Q1 2025 Benchmark Electronics Inc Earnings Call
Yeah.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the benchmark first quarter, 'twenty 25 earnings call and webcast.
At this time all lines are in listen only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: 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 and Tuesday April 29 2025.
Paul: I would now like to turn the conference over to Paul <unk> Investor Relations at benchmark. Sir. Please go ahead.
Speaker Change: Thank you got some pain and thanks, everyone for joining us today for Benchmark's first quarter 2025 earnings call Q1 extra day, joining us today are Jeff Burbank, our CEO and president and Bryan Schumaker, our CFO.
Paul: After the market closed we issued an earnings.
Paul: Release pertaining to our financial performance for the first quarter ending March 2025, and we have prepared a presentation, which we'll reference on this call.
Paul: Both the press release and presentation are available under the Investor Relations section of our on our website at <unk> Dot com.
Paul: This call is being webcast live and a replay will be available online following.
Paul: Following the conclusion of today's call. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix to the presentation.
Paul: Please take a moment to review the forward looking statements disclosure on slide two in the presentation materials.
Paul: For our call we will discuss forward looking information as a reminder, any of today's remarks, but 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 those statements.
Paul: <unk> undertakes no obligation to update any forward looking statements for today's call, Jeff will start with an overview followed by Brian deeper dive into the results in our first quarter guidance.
Speaker Change: As usual, we will conclude with just share more insight into demand trends by sector, new business wins and some final remarks, if you'll please turn to slide four I will turn the call over to our CEO, Jeff Lang.
Paul: Thank you Paul good afternoon, and thanks to everyone for joining today's call.
Speaker Change: Our first quarter 2025 results demonstrated our continued operational focus despite the tariff related market uncertainty that we faced late in the quarter, while some customer decisions may be temporarily impacted by today's fluid environment.
Paul: They have never needed our partnership advice and capabilities more.
Paul: These challenges create opportunities for us as we help them navigate this turbulence and optimize their global supply chain for the most efficient distribution of their products around the world.
Paul: Let me step through a few highlights on the quarter.
Paul: First quarter revenue of $632 million was led again by double digit growth in our semi cap and A&D sectors.
Paul: At the same time, we delivered our sixth consecutive quarter of greater than 10% non-GAAP gross margin in eighth quarter of positive free cash flow.
Paul: non-GAAP operating margin was down sequentially and year on year due to the decrease in revenue, but we're confident in our ability to drive margins to 5% and above as we returned to revenue growth.
Paul: Lastly, non-GAAP earnings per share of 52 cents was above the midpoint of our guidance range, continuing our trend of protecting profitability, even in the face of revenue headwinds and part of our business.
Paul: Turning to slide five.
Paul: Looking at the quarter, we were pleased by the performance in semi cap, which was up 18% year over year in the quarter as we continue to gain share from our competitors in this market.
Paul: Our A&D sector also performed well in Q1 up 15% year over year led by our defense programs, where we're in the middle of several new ramps, while also benefiting from strength in traditional products.
Paul: At the same time, we generated another $27 million in free cash flow in the quarter.
Paul: Totaling slightly more than $140 million on a trailing 12 month basis.
Paul: As for the current demand environment, we faced in Q2, we've already seeing customers pause in shipments while others are looking to pull in specific products given the dynamic nature of the global tariffs executive orders taking place.
Paul: However, with our significant U S manufacturing footprint at 36% and our broader north American footprint, representing over 55% of our total global manufacturing capacity.
Paul: I believe we're exceptionally well positioned to help our customers optimize their supply chain.
Paul: I would also like to take a minute to thank our global trade compliance team for the amazing results. They delivered over the last few weeks, ensuring that we continue to deliver on our commitments.
With that I'd now like to turn it over to Brian for more detail on the quarter and our <unk> guidance.
Brian: Thank you, Jeff and good afternoon, everyone. Please turn to slide six.
Revenue in the quarter of $632 million was down 4% sequentially and 6% year over year, our non-GAAP EPS was <unk> 52.
Brian: Which was in line with our guidance range of 48 to 54 cents.
Brian: As a reminder, our non-GAAP results exclude stock based compensation.
Brian: Amortization of intangible assets and restructuring and other expenses.
Brian: For Q1, our non-GAAP gross margin was 10, 1%.
Brian: This represents a 30 basis point decrease quarter over quarter, and a 10 basis point increase year over year.
Brian: non-GAAP operating margin was four 6% down 50 basis points sequentially, and 30 basis points year over year impacted by the lower revenue base.
Brian: Our first quarter non-GAAP effective tax rate was 25% driven by jurisdictional income mix. Please turn to slide seven for our first quarter 2025 revenue by market sector.
Brian: Semi cap revenue decreased 2% quarter over quarter due to some sequential softening, while still growing 18% year over year.
Brian: Industrial revenue was similarly down 2% quarter over quarter, driven by existing customer demand softness not fully offset by new program ramps.
Brian: And A&D revenue was up 4% quarter over quarter.
Brian: Commercial aerospace demand remains consistent while defense continues to be robust.
