Sign in

You're signed outSign in or to get full access.

BE

BENCHMARK ELECTRONICS INC (BHE)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 revenue was $666M, above the high end of guidance, with non-GAAP gross margin at 10.2% and non-GAAP operating margin at 5.1%; non-GAAP EPS was $0.57, above guidance, driven by A&D (+36% YoY) and Semi-Cap (+5% YoY) strength offsetting Medical (-23%) and AC&C (-26%) weakness .
  • Free cash flow was $47M, supported by a $38M sequential inventory reduction; management raised FY24 free cash flow outlook to greater than $120M and noted the company returned to net cash positive in Q2 .
  • Q3 guidance: revenue $630–$670M; non-GAAP EPS $0.52–$0.58; non-GAAP gross margin ~10%; SG&A $33–$35M; other expenses net ~ $6M; tax rate 22–24% .
  • Dividend increased to $0.17 per share from $0.165; buybacks expected to resume in coming periods, while near-term capital allocation emphasizes debt reduction .
  • Catalysts: raised FY24 FCF guidance, dividend increase, Semi-Cap share gains and capacity additions (Penang, Mexico, Romania), sequential growth expected in A&D and Semi-Cap into H2; AC&C and Medical remain headwinds near term .

What Went Well and What Went Wrong

What Went Well

  • “Total revenue of $666 million was above the high end of our guidance range… non-GAAP operating margin of 5.1%… $0.57 in non-GAAP EPS, also above the high end of guidance” .
  • A&D revenue up 36% YoY and +3% QoQ; improving supply chain enabled demand fulfillment; strong wins across defense and commercial aerospace .
  • Working capital execution: inventory down $38M sequentially, enabling $56M operating cash flow and $47M free cash flow; FY24 FCF raised to >$120M .

What Went Wrong

  • Medical revenue down 23% YoY on OEM inventory rebalancing and end-demand normalization; management expects softness to persist through H2’24 before recovery in 2025 .
  • AC&C down 26% YoY and 11% QoQ due to completion of several large HPC programs and communications weakness, including customer disengagement; pressures expected through H2’24 .
  • Industrial down 15% YoY; broad demand softness among existing programs despite new wins; return to YoY growth expected exiting 2024 .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$733 $676 $666
GAAP Diluted EPS ($)$0.39 $0.38 $0.43
Non-GAAP Diluted EPS ($)$0.56 $0.55 $0.57
GAAP Gross Margin (%)9.1% 10.0% 10.2%
Non-GAAP Gross Margin (%)9.2% 10.0% 10.2%
GAAP Operating Margin (%)3.3% 3.8% 4.1%
Non-GAAP Operating Margin (%)4.5% 4.9% 5.1%
Operating Cash Flow ($USD Millions)$24.5 $48.5 $55.8
Free Cash Flow ($USD Millions)$16.2 $42.6 $47.3

Segment Breakdown

SegmentQ2 2023 Revenue ($M)Q2 2023 % SalesQ1 2024 Revenue ($M)Q1 2024 % SalesQ2 2024 Revenue ($M)Q2 2024 % Sales
Semi-Cap$164 22% $166 25% $172 26%
Complex Industrials$167 23% $141 21% $142 21%
Medical$145 20% $115 17% $111 17%
A&D$80 11% $106 16% $109 16%
AC&C$177 24% $148 21% $132 20%
Total$733 100% $676 100% $666 100%

KPIs

KPIQ2 2023Q1 2024Q2 2024
Cash Conversion Cycle (days)103 94 90
Accounts Receivable (days)59 56 51
Contract Assets (days)23 24 25
Inventory (days)102 94 90
Accounts Payable (days)(56) (52) (52)
Advance Payments (days)(25) (28) (24)
CapEx ($M)$8.3 $5.9 $8.5
Cash & Equivalents ($M)$277.4 (as of 12/31/23) $296.1 (as of 3/31/24) $309.3 (as of 6/30/24)
Term Loan Outstanding ($M)$127.0 (12/31/23) $126.0 (3/31/24) $126.0 (6/30/24)
Revolver Outstanding ($M)$75.0 (12/31/23) $190.0 (3/31/24) $165.0 (6/30/24)
Revolver Availability ($M)$341.0 (12/31/23) $356.0 (3/31/24) $381.0 (6/30/24)

Note: Management indicated Q2 CapEx ≈ $9M in remarks (vs. $8.5M reported additions in the press release) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q3 2024N/A$630–$670 Initiated
Non-GAAP EPS ($)Q3 2024N/A$0.52–$0.58 Initiated
Non-GAAP Gross Margin (%)Q3 2024≈10% (run-rate) ≈10% Maintained
SG&A ($M)Q3 2024$32–$35 (Q2 guide) $33–$35 Maintained
Non-GAAP Operating Margin (%)Q3 20244.7–4.9 (Q2 guide) 4.8–5.0 Slightly raised midpoint
Other expenses, net ($M)Q3 2024$7 (Q2 guide) ≈$6 Lowered
Non-GAAP Effective Tax Rate (%)Q3 202422–24 (Q2 guide) 22–24 Maintained
Weighted Avg Shares (M)Q3 2024~36.0 (Q2 guide) ~36.5 Slight increase
FY Free Cash Flow ($M)FY 2024$80–$90 >$120 Raised
Quarterly Dividend ($/share)Q2→Q3 2024$0.165 (Q2 declaration) $0.17 (effective immediately) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Semi-Cap cycle and share gainsOutperformed a down market; bookings and capacity additions (Mesa, Penang); expecting recovery in 2025+ +5% YoY and +4% QoQ; early recovery signs; double-digit growth expected in 2024; new OEM second-source win; Penang building opening in Q3 Improving
A&D demandStrong across commercial aerospace & defense; improving supply chain; continued wins +36% YoY; demand strength with backlog and new wins; supply chain improvement aiding fulfillment Strong/Stable
Medical destockingPost-COVID normalization; OEM inventory reductions; softness expected H1’24 -23% YoY; stabilization noted but headwinds to persist through H2’24; recovery expected in 2025; biotech program