return capital to shareholders.
Speaker Change: In recent years. This has primarily been through our quarterly dividend, which we increased last year. However, we anticipate complementing this with increased share repurchases over the coming year.
Speaker Change: Let me wrap up by saying regardless of the market environment, we are committed to our strategy.
Speaker Change: We're going to support our customers in any way they need and at the same time drive further operational improvements within the company.
Speaker Change: We're winning new business in our focus markets and have a clear vision of what we need to do to drive future growth.
Speaker Change: I look forward to updating you on our success in the quarters to come and with that I'll now turn the call over to the operator to conduct our Q and a session.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: Didn't hear a prompt that there has been raised.
Speaker Change: Should you wish a decline from the polling process. Please press star followed by the number too.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys.
Speaker Change: Moment. These for your first question.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of Jim <unk> from Needham <unk> Company. Your line is now open.
Speaker Change: Hi, Thanks, good afternoon.
Speaker Change: So it looks like you are still anticipating pretty healthy growth in the SME market.
Speaker Change: In 2005, yes, how.
Speaker Change: How much of that is the continued benefit that youre seeing from share gains or are you actually hearing.
Speaker Change: More positive or.
Speaker Change: Im more positive comments from some of your OEM customers.
Speaker Change: I would say I would say, it's a bit of both weed.
Speaker Change: We definitely had a strong share gain year last year and it was driven last year's growth was driven more on the share gain side of things, but as we as we look to 'twenty five.
Speaker Change: We're seeing we're seeing some improved demand it's not across the whole sector. Some tools and some divisions of our Oems are doing a bit better but we also have won a lot.
Speaker Change: Our new bookings over the last several years in some of those are really ramping starting to ramp and 25%. So it's a combination.
Speaker Change: Can you elaborate on some of the areas within the customers that are showing a little better return to business.
Speaker Change: Or conversely ones that areas that are still somewhat sluggish.
Speaker Change: It's a little bit sensitive obviously.
Speaker Change: It's a pretty competitive out there so don't want to give too much detail. There I would say, we all kind of saw.
Speaker Change: Memory start to return a little bit faster.
Speaker Change: And.
Speaker Change: In terms of where the demand has been and the tools that support that.
Speaker Change: Now as we kind of look.
Speaker Change: It is.
Speaker Change: A lot more on the front end I would say and Thats, where we have greater exposure.
Speaker Change: In the wafer fab space than on the test in the backend.
Speaker Change: Of that platform.
Speaker Change: But.
Speaker Change: Some of the Oems work through inventory in the down cycle and others.
Speaker Change: We're really.
Speaker Change: Bringing on inventory, so there's a little bit of movement back and forth as we look across customer sets, but.
Speaker Change: But we think the market is healthy and.
We're looking for the market to overall be out there, but we think will grow faster.
Speaker Change: Got it and maybe a question for you Brian just.
Speaker Change: The Q1 guide does that reflect the normal seasonal increase in variable comp costs or is that pretty much.
Speaker Change: Also playing in I know you talked I think you called it out for Q4 as well and then just a quick quick one on cash flow congrats on that.
Speaker Change: Is there much more to do on working capital, particularly with respect to inventory.
Speaker Change: Yeah on the first question as you think of the variable comp components. There is a piece of that flowing into Q1, you also have higher taxes and everything reset in a year that kind of causes some of that increase in that period. So you have both of those that are driving that kind of so it is normalized for the Q1 time period.
Speaker Change: As far as the working capital again, we are going to continue to drive that if you look at the inventory historically, we've been it turns a while ago. A 555 turns and were going to continue to drive that from the four that we're at today on the inventory side of that and we'll continue to work on the other components of the working capital. So there is still more work to do there and we'll continue to drive that.
Speaker Change: Okay. Thank you.
Speaker Change: Yes, Thanks, Jim.
Speaker Change: Your next question comes from the line of Steven Fox with Fox Advisors. Your line is now open.