Brian: Within medical revenue was down 12% versus the prior quarter, we continue to see demand softness in the sector led by medical devices.
Brian: Finally, <unk> revenue decreased 12% quarter over quarter as anticipated. This decline was driven by timing related weakness in both HBC and our communications business.
Brian: Please turn to slide eight for trended non-GAAP financials.
Brian: As you will see despite the revenue headwinds among several of our end markets. We continue to focus on protecting gross margin, which again expanded year over year.
Brian: Meanwhile, operating margin declined slightly both sequentially and year over year.
Brian: Please refer to slide nine and 10 for a discussion of our balance sheet cash flow and working capital trends.
In Q1, we generated $32 million in operating cash flow and $27 million in free cash flow.
Brian: Our cash balance on March 30, <unk> was $355 million a year over year increase of $59 million.
Brian: As of March 31, we had $121 million outstanding on our term loan.
Brian: $155 million outstanding against our revolver from which we have $391 million available to borrow.
Brian: Our Q1 2025 liquidity ratio was calculated by our debt Covenant was <unk> six down from <unk> nine in the prior year period.
Brian: We invested approximately $4 million in capex during the quarter, primarily in support of our Malaysia, and Thailand facilities.
Brian: In support of returning capital to our shareholders, we paid cash dividends of $6 $1 million in the quarter.
Brian: Okay.
Brian: We also repurchased $8 million of our outstanding shares.
Brian: At the end of the quarter, we had approximately $142 million remaining in our existing share repurchase authorization.
Brian: Our cash conversion cycle in the quarter was 86 days, improving three and eight days sequentially and year over year, respectively inventory days were up slightly sequentially, which was more than offset by improvements in accounts receivable and payables.
Brian: Please advance to slide 11.
Brian: Let me now turn to our guidance for our second quarter of 2025, we expect revenue to be within a range of $615 million to $665 million. While first half revenue is expected to decline mid single digits year over year.
Brian: We expect revenue of mid single digits in the second half.
Brian: We expect non-GAAP gross margin to be between 10, 2% and 10, 4%, which is consistent with our performance year.
Brian: Performance over the last several quarters with.
Brian: With those assumptions, we would expect non-GAAP operating margin to be between four 8% and four 9% on.
Brian: On a GAAP basis, we expect expenses to include approximately $5 $3 million of stock based compensation and $4 seven to $4 8 million of non operating expenses, including amortization restructuring and other charges.
Brian: Our non-GAAP diluted earnings per share is expected to be in the range of 52 to 58.
Brian: Interest and other expenses are expected to be approximately $4 $2 million. We expect our Q2 effective tax rate will be between 24 and 26% our weighted average share count is expected to be approximately $36 7 million.
Brian: Regarding free cash flow, we expect our Q2 capital spending to be $15 million to $20 million, primarily related to our Penang facility expansion.
Brian: In addition, our Q2 cash flow performance will be negatively impacted by a $10 million legacy tax assessment related to a 2016 customer audit in Mexico.
Brian: Which was reflected in our Q1 2025 GAAP results in April we also paid our final installment of the 2017 transition tax which totaled $20 million.
Jeff: Q1 marks the eighth quarter in a row of positive free cash flow and we believe we are structurally positioned to continue this trend once we get past Q2, which includes the tax payments noted above and with that I would like to turn the call back over to you Jeff.
Brian: Okay.
Jeff: Thanks, Brian.
Brian: Please turn to slide 12 for a discussion of our performance and outlook by sector.
Brian: Semi cap revenue grew an impressive 18% year over year in Q1, which was similar to our Q4 performance and clearly a multiple of the market's growth.
Brian: This performance was driven by ramping wins and share gains we have achieved over the last few years.
Brian: The broader industry recover recovery continues to be mixed due in part to the competing forces of AI semiconductor growth evolving restrictions on sales of advanced wafer fab equipment into China.
Brian: Increased domestic demand in support of new Fabs coming online in the U S and capital spending pause due to tariff uncertainty.
Brian: All things considered we continue to expect incremental growth in this sector, which had been a focus area of investment over the last several years.
Brian: To that point this past quarter, we broke ground on a new facility in Penang, Malaysia, and supportive of our future growth plans.
Brian: Further providing us confidence in our continued growth I was pleased with our breath of new wins in semi last quarter, which cut across our precision technology engineering any EMS capabilities.
Brian: Turning to our industrial sector revenue performance was down slightly in Q1.
Brian: Although it may take a few quarters to return to year over year growth in this sector I'm incredibly encouraged by our momentum in terms of new bookings, which was the strongest performance for the company in Q1.
Brian: These wins included a new digital display customer and new programs with a geospatial solution provider, who is expanding with us.
Brian: Over time, I'm confident that industrial sector will be one of the greatest sources of future growth.
Brian: Both as a function of our greenfield opportunities and an expectation that outsourcing will become a greater consideration within this sector over the coming quarters.
Brian: Within A&D. This sector continues to perform well for us driven by strong defense demand and growing new programs in space, while commercial air demand remained steady.
