Jim Ricchiuti

Jim Ricchiuti asked about Benchmark's increased confidence in demand across business sectors beyond Semi-Cap, specifically inquiring about areas where the tone of demand has changed over the last three months. He also questioned the outlook for gross margins with accelerating top-line growth and the potential for greater operating expense leverage.

Answer

President David Moezidis noted consistent performance, with Medical turning a corner, AC&C showing strong Q4 momentum, Semi picking up, and Industrial gradually improving. Regarding margins, David highlighted Q4 gross margin at 10.6% and Q1 guidance midpoint at 10.2%, emphasizing that operating margin leverage is the greater opportunity as revenue accelerates. CEO Jeff Benck added that Semi-Cap recovery helps, but overall scale in the model means SG&A does not need to grow at the same rate as revenue.

Jim Ricchiuti asked about the tone of demand in various business areas beyond Semi-Cap, specifically inquiring if confidence had increased in sectors like Medical, AC&C, and Industrial compared to three months prior. He also questioned how gross margins might evolve with accelerating top-line growth versus the potential for OpEx leverage.

Answer

David Moezidis, President, and Jeff Benck, CEO, responded that there were no overall surprises, with Medical having turned a corner, AC&C showing strong Q4 momentum continuing into the first half, Semi-Cap picking up, and Industrial remaining steady. Regarding margins, Bryan Schumaker, CFO, and Jeff Benck, CEO, expressed confidence in maintaining gross margins around 10.2% even with slight revenue dips, emphasizing that the greater opportunity for leverage lies in operating margin as SG&A does not need to grow at the same rate as revenue, with Semi-Cap recovery being beneficial despite AC&C's lower margins.

Jim Ricchiuti asked about the impact of pricing actions on hardware growth, specifically how much additional benefit could be expected in Q3 versus Q2. He also inquired about the nature and variability of larger projects within the door locking device business.

Answer

Andrew Vuono, CFO, clarified that the product pricing adjustments were effective at the beginning of Q2 2026 and were fully baked in for the balance of the fiscal year, meaning no significant additional benefit from these specific actions is expected in Q3 beyond what was seen in Q2. Kevin Buchel, President and COO, noted that the door locking business saw strength from various school and prototype projects, but emphasized that these were not so large as to create difficult year-over-year comparisons for future quarters.

Jim Ricchiuti from Needham & Company asked for quantification of the equipment sales pull-forward, elaboration on sell-through statistics, and the specific impact of tariffs on equipment gross margins during the quarter.

Answer

President and COO Kevin Buchel stated that sell-through stats were strong across the board in June and that distributor ordering activity remains healthy. CFO Andrew Bono addressed the margin question, clarifying that there was limited benefit from price increases in Q4. He quantified the negative tariff impact on COGS at approximately $1 million for the quarter, noting that the company expects to see a lift in margins in Q1 as new pricing is fully effective. Chairman and CEO Dick Soloway added that the company is focused on releasing additional recurring revenue products.

Jim Ricchiuti inquired about Teledyne's order numbers and book-to-bill ratios across its main segments for the recent quarter and full year. He also asked for the full-year sales from the unmanned business in 2025 and its projected growth in 2026.

Answer

Robert Mehrabian (Executive Chairman) reported a Q4 book-to-bill of 1.07, with instrumentation at 1, digital imaging at 1.06, aerospace and defense at 1.25, and engineered systems under 1. The full-year book-to-bill was 1.08. He stated that the combined unmanned businesses generated about $500 million in revenue in 2025, with an expectation to grow to approximately $550 million in 2026.

Jim Ricchiuti sought clarification on the sequential decline in Q3 gross margin, specifically the impact of a project closeout, and asked if the assumed lower gross margin for 2026 is primarily a function of project mix.

Answer

CFO Peter Johansson indicated that a specific project closeout contributed 30-50 basis points to the Q3 gross margin reduction. CEO Todd Gleason added that Q3 is historically CECO's softest quarter for gross margins due to seasonal factors and modest inflation. For 2026, Peter Johansson clarified that if gross margins are lower, it would primarily be due to a mix shift towards large power and water jobs, which have lower gross margins but contribute positively to EBITDA margins due to minimal associated G&A.

Jim Ricchiuti sought clarification on the Q3 gross margin decline, specifically the impact of a project closeout and seasonal factors, and asked if the assumed lower gross margin for 2026 was primarily a function of project mix.

Answer

Peter Johansson (CFO) quantified the project closeout impact at 30-50 basis points. Todd Gleason (CEO) added that Q3 is historically CECO's softest gross margin quarter due to seasonal dynamics and modest inflation. Peter Johansson (CFO) and Todd Gleason (CEO) confirmed that any potentially lower gross margins in 2026 would be due to a mix shift towards larger power and water jobs, which have lower gross but higher EBITDA margins, rather than changes in pricing or inflation.

Chris Grenga, on for Jim Ricchiuti, asked for details on the first fleet customer for the Castrol circular oil offering, the sales funnel for similar deals, and whether the company is evaluating other geographic expansions for the semiconductor vertical.

Answer

Co-CEO Michael Battles explained the Castrol partnership involves collecting used oil and selling back a premium, low-carbon product, noting the sales pipeline is strong despite long lead times for large fleets. Co-CEO Eric Gerstenberg confirmed they are actively evaluating other geographies for semiconductor-related expansion beyond Phoenix, driven by strong customer relationships and market growth.

Jim Ricchiuti asked if pausing M&A creates a risk of lost opportunities, whether the election outcome reinforces this decision, and for details on the significance of the U.S. Army Corps of Engineers contract.

Answer

President and CEO Vijay Manthripragada responded that there is 'absolutely no risk' of losing key acquisition targets. He noted that while the M&A pause was decided independently of the election, it is a prudent move in the current environment. Regarding the Army contract, he explained that it validates the company's integrated strategy and that milestones will be shared as the contract progresses.

Focused on the drivers behind the better-than-expected gross margins, the potential for further margin improvement, and the specific end markets and geographies (particularly China) experiencing demand weakness.

Answer

Executives attributed the gross margin beat to accelerated variable cost productivity, supply chain localization savings, logistics efficiencies, and a favorable product mix towards software. They indicated they are in the "middle innings" of realizing supply chain savings, suggesting more benefits are to come. They identified China as the primary region experiencing weakness across both manufacturing and construction and do not see a material improvement in demand, though year-over-year comparisons will ease in the second half.