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BE

BENCHMARK ELECTRONICS INC (BHE)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 revenue $676M (-2% q/q, -3% y/y), non-GAAP EPS $0.55; GAAP EPS $0.38. Gross margin held 10.0% (+70 bps y/y) and non-GAAP operating margin 4.9% (+50 bps y/y). Free cash flow was $43M, fourth consecutive positive quarter [$676M; $0.38; $0.55; 10.0%; 4.9%; $42.6M FCF] .
  • Sector divergence: A&D +33% y/y and Semi-Cap +12% y/y; Medical -16%, Advanced Computing -6%, Next-Gen Communications -36% y/y .
  • Raised FY24 free cash flow target to $80–$90M from $70–$80M, citing inventory reductions and operational discipline .
  • Q2 guide: revenue $615–$655M; non-GAAP EPS $0.48–$0.54; non-GAAP gross margin ~10%; non-GAAP op margin 4.7–4.9%; tax rate 22–24% .
  • S&P Global Street consensus for Q1 2024 could not be retrieved at this time; comparisons to estimates are not included (Values retrieved from S&P Global were unavailable due to API limit).

What Went Well and What Went Wrong

What Went Well

  • Margins and cash discipline: GAAP and non-GAAP gross margin at 10.0% (+70 bps y/y) and non-GAAP operating margin at 4.9% (+50 bps y/y); free cash flow $43M (4th straight positive quarter) .
  • Sector outperformance: A&D up 33% y/y; Semi-Cap up 12% y/y “modestly better than expectations,” aided by share gains and higher-level integration wins .
  • Strategic execution: “Controlling what we can control”; raised FY24 FCF target to $80–$90M driven by inventory down >$140M y/y and improved working capital .

What Went Wrong

  • Demand headwinds: Medical (-16% y/y) on inventory normalization; Next-Gen Communications (-36% y/y) on capex slowdown and disengagement with a large customer; Advanced Computing (-6% y/y) due to HPC timing .
  • Sequential margin pressure: Operating margins down q/q due to seasonal payroll taxes and higher variable expenses despite steady gross margin .
  • Tax rate headwind: Non-GAAP effective tax rate 24% in Q1 with higher 2024 ETR driven by China incentive expiry and global minimum tax implementations .

Financial Results

Income Statement and Margins (GAAP and non-GAAP)

MetricQ1 2023Q4 2023Q1 2024
Revenue ($M)$695 $691 $676
GAAP Diluted EPS ($)$0.35 $0.49 $0.38
Non-GAAP Diluted EPS ($)$0.51 $0.65 $0.55
GAAP Gross Margin (%)9.2% 10.3% 10.0%
Non-GAAP Gross Margin (%)9.3% 10.3% 10.0%
GAAP Operating Margin (%)3.3% 4.6% 3.8%
Non-GAAP Operating Margin (%)4.4% 5.5% 4.9%

Sector Mix and Revenue

Sector ($M, %)Q1 2023Q4 2023Q1 2024
Semi-Cap$149, 21% $168, 24% $166, 25%
Complex Industrials$144, 21% $132, 19% $141, 21%
Medical$137, 20% $126, 18% $115, 17%
A&D$79, 11% $102, 15% $106, 16%
Advanced Computing$96, 14% $95, 14% $90, 13%
Next-Gen Communications$90, 13% $68, 10% $58, 8%
Total$695, 100% $691, 100% $676, 100%

Cash Flow, Balance Sheet, and Working Capital KPIs

KPIQ1 2023Q4 2023Q1 2024
Net cash from operations ($M)$(24.9) $137.1 $48.5
Free cash flow ($M)$(63.6) $126.1 $42.6
Cash & equivalents ($M)$211.7 $283.2 $296.1
Accounts receivable days60 59 56
Contract asset days25 23 24
Inventory days111 99 94
Accounts payable days(60) (53) (52)
Advance payments days(27) (30) (28)
Cash conversion cycle (days)109 98 94

Estimates vs Actuals (Q1 2024)

MetricActualS&P Global ConsensusBeat/Miss
Revenue$676M N/A (unavailable)*N/A
Non-GAAP Diluted EPS$0.55 N/A (unavailable)*N/A
  • *Consensus from S&P Global was unavailable at time of writing due to API limits. Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2024N/A$615M–$655M New
Non-GAAP Diluted EPSQ2 2024N/A$0.48–$0.54 New
Non-GAAP Gross MarginQ2 2024N/A≈10% New
Non-GAAP Operating MarginQ2 2024N/A4.7%–4.9% New
SG&A (Non-GAAP)Q2 2024N/A$32M–$35M New
Other expense, netQ2 2024N/A≈$7M New
Non-GAAP Effective Tax RateQ2 2024N/A22%–24% New
Weighted Avg SharesQ2 2024N/A≈36M New
Free Cash Flow TargetFY 2024$70M–$80M $80M–$90M (raised) Raised

Additional non-GAAP exclusions for Q2 2024: approx. $4.4M stock-based comp, $1.2M intangibles amortization, ~$2.0M restructuring .