Brian: Revenue in the quarter was up 15% year on year based on our existing wins and new bookings, we expect growth both sequentially and year over year throughout 2025.
Brian: Supporting our confidence this past quarter, we saw continued bookings momentum across EMS and engineering opportunities supporting A&D.
Brian: Notably within space and defense Subsectors.
Brian: I am pleased with our A&D team's performance and look forward to continued momentum over the foreseeable future.
Brian: Yeah.
Brian: And medical Kim continued demand softness in existing programs and customer delays in new program ramps weighed on our results both sequentially and year over year. We are confident we have not lost share with any of their existing programs, but as we've highlighted previously this market recovery.
Brian: It's taken longer than anticipated.
Brian: In the meantime, we've continued to make significant progress in securing new wins within the sector.
Brian: Across both manufacturing and engineering.
Brian: This comes within our traditional medical and growing life science business, which I'm very optimistic about.
Brian: As these take time to ramp and our existing programs to begin to recover we're looking forward to a return to year on year growth from this sector in the second half of 2025.
Finally, our ACN fee revenue declined more than anticipated in the quarter due to new program timing issues with both the next generation <unk> platform launch that's continued to push to the right and the delayed ramp from our new <unk> wireless transport family of products in <unk>.
Brian: The indications.
Brian: As we've been saying for several quarters now we expect <unk> revenue growth to remain challenged through much of 2025.
Brian: However, within computing, our deep expertise in liquid cooling and complex computer system Assembly is leverages <unk> beyond <unk> and we're working on that we.
Brian: We clearly have proven capabilities from helping to build the subsystems that went into the fastest supercomputers on the planet.
Brian: Combined with solid bookings strength in the quarter. We believe we are well positioned to return to growth in <unk> as early as Q4 of this year.
Brian: In summary, please turn to slide 13.
Brian: Our first quarter of 2025 results build on our foundation of delivering consistency.
Brian: We've been conscious about what sectors, we plan and continue to invest where we can add greater value.
Brian: This is allowed us to improve our mix and increase our value add which has resulted in us now steadily delivering greater than 10% non-GAAP gross margins, despite a challenging revenue environment.
Brian: While today's global macroeconomic uncertainties create short term risk. They also create mid to long term opportunities based on our strong north American footprint, and our global reach enabling production closer to consumption.
Brian: Furthermore, we're responding to customers' increased propensity to accelerate outsourcing.
Brian: Particularly if theyre building only building products in one country and their own factory.
Brian: As they realize.
Brian: There is a need to better optimize their supply chain leveraging our partner like benchmark.
Brian: Our opportunity pipeline in inbound quote activity from new large customers is very encouraging.
Brian: While our return to year over year growth is taking a quarter or two longer than anticipated given market dynamics Theres. No question that it's in flight and barring a recession brought on by tariffs, we expect to deliver sequential growth throughout the balance of the year, which should allow us to grow year over year in the second half.
Brian: In the meantime, we will continue to prudently manage our spending to protect profitability and generate free cash flow for the full year.
Brian: As it relates to the return of capital we tend to consistently support our quarterly dividend, while stepping up our share repurchase activity.
Brian: And we will continue to evaluate M&A opportunities as they come to us that align with our strategic plans.
Brian: Let me wrap up by saying that regardless of the market environment benchmark will stay on course and continue to invest in strategic growth.
Brian: We're also going to continue to support our customers as a trusted partner and advisor.
Brian: We will stay focused and win new business in the sectors in which we participate.
Brian: There are plenty of organic opportunities for us out there and we have the right business development organization now to capture our fair share.
Brian: I look forward to updating you on our success in quarters to come with that I'll now turn the call over to the operator to conduct our Q&A session.
Speaker Change: Thank you very much Sir ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Do you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: You'll hear a prompt that your hand has been raised.
Speaker Change: Should you wish the decline from the polling process. Please press star followed based on number two if you are using a speaker phone. Please make sure to lift your handset before pressing any case.
Speaker Change: Your first question comes from the line of Jim Ricchiuti from Needham <unk> Company. Please go ahead Sir.
Jim Ricchiuti: Hi, Thanks, good afternoon.
Speaker Change: Jeff It sounds like Youre seeing some customers pausing others pulling in.
Speaker Change: Is the net result of this more of a headwind for you in our the Poland coming into.
Speaker Change: Into Q2 from the second half.
Speaker Change: Yeah, what I would say is.
Speaker Change: Right now, we see things balancing out so we don't see a tipping one way or the other I mean, we've seen some of our competitors say, they're not seeing movement, we're just reflecting.
Speaker Change: What we're hearing and seeing from customers what I would say is a few customers who are nervous about the second half and where the tariffs may go when there's three months pauses and lifted and we see where things land out.
Speaker Change: With executive orders I also think if you're in.
Speaker Change: An area, that's got a particularly high tariff on it.
Speaker Change: You might you might wonder how is that going to shift and there are other things that can be done. So I would say more activity than normal here, but that being said I don't see it overly biasing too you know.