Speaker Change: Hi, Good afternoon, a couple of questions from me first off.
Speaker Change: Jeff This is about as good as he sounded about your end markets and a couple of years and I know you were adding.
Speaker Change: That was a compliment I'm not sure it's okay.
Speaker Change: Okay.
Speaker Change: Okay go ahead.
Speaker Change: And like if I go back to a couple of years ago, when you were sort of adding capacity.
Speaker Change: For some of the new programs that got delayed.
Speaker Change: Work through inventories et cetera.
Speaker Change: It seems like you would have some extra operating leverage as things start to improve here can you just sort of give us a sense for how much as things recover.
Speaker Change: You can leverage the margins and maybe what the offset is with the new Penang building.
Speaker Change: I had a follow up.
Speaker Change: Yes, no good question.
Speaker Change: We've got capacity there is no question right.
Speaker Change: You know we invested in expansion in Guadalajara, as well as in Romania, and <unk> right.
Speaker Change: And even some in Arizona around the.
Speaker Change: Semi cap space. So we did stand up over the last two years, some new facilities and expansion like Romania, we doubled the size of the current we didn't pick a new site or anything like that.
Speaker Change: No. There is no question that we've got opportunity here to drive more leverage as we get utilization up it is going to depend a little bit where the new business is and where that growth recovery happens because you know.
Speaker Change: It hits the right sites that are under loaded.
Speaker Change: That will be more beneficial part of the reason we did the expansion where we did some of the low cost regions allow our customers a regionalized or semi we see a lot of demand a lot of wins, there and so we put capacity, where we see that growth. So some of that is aligned with it but I think we would say we would.
Speaker Change: We would expect there to be more leverage.
Speaker Change: We're still we're still transitioning the first half we're down sequentially were down a little bit year over year, but we do see.
Speaker Change: Our thoughts and our forecast is for growth on the full year is as we've kind of indicated.
Speaker Change: So.
Speaker Change: I think your instincts are right in terms of the opportunity there for us.
Speaker Change: And in terms of the <unk> drag as you invest in new capacity any help on what the offset would be from some of that.
Speaker Change: We've we've kind of we did well with the paying three building, where we absorbed into our numbers and it really didn't show the drag obviously, we're just at the front end of this brand new building of lay into cash out in.
Speaker Change: We do recognize it.
Speaker Change: As it comes through it will hit the depreciation line, but given the outlook and prospects over the next several years.
Speaker Change: I don't think youll see much of an impact.
Speaker Change: From a standing up that new facility in Malaysia.
Speaker Change: Great and then just as a follow up you mentioned precision machining engineering, a couple of times in the prepared remarks.
Speaker Change: That also to drive margin and can you talk about maybe what's new and different there in terms of the wins or what you've accomplished navy.
Speaker Change: As to why I highlighted thanks.
Speaker Change: Yes, it kind of it kind of plays into the <unk>.
Speaker Change: <unk> growth in the investment there.
Speaker Change: One of the things we've been working to do is how do we do more vertical integration and so.
Speaker Change: Not just.
Speaker Change: We are.
Speaker Change: Ability now to be.
Speaker Change: The largest frame builder in.
Speaker Change: That region, right and that can support not only in Malaysia, but also Singapore.
Speaker Change: Our Oems might have facilities, but we can build these really large frames.
Speaker Change: Can.
Speaker Change: <unk> powder coat complete that we can then build the sub assemblies machine whether it's.
Speaker Change: The shower head or a platten the wafer rides on.
Speaker Change: And <unk>.
Speaker Change: E beam, well cooling coils into that build electronic cabinets around it then integrate that all in the frame I'll tell you there's not many folks in our space that can do that and we've continued to invest here to really have that kind of capability and I think the Oems are taking notice of that and we're in the right region and.
Speaker Change: And correspondingly, we're winning there.
Speaker Change: That's all very helpful. Thank you.
Speaker Change: Good morning.