Earnings Call Themes & Trends

TopicQ3 2023 (Q-2)Q4 2023 (Q-1)Q1 2024 (Current)Trend
AI/HPC & Advanced ComputingCompleted large HPC in H1; new HPC to contribute in Q4; AC down y/y on program timing New HPC program started; AC up seq but down expected in 1H24 HPC delivery wrapped early Q2; exploring AI cluster opportunities to reduce lumpiness Episodic; positioning for AI infra
Semi-CapDown y/y but better than market; new wins incl. epitaxy and lithography Outperforming market; 2024 flattish; recovery post-CHIPS seen in 2025+ +12% y/y; share gains; expanding precision machining in Penang/Mesa Outperforming industry; investment continuing
Supply chainSCP declining; normalization underway SCP ~immaterial in 2024; A&D supply improving Lead times improving; inventory normalization affecting Medical Improving supply; destock headwind
CommunicationsStrong in broadband Q3’23 Warning of pressure into 2024 -36% y/y; capex slowdown; disengaged a large customer; 2024 weak Deteriorating
MedicalGrowth in 2023; wins for valves, anesthesia/respiratory Softer into 1H24; inventory focus -16% y/y; destock/normalization; biotech wins for late-2024/2025 Near-term soft; medium-term pipeline
Tax/Regulatory—ETR higher in 2024: China holiday expired; Pillar 2 Q1 non-GAAP ETR ~24%; Q2 guide 22–24% Higher ETR in 2024
Regional footprint/capacity—Investing in Mexico and Precision Tech; CapEx $55–$65M FY24 $6M Q1 CapEx; Penang facility Semi-Cap win; plan $55–$65M FY24 Targeted capacity adds

Management Commentary

  • “The first quarter was another strong performance… continued solid performance in A&D and double-digit growth in Semi-cap… offset primarily by weakness in our Medical and Communications sectors.” – Jeff Benck, CEO .
  • “We are raising our free cash flow target for the year from $70 million to $80 million to now $80 million to $90 million.” – Jeff Benck .
  • “Non-GAAP… exclude stock-based compensation beginning in Q1… to enable more direct comparability to our peers.” – Arvind Kamal, Interim CFO .
  • “We displaced a competitor to provide both engineering and manufacturing services for an integrated defense system program.” – Jeff Benck .
  • “Communications sector… broad pressure on capital spending… disengagement with a large customer… do not expect sector revenues to improve during 2024.” – Jeff Benck .

Q&A Highlights

  • AI/HPC demand pattern: Management expects AI-related HPC to broaden opportunities and potentially reduce lumpiness vs large, episodic national lab builds .
  • Semi-Cap share gains: Expanding precision machining and higher-level integration; investments in Penang and Mesa to be ready for upcycle; recovery more 2025-skewed .
  • Communications outlook: Disengagement with a large customer and weaker carrier capex; no 2024 recovery expected, though pursuing new opportunities .
  • Medical recovery timing: Destocking and normalization likely to weigh for “next few quarters,” with potential improvement thereafter as lead times normalize .
  • Margin durability: Gross margin guided ~10% in Q2; favorable mix (weaker low-margin comms/compute), cost alignment, and operational efficiency underpin sustainability .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q1 2024 revenue and EPS but the data was unavailable due to API limits at the time of analysis. As a result, we do not provide comparisons of actuals versus Street for Q1 2024 (Values retrieved from S&P Global were unavailable).
  • Management highlighted non-GAAP EPS of $0.55 and noted like-for-like $0.51 (including $0.04 SBC) exceeded the high end of their guidance range ($0.42–$0.48) .

Key Takeaways for Investors

  • Mix resilience despite top-line softness: A&D and Semi-Cap strength offset pressure in Medical and Communications; y/y margin expansion continues even with lower revenue .
  • Cash generation upgrade: FY24 FCF target raised to $80–$90M on inventory reductions and working capital execution; deleveraging continuing .
  • Semi-Cap positioning for next cycle: Share gains, higher-level integration, and capacity additions (Penang/Mesa) position BHE to outperform when WFE recovers, likely 2025+ .
  • Communications headwind to persist in 2024: Sector weakness and a large customer disengagement cap upside; management does not expect improvement this year .
  • Margin playbook: Steady 10% gross margin targeted via efficiency, cost alignment, and mix; operating margin guided 4.7–4.9% in Q2 .
  • Taxes will run higher in 2024 (China incentive expiry, global minimum tax), pressuring after-tax earnings versus prior years .
  • Near-term trading lens: Watch for Q2 delivery vs guide, trajectory in Medical destock, and confirmation of additional Semi-Cap program ramps; sector newsflow on CHIPS-linked fabs and A&D demand remains a positive narrative catalyst .