Speaker Change: Helping us more in Q2 or even really materially hurting. It's just there's just a little more uncertainty, but I would say in the balanced it's kind of it's kind of canceling each other out.
Speaker Change: Got it and with respect to.
Speaker Change: Maybe your existing customers that are looking to do some supply chain optimization or some of the ones you alluded to their newer.
Speaker Change: Are there some initial headwinds that youre going to see from this as customers evaluate their supply chains and you try to accommodate them.
Speaker Change: I would tell you that our win a couple of the bids that we're competing on and looking to close we've had a few that have that have taken longer that have elongated while folks contemplated to think about if you are.
Speaker Change: You were thinking of going to Mexico, but maybe youre contemplating contemplating Thailand as well.
Speaker Change: Now going Okay U S. MCA it seems like it's a good thing I mean, we're excited that over 95% of our products are qualifying for U S. MCA. So we're able to do that without tariffs. So that's great. But you know earlier on there was a lot of concern about 25% coming from Mexico, and now you got Thailand.
Speaker Change: 10% of our Penang at 10%, so, it's definitely causing folks to contemplate and have us run some different scenarios and look at different things and so I would say that's elongated the cycle a bit on the new bookings for sure and so we're seeing some of that happen.
Speaker Change: And that's kind of I'm not sure if that's exactly where you're kind of go into your question, but we've seen that caused some of that.
Speaker Change: Just that uncertainty.
Speaker Change: That's helpful and last question from me Joe you can.
Speaker Change: Excited about some of the traction youre seeing in industrial.
Speaker Change: Where are you seeing these mainly existing customers and new customers.
Speaker Change: It's a balance of both we see some good follow on business.
Speaker Change: And some of the electronic controls like for example in.
Speaker Change: In HVAC.
Speaker Change: The sub sectors and things like that but beyond that.
Speaker Change: It just continues to be new growth in <unk> and some of the automation solutions and so we're seeing some nice new incremental wins, but then also.
Speaker Change: Some repeat business as.
Speaker Change: Customers look to do more with us So I would say it's fairly balanced at this point.
Speaker Change: We also are seeing.
Speaker Change: Some kiosk activity I mean, this has been a number of.
Speaker Change: New sub sectors that we're seeing incremental opportunities maybe one other one where we've got some recent wins is in.
Speaker Change: As in the gaming.
Speaker Change: Sub sector, which we would would fall into our industrial as well.
Speaker Change: I'll jump back into queue. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Steven Fox from Fox Advisors. Please go ahead.
Steven Fox: Hi, Good afternoon from my first question I, just wanted to make sure I heard correctly. It sounds like you are saying.
Steven Fox: First half is down mid single digit percentages year over year in the second half is up mid single digits year over year is that did I hear that correctly.
Steven Fox: Yes, that's correct, Steve and if you look at it its sequential growth quarter over quarter as we look throughout the year.
Speaker Change: And so my question is like in the second half when you see that reversing trend.
Speaker Change: Obviously defense and semi cap is doing well, but like is there anything else you're sort of seeing a reversal of fortune that we should count on for a second half based on current I mean, we're seeing we're certainly seeing.
Speaker Change: It's interesting as a little maybe a little different than last quarter. We're seeing some finally, some pick up in medical and see medical.
Speaker Change: Having the opportunity for a stronger second half and some of the some of the.
Speaker Change: Current customers that have been down are starting to show more signs of life from a growth perspective.
Speaker Change: And also.
Speaker Change: As we talked about in the script I think late in the year, we see computing telco with a new win on the <unk> side of things and maybe some of Thats frankly easier compare as well, but we start to see year on year growth. There in industrial I think it's a little bit of wait and see we certainly see a lot of good.
Speaker Change: New bookings.
Speaker Change: But those do take time to kick in.
Speaker Change: And we saw a little bit of softness in test and measurement so industrial right now.
Speaker Change: More.
Speaker Change: A little more uncertainty there, but we are probably besides semi in A&D. We think will continue to be strong through the year as we've talked about so maybe maybe medical adds to that and then we start getting more help as you get towards the end of the year.
Speaker Change: Great. That's helpful. And then just a couple of other specific so I wasn't clear when we think of that sort of high end compete programs do you have a line of sight to others ramping down the road at this point and they've just been delayed just if you could sort of give us an expectation for how that business comes back and then I had one yeah. So we do.
Speaker Change: You have anticipation.
Speaker Change: That will fully participate with with the partners that we've been with on the next generation. It's just.
Speaker Change: The actual chipset and platforms seem to continue to move to the right, which is kind of pushed us beyond our expectations that we might see.
Speaker Change: Improvement.
Speaker Change: Later this year.
Speaker Change: I guess, what I would say is it was a little more pronounced down in the front end and sometimes when you're working on is really large supercomputers. You know we've talked about helping build three of the top five supercomputers in the world that will build on this.
Speaker Change: Pro forma <unk> platform.
Speaker Change: While you may not have always Lawrence Livermore lab, putting in a new platform. There is a lot of smaller systems that leverage the same platform that get built out and so we sort of expect some fill in from some of that and so it's not like everything is resting only on the new platform, but we did see a more pronounced.