Speaker Change: Your next question comes from the line of Jason Schmidt from Lake Street. Your line is now open.
Jason Schmidt: Hey, guys. Thanks for taking my questions just looking at the medical segment. I know you noted strong bookings just curious what end markets within this vertical youre seeing strength.
Speaker Change: Yes for new bookings, we've done we've done better most recently Jason.
Jason Schmidt: In life Sciences, whether its.
Speaker Change: Oh.
Speaker Change: Searching for the next Q.
Speaker Change: Sure.
Speaker Change: So more of a disease, but DNA sequencing those kind of sophisticated systems and.
Speaker Change: Solutions in that sector.
Speaker Change: Sub sector are good.
Speaker Change: Growing in the market and that people investment there.
Speaker Change: We also traditionally been pretty strong and medical devices as fluid management.
Speaker Change: And so we've seen some wins there.
Speaker Change: As well.
Speaker Change: Another area that we see more interest is just in <unk>.
<unk> solutions right whether that's.
Speaker Change: Whether that's at your home or in the hospital being able to track more and more people want real time feedback your doctor wants it.
Speaker Change: And some of those control systems.
Speaker Change: Our.
Speaker Change: Continuing to grow and we see ourselves participating there.
Speaker Change: Just to give you a little little sense of where we've seen seen that of course some of that.
Speaker Change: It does have a longer time to market just given the.
Speaker Change: When you're talking to like particularly.
Speaker Change: Class III products that have to go through FDA and all of that but but we're feeling pretty good about some of the new logos that we're bringing on to the company.
Okay. No. That's certainly helpful and I know, it's dependent on sort of what programs you're focused on but do you think you're losing share in medical or is it simply starting this inventory digestion period.
Speaker Change: Really the latter we really it's funny as you can imagine I always challenging our team on looking at understanding that.
Speaker Change: We're also talking a lot to our customers and.
Speaker Change: We know that there was a post COVID-19 exuberance, where people did believe that some of the demand that we saw come in snapping back was going to stay at that level and subsequently their channels.
Speaker Change: Absorbs some of that and so.
Speaker Change: I don't actually think the end market demand is better than what we're seeing because they've got product. They can support that with so you might see one of our customers grow but yet we're still seeing the business be a bit off.
Speaker Change: Feel very confident that we havent lost share and it's not like one customer either which is another kind of indicative, where we might have four or five customers that are all sort of dealing with that.
And some of its exposure to the particular vertical or subsegment, you're in and so I won't I won't say that every competitor of mine looks the same but but thats always what we're experiencing.
Speaker Change: Now that it is much more of an inventory deal that we thought.
Speaker Change: I will say, we probably thought that was going to work out by the end of last year, we now see it sort of trailing into the beginning of this year, it's certainly stabilized and.
Speaker Change: And thats encouraging, but we'll probably look to the second half to really see growth come back.
Speaker Change: Got you and then just the last question for me and I'll jump back into queue. I believe kind of Q4 gross margin was a record for the company or at least the highest.
Speaker Change: In the recent past not trying to back you into the corner on sort of a margin target through 2005, but just given all the dynamics of your business and the mix and bringing on new facilities. How much further expansion do you think is possible here.
Speaker Change: Yes, a lot of it.
Speaker Change: Thanks for the question, Jason a lot of it has to do with the mix on that too and the operational execution that we continue to do so on two things as you continue to hear US talk about the semi cap expansion A&D and <unk> fall off but some of that is going to drive that margin expansion on that and we'll see how that all kind.
Speaker Change: Kind of levels out throughout the year and the operation efficiencies I mean, we are very good at executing on that and we'll continue to try to be going forward on that whole component is ramping up and down as the factories.
Speaker Change: What we see the demand to be so again theres a lot of execution around that and we'll continue to keep our eyes on it and continue to drive that I mean, it's been a primary focus of ours and we will continue to be going forward as you've seen over the last several quarters and the expansion. We've had there as you mentioned I might just add a little color there too.