Speaker Change: Impact in the first half, which dragged down our compute business.
Speaker Change: In that.
Speaker Change: We think that certainly there is new product introduction work that goes on in the second half, but the real significant ramp in HBC will probably be more next next year. Unfortunately, although.
Speaker Change: Like I said, we could see some fill in with some smaller systems.
Speaker Change: In the second half and certainly we're engaged in and those kind of things.
Speaker Change: Great and then just lastly on semi cap I mean, so yes, he talked about a lot of negatives, but youre still growing 18%. So I'm just trying to understand like.
Speaker Change: Like I appreciate the disclosure, but like how many of those things that are having a material impact on the business versus what you expected to see.
Speaker Change: We started the year, where it's like it felt like really good momentum in semi like <unk>.
Speaker Change: Stronger than even anticipated.
Speaker Change: Obviously, 18% year over year, it's great growth, so I'm not discounting that but it's like looking out to the back half I thought okay, we're off to the races again, but.
Speaker Change: Certainly right everybody's talking to AI and this is the driver and it drives some of the most advanced nodes and all of that the reason that I talked about some headwinds is just talking to all of our large customers. We're seeing some further restrictions on China and selling into China and some of these very large Oems.
Speaker Change: It might be 20% 25, 30% of their traditional sales have been into China. So as that restrict if that gets for six it further or some of the restrictions that have happened have caused some order softening there.
Speaker Change: But then at the same time you know we've got a brand new fab here in the Phoenix Valley that Keith.
Speaker Change: You know building out and as that comes online domestically, we see demand for wafer fab equipment to go into that so I guess, what we're saying is in balance like there is there is headwinds than there is tailwind we still think we will grow at a few.
Speaker Change: At a multiple of the market growth rate, which I think right now what I've read recently is maybe 3%. We're certainly looking to do quite a bit better than that but I. Just didn't want everybody to think that Oh semi is just up into the right and there's no there's no risk here.
Speaker Change: Maybe that's where the transparency on that front, yes, that's super helpful. I appreciate all that color.
Speaker Change: Sure.
Speaker Change: Your next question is from the line of Jason Smith from Lake Street. Please go ahead.
Jason Smith: Hey, guys. Thanks for taking my questions I know you highlighted in the script that you saw some nice bookings across a number of verticals where are your bookings up sequentially in Q1.
Jason Smith: They were up year on year, but not not ups not up kind of more flattish sequentially from our fourth quarter and I think we.
Jason Smith: We anticipated a little stronger than I think we talked a little bit about some of the delay where there was a few larger deals that the customers just kind of waiting to see where things bottom out on the tariff front.
Jason Smith: And so those haven't gone away.
Jason Smith: In fact, one recently closed and <unk> so well.
Jason Smith: We'll see I think things continue to kind of free up once people have a better certainty of where the tariffs are going to land.
Jason Smith: And whether their strategy is still makes sense right.
Jason Smith: But it was it was again good growth year on year for us our bookings and I know, we've kind of gotten away from.
Jason Smith: Covered a lot of specifics, but we try to give you some color as to how we're feeling by sector and what kind of things, we're winning and we shared that in the script.
Speaker Change: Okay. That's helpful and then the expected rebound in medical here in the second half as that can be really driven more by channel replenishment or new program launches.
Speaker Change: Well for a long time, we talked about.
Speaker Change: Medical being down because of channel inventory and some of the.
Speaker Change: Burn off of that and you know that working through so I don't know that people are going to build up.
Speaker Change: That Oems are going to build up inventory again, but just you know what.
Speaker Change: What we witnessed this some of our customers their actual business wasn't down as much as the softness we were seeing and the only other way you could really get there from our dialogue with them was well they had inventory in the channel that they were working through even though they were still seeing growth, we weren't and we certainly think that.
Speaker Change: That we're going to that we will see our base get better. But then we've also got some new competitive takeaways that we're excited about with a couple of new logos in the medical space. So.
Speaker Change: I think both will work together to help us there.
Speaker Change: Gotcha and then just the last one for me and I'll jump back into queue. How should we be thinking think about the tax rate in the second half of this year.
Speaker Change: Yes, so as we're modeling it out I mean, it dropped slightly like we gave Q2 and then if you look out two three and for Q3 and Q4, it drops a little bit so call it 24% for the year. So as we look out I mean, it's 23% to 26 is kind of how we're modeling it out so there's a range there and we're going to drive where we have a lot of folk.
Speaker Change: Right now on our strategic.
Speaker Change: Plan around tax and we're going to continue to look at that and how we can drive that down, but that's kind of the model for the remainder of the year.
Speaker Change: Okay perfect. Thanks, a lot guys.
Speaker Change: Your next question is from the line of Anya <unk> from Sidoti. Please go ahead.
Anya: Great and thank you for taking my questions.
Speaker Change: First in terms of medical.
Speaker Change: The inventory levels.
Speaker Change: Do you feel like they have normalized.
Speaker Change: We expect.
Speaker Change: To see growth in the second half for.
Speaker Change: I mean, certainly yes, I think we do believe that that a lot of rooms are worked through.
The bulk of the inventory.
Speaker Change: <unk> was built up as you can imagine on you were like one step removed. So we don't we'd always get perfect visibility by product line, but we knew in general there was a lot of dialogue over the last 18 months.
Speaker Change: Where they were the inventory needed to work through it.
Speaker Change: I think that's really why we're seeing a reflection of the demand order load pick up.
Speaker Change: Really even Q3 and beyond.
Speaker Change: Because we do we are now getting like six months visibility and we see some improvement there. So I think that that is sort of playing out for us.
Speaker Change: As you described.
Speaker Change: Okay. Thank you and you also mentioned your launch.
Speaker Change: Footprint in the U S in North America, but what kind of capacity utilization do you have them.
Speaker Change: Our ability to have to move projects over there.
Speaker Change: Yeah, we.
Speaker Change: We don't kind of publish really our capacity.
Speaker Change: By site, but just suffice to say I think we've said over a third of our footprint is U S based.
Speaker Change: We given the <unk>.
Speaker Change: Softer macro environment.
Speaker Change: We just have a lot of opportunity even with some of the consolidation we've done we've gotten more efficient in the factories were in we're trying to make sure that we have a lot of opened open space because customers a lot of times wont, particularly new Oems will come and say, okay, where do where can my product fit here and we.
Speaker Change: We just believe that.
Speaker Change: We know from where we sit that we can.
Speaker Change: Really accept quite a bit of incremental business and we're certainly seeing with what's going on with the tariffs and the desire to potentially near shore or re.
Speaker Change: <unk> domestically, we're seeing some nice inbound.
Speaker Change: Incremental opportunities that are coming forward and kind of try to touch on this in the script that if you think about an OEM that might be building in their own factory and right now Oems large Oems that are in multiple sites with us are saying well I might want to shift some of my you know.
Speaker Change: Thailand demand in Mexico, or maybe I'm going to move China, Thailand, or and they have that flexibility. If they are in multiple sites with us, but if you are like building your own product only in one site you really don't you really missed that opportunity and I think thats, causing some Oems to say, maybe we shouldn't be building.
Speaker Change: Ourselves if we were leveraging our partner like benchmark they could help us pivot. We certainly are standing at the ready to help a few customers I think a lot of customers. There is a little bit of wait and see right now like we don't see huge demand shifts, but we see a few that have said you know what I'm not comfortable just being in a.
Speaker Change: Asia Southeast Asia, or just being in Mexico, I may want to split that production and so.
Speaker Change: That's the kind of opportunity we offer but we certainly feel like.
Debt.
Speaker Change: That this is a great opportunity for us we've got a brand new site in Guadalajara that came online at the end of last year and is ramping some new medical customers for example, and then.
Speaker Change: There's things that just makes sense to be done in the U S. Whether it's like HBC go into a national lab or you think about some of the build out that's happening with data centers and such.
Speaker Change: That's an opportunity we talked a little bit about our water cooled infrastructure.
Speaker Change: That comes from our HBC space, but you kind of say well.
Speaker Change: No question, we can help with some of the more sophisticated data center solutions that are water cooling based and we're having some some early discussions on that and trying to leverage that so.
Speaker Change: We just think that's a bit unique for us that we are not.
Speaker Change: As you all know we only have one factory in China, but we've got 10 in the U S. So.
Speaker Change: You know if people want to build more product domestically, we're ready to go.
Speaker Change: Okay. Thank you.
Speaker Change: In terms of the cash flow this nice improvement in cash conversion conversion.
Speaker Change: Uh huh.
Darren: Improvement Darren do you have sort of.
Speaker Change: Target.
Speaker Change: Yeah. If you think about kind of inventory I mean, we're going to continue to drive the days inventory down on a kind of factor of now what I would say is you could have some improvements on that cycle. It could be offset by some of the growth in new program launches.
Speaker Change: And then on the other side.
Speaker Change: I mean, we're going to continue to work that out along with AP. So there's no target out there, but again, we've always talked about the four turns on inventory, whereas now I mean kind of the four turns today, where we want to get to closer to the five turns so that's what we'll continue to drive towards on that front, yes, that's what I would say.
Speaker Change: Not satisfied it for if there is good improvement to get there. If you take net of advance payments were probably north of where we are north of five.
Speaker Change: But we see opportunity to go further.
Speaker Change: I think I think as Brian said.
Speaker Change: Growth growth in bringing on new customers, where we need to invest in some inventory could could be a headwind as we get into the later part of second half, but but we certainly strategically think debt.
Speaker Change: We need to be north of five.
Speaker Change: Okay. Thank you and just one last one on the currency.
Speaker Change: One of the pressure and the dollars are you hedging at AMR.
Speaker Change: Yeah, what I would say is if you look at our overall revenue topline I mean, we're about 80% U S. Dollar already we have some natural currency hedges over in Europe, we do offer or we do some hedging in addition to that now as you've noted I mean, there has been significant fluctuation in currencies, but for the majority of it we are.