Speaker Change: While we were at the top end of the range against our competition on gross margin and we've done a great job of that and then the mix will help them.
Speaker Change: As Brian said operational efficiency helps too.
Brian Shoemaker: We have more focus on the operating margin line and what we can do there right and Thats focused on SG&A expense, but also growth.
Brian Shoemaker: We know we would get better we lever up quite well, we worked hard to get north of five for the year last year.
Brian Shoemaker: Obviously, we don't want to give up ground. There. So as we look at our full year now kind of crossed with more of our sectors showing opportunity for growth.
Brian Shoemaker: We're looking at low to middle single digit growth on the year overall, which is what can help us drive a better bottom operating margin line.
Speaker Change: Gotcha and I appreciate the color guys. Thanks a lot.
Brian Shoemaker: Thanks.
Brian Shoemaker: Okay.
Speaker Change: Your next question comes from the line of Melissa Fairbanks from Raymond James Your line is now open.
Melissa Fairbanks: Hey, guys. Thanks, so much for taking my question.
Melissa Fairbanks: I appreciate all the detail that you gave on the medical segment that was going to be my my leading question, but I feel like.
Melissa Fairbanks: I'm obligated someone is obligated to ask about AI on every earnings call. It seems.
Melissa Fairbanks: I know when we last spoke.
Melissa Fairbanks: A lot of your focus on the advanced computing side, obviously, it's just on the supercomputing.
Melissa Fairbanks: When we last spoke you had kind of suggested that there might be opportunities for you to benefit in some of the broader AI market spend just wondering if you could give us an update on that.
Melissa Fairbanks: Yes, we continued we continued.
Melissa Fairbanks: To talk about that and certainly put energy into it.
Melissa Fairbanks: As you can imagine building is helping to develop these large supercomputers and manufacture subsystems for that and stuff we deal with water cooled infrastructure than we did mentioned in the remarks that hey, we see that hasnt applicability to some of the AI systems.
Melissa Fairbanks: We are real sensitive about commodity <unk>.
Melissa Fairbanks: Server infrastructure that doesn't have the profile that makes sense to us, but as the complexities there.
Melissa Fairbanks: As there is more interest in doing things domestically, we certainly have infrastructure. So it's an area that we look that thats an opportunity for us participate more broadly the other thing I would say about AI and theres been obviously a lot in the press this week.
Melissa Fairbanks: Look.
Melissa Fairbanks: I think theres going to be pressure on bringing down the cost of AI and <unk>.
Melissa Fairbanks: Do you think about Moore's law and reducing the cost of computing that has never gone badly in terms of driving volume and demand and you know we do a lot to help.
Melissa Fairbanks: Wafer fab equipment, guys build systems to build ships and so as AI as a driver in that.
Melissa Fairbanks: We saw a large semi customer today announce some some uplift from AI.
Melissa Fairbanks: We think thats, a great way for us to participate as well.
Melissa Fairbanks: The precision technology.
Melissa Fairbanks: And our whole semi cap space that can.
Melissa Fairbanks: Can help there, but I think that's as far as we're willing to go.
Melissa Fairbanks: Day on our thoughts there, but we certainly see more opportunity to engage across our <unk>.
Melissa Fairbanks: <unk> and platforms.
Melissa Fairbanks: Okay, great. Thanks, so much that's all from me.
Melissa Fairbanks: Melissa.
Melissa Fairbanks: Okay.
Speaker Change: As a reminder, if you have a question please press star one.
Speaker Change: Our next question comes from the line of Ann Yes, others from from Sidoti. Your line is now open.
Great. Thank you for taking my questions and Im curious what youre seeing in the communications business. It sounded like you expect that to be weak.
Speaker Change: First half of the year.
Just curious what youre seeing there.
Speaker Change: Yes. It is.
Speaker Change: Is the one sector that that is a bit of a drag on our overall growth.
Speaker Change: Not not surprising because it's really two things that we've kind of pointed to that we've seen.