Speaker Change: Hedged.
Speaker Change: Okay. Thank you that was internationally.
Speaker Change: Okay.
Speaker Change: Thank you Ranya.
Speaker Change: Your next question is from the line of Melissa Fairbanks from Raymond James. Please go ahead.
Melissa Fairbanks: Hey, guys. Thanks, so much for for squeezing me in Jeff just wanted to follow up on a couple of things that you've said in answering a couple of different questions. The first was about along getting the cycle in terms of the new bookings that you are getting I've been around.
Speaker Change: While we've seen a lot of macro uncertainty in the past, but this really it seems kind of unprecedented and where some of these delayed decisions.
Speaker Change: It's reliant upon a lot of moving parts and they seem to a little bit more weighty than than what we've seen in the past.
Speaker Change: So.
Speaker Change: Knowing that the lead times for a brand new program typically extend into several quarters I've got two questions. One is how quickly can you pivot or launch a new program in a new facility based on what your customers want.
Speaker Change: And two does this potentially extend a bit of this headwind.
Speaker Change: Beyond just the next few quarters, because if customers are delaying their decision making.
Speaker Change: Means were slower to actually ramp the new programs, and then were slower to bringing that new revenue.
That may be a very loaded question and I don't really know if I can answer better.
Speaker Change: No that's okay.
Speaker Change: I can give you at least my view of it.
Speaker Change: I think that okay.
Speaker Change: Moving a customer at an existing facility.
Speaker Change: It's pretty challenging to do it in a quarter, but if we're building it and we've got obviously the manufacturing you know <unk>.
Speaker Change: Inside knowledge, and it's something that we're building and another facility, where we can leverage our teams right for their know how and and that hidden factory factor that sometimes you deal with.
Speaker Change: I think we've been successful in doing something in six months.
Speaker Change: Having something that's already moved again and ramped pretty significantly.
Speaker Change: What's exciting about even though some of these things are delayed some of the deals that we're looking at are actually competitive takeaways and what I like about those are already in production.
Speaker Change: So when you have a new medical product that Oh I got to go get FDA certified and I've got to build samples and then I Gotta go tested for a year that can take two years. Some of the deals that we're looking at that have been that have been.
Speaker Change: Delayed or strung along their product thats already being built either in a region or maybe domestically and theyre looking to move to a lower cost region.
I would say, even though it's kind of elongate ing those can happen quicker when you win that kind of business versus the greenfield or the brand new life Sciences product rate debt that we may be helping doing the engineering on right and so we kind of have a mix of both but some of what I'm, what I'm seeing more recently are real.
Speaker Change: Competitive takeaways were.
Speaker Change: They are already building the product in the region. They wanted to move to me in the region, but at the same time they are like well if we're going to move you do we moved you in Mexico or do we move to you in the U S.
Speaker Change: And can you call me in both your factories right. So some of that is what it is.
Speaker Change: I think we are in unprecedented times in terms of it just being very dynamic and you got to be flexible, but really what's kind of interesting as more of our Oems are coming to us wanting to have the strategic sourcing discussion about how do we think about it how can you help map, what where I should.
Speaker Change: Go how I think about not only what you bill but the supply chain. Those are some pretty interesting discussions that we can bring a lot of.
Speaker Change: You know experience and knowledge to bear and help with those.
Speaker Change: So I don't I don't know that this is a multi year kind of cycle thing, but certainly everybody is kind of waiting to see if some of these tariff agreements get done and then this stuff.
Speaker Change: You need to program do they.
Speaker Change: Yes, or do they do they stick or do we see kind of a restart of what we saw at the beginning of April which really no. One none of us want that yeah actually the competitive takeaways aspect of it that's actually very exciting that's really good news.
Speaker Change: Yes.
Speaker Change: Well, that's very good news.
Speaker Change: And then maybe just one quick follow up to one of your answers to an earlier question was about.
Speaker Change: Some of there are Oems that maybe do all of their own manufacturing internally today, whether it's across multiple facilities or within one region in particular and now they're looking to diversify are there opportunities for you too.
Speaker Change: Go in and acquire a customer's manufacturing facility and then kind of leverage that capacity.
Speaker Change: Or are these not is this not something that from a capital return strategy.
Speaker Change: It makes sense for you guys.
Speaker Change: We've done operate in place and world K with lift and shift I mean, I don't want to I don't want to acquire a factory and pay a premium on it you know what I mean, so we wouldnt really do add but what we have we have we've jointly invested with a customer we have also taken things over but we're pretty sensitive like if you.
Speaker Change: Tell me Hey can you take can you take over this factory. That's in you know, Louisiana and I've got no facilities, no infrastructure and I'm, just going to ultimately look to move that to Huntsville, why would I do that.
Speaker Change: But if it's if it happens to be in a footprint, where I'm at and I can leverage the team that I've got there.
Speaker Change: We are open that discussion, but what I was reflecting is really more.
Speaker Change: You know I'm an OEM.
Maybe mid market, but I'm building all in my own factory in Indiana.