Speaker Change: This HBC space, where we've been more selective in compute to the more complex systems.
Speaker Change: It does have programmatic nature to it we're in a cycle now where we.
Speaker Change: Really large system, we completed last year.
Speaker Change: And now we're in that in that transition to the Nexgen platform. So we're seeing a bit of a lull there from some of our customers while that development is underway.
Speaker Change: We know that we feel confident they will come back and there's certainly ways.
Speaker Change: Ways that we can.
Speaker Change: Participate in smaller systems, but maybe not have quite as much on the big side, but then the other.
Speaker Change: Is that we have a communications customer that we're super excited about.
Speaker Change: Our new product line that debt there.
Speaker Change: They are bringing on and that we've won and we're in the process of re.
Speaker Change: Ramping that is well more back half loaded and so that will take time, but we're we're.
Speaker Change: We're feeling pretty good about the potential that that can have for us.
Speaker Change: And so those are two two transitions that we're looking at that's causing us to say, we will probably be down in <unk> this year, but.
Speaker Change: Certainly look to start seeing year over year growth in that.
Speaker Change: Light linked quarters of the year.
Speaker Change: Okay. Thank you and then can you remind us what your exposure to Europe is in terms of the revenue and then also what you're seeing there.
Speaker Change: Europe as.
Speaker Change: Europe is is just over 10% of our revenue it's not.
Speaker Change: Huge contribution, but it is important to us.
Speaker Change: And.
Speaker Change: I would say.
Speaker Change: Industrial in Europe has probably been a little softer.
Speaker Change: Also do semi semi work there as well and so given.
Speaker Change: That.
Speaker Change: Given that market's softness.
Speaker Change: <unk>.
Speaker Change: It's been okay, but certainly hasnt been a growth driver for us, but as I said it's.
Speaker Change: Approximately 10% of our overall revenue.
Speaker Change: Okay. Thank you and just one last time.
Speaker Change: How do you see the outsourcing trends in general.
Speaker Change: I'm, sorry, I missed the end of the outlook outsourcing trends outsourcing in general yeah.
Speaker Change: The macro environment I think every OEM is kind of looking at should.
Speaker Change: Should we be doing this in house, so should we leverage.
Speaker Change: A partner like <unk> like benchmark and so I would say there is nice in our pipeline.
Speaker Change: There is a good healthy dose of customers that are are looking to.
Speaker Change: Is there also some first time or don't want to bring on incremental capacity or maybe they just want to leverage our investment too.
Speaker Change: It continues to grow and so I think the outsourcing trend is definitely a tailwind for us.
Speaker Change: We've seen even in <unk>.
Speaker Change: Softer macro environment.
Speaker Change: Theres still continue.
Speaker Change: This on that so.
Speaker Change: And so that's.
Speaker Change: That was one thing I would say the only other thing is.
Speaker Change: We're also paying close attention to the tariff activity right and a lot of discussion right now about what happens with Mexico and.
Speaker Change: Potential China stepping up a little bit obviously, the tariffs already there on China.
Speaker Change: We have a pretty significant.
Speaker Change: Really the largest as a percent of our total U S footprint, we know we've got capacity there and so.
Speaker Change: Where we're standing ready to help customers that might decide they want you're really onshore not near shore if that if that move happens but.
Speaker Change: We like to see things work out so that's not super disruptive, but that being said.
Speaker Change: I think our domestic footprint as a positive.
Speaker Change: Okay. Thank you that was helpful.
Speaker Change: Hey.
Speaker Change: Sure. Thanks Roger.
Speaker Change: There are no further questions at this time I will now turn the call back to Paul Matzke. Please continue.
Speaker Change: Yes. Thank you John and thank you everyone for participating in Benchmark's fourth quarter and fiscal year 2024 earnings call for updates coming investor conferences and events. Please check the events section of our website at IR Dot bench Dot com.
Speaker Change: We thank you again for your support and look forward to speaking with you soon have a good evening.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.