Speaker Change: And.
Speaker Change: I am now contemplating tariffs on components of material coming into manufacturing, Indiana that may come from Taiwan, Singapore, China.
Speaker Change: Malaysia, and now I'm thinking Okay, now I got to pay the tariffs I'm still building in the U S. I can't move the whole supply chain.
Speaker Change: So what do I do well you might say if I was building in Mexico.
Speaker Change: Could assemble if its the right HST code and I can bring into the country without a tariff.
Speaker Change: Okay that might be maybe it's time to think about outsourcing.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Perfect.
Speaker Change: We're thinking about it yeah. That's excellent. Thanks, so much Jeff and thanks, Thanks, everyone I appreciate it guys.
Speaker Change: Okay.
Speaker Change: Next question is from the line of Jim Ricchiuti from Needham <unk> Company. Your line is now open.
Jim Ricchiuti: Hi, I just wanted to go back to the comments about Penang just remind us.
Jim Ricchiuti: The timing of that that ramp I know the building is just getting started right.
Speaker Change: Yeah, well. This is a this is the groundbreaking that we did in the first quarter, we talked about on the call. That's our fourth facility. There. So it's a brand new facility, it's going to give us more vertical integration.
Speaker Change: On the island, and it's going to be exciting because we can go from complete frame build.
Speaker Change: And do painting and a whole host of other things along with a bunch of clean rooms, but where we're obviously big in production already in.
Speaker Change: Penang and were seen as reflected in our 18% growth in the first quarter, we're seeing nice growth across.
Speaker Change: Several Oems there and we've got one particular OEM, that's kind of new to US there that's ramping nicely. So we kind of look for us to continue to grow.
Speaker Change: Year over year in Malaysia, the new facility really won't be fully online until next year, but the investments really going in this year and that's really with an eye towards.
Speaker Change: That we're going to continue the momentum and that's semi semi market, while we might have fits and starts and this has been hit on.
Speaker Change: Precedented Lee different recovery.
Speaker Change: We're still long in the space and feel like we have a differentiated value proposition there and so we're investing long term, but I don't want you to think that that new buildings required for us to be able to grow because.
Speaker Change: And the last down cycle, we freed up quite a bit of capacity and I should also remind you. We opened a brand new building in September of last year that was building three so that is now fully online. So that gave us more headroom. This is just building for that we started in June and the first quarter of this year.
And it is still building will be exclusively for semi cap customers right.
Speaker Change: Won't be exclusive, but we're certainly starting there we.
Speaker Change: We do see an opportunity for.
Speaker Change: Doing medical and other aerospace machining, but.
Speaker Change: Right now though.
Speaker Change: <unk> pipeline is pretty heavily.
Speaker Change: Dominated towards semi.
Speaker Change: Got it but you will have the flexibility depending on what happens so yes, it's not an exclusive semi factory per se.
Speaker Change: And just lastly, Jeff I feel like I've heard you mentioned M&A.
Speaker Change: Couple of calls and I don't want to make more of it.
Speaker Change: Then than it is but just is that geared toward potentially looking at expanding in one vertical or is it adding some technology capability is presumably more tuck in type.
Speaker Change: And how active is this.
Speaker Change: I think with.
Speaker Change: Sure thing, there's a lot of private equity firms that had been invested in manufacturing for six to eight years and so I think every week, there's a couple opportunities that.
Speaker Change: Kind of come to us and cross our desk.
Speaker Change: We've said, we're going to be very picky and disciplined and there are some areas that we might say.
Speaker Change: This could fill a gap for something that where customers have an interest in not.
Speaker Change: But we continue to believe there is plenty of organic opportunities. So it's not like M&A is is pressing us, but we do think it could augment the strategy and as we brought inventory down and created some capacity, it's something that we can certainly look at but we're really sensitive.
Speaker Change: Due to dilution in and.
Speaker Change: And wanted to do things that are that can be accretive in a fairly short period of time, but we're not at this point looking to expand it necessarily a new sector.
Speaker Change: And then the five that we support.
Speaker Change: But we will look at you know, where where can we enhance capabilities and high value add areas.
Speaker Change: In our portfolio.
Speaker Change: Okay. Thank you.
Speaker Change: Sure.
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star followed by the number wondering your Touchtone phone.
Speaker Change: And if you'd like to withdraw from the polling process. Please press Star then the number two.
Speaker Change: If you are using a speaker phone. Please make sure you lift your handset before pressing any case.
Speaker Change: There are no further questions at this time I would like to turn the call over back to Paul Matthews for closing comments Sir. Please go ahead.
Paul Matthews: Thank you Constantine and thank you everyone for participating in Benchmark's first quarter 2025 earnings call, we will be participating in the Sidoti small cap virtual conference on June 11th Brook, Thanks to this and other upcoming investor conferences and events. Please check the events section of our IR website at IR Dot dot com with that we thank you again for your <unk>.
Speaker Change: Court and look forward to speaking with you soon.
Speaker Change: Okay.
Speaker Change: This concludes today's conference call. Thank you very much for your participation you may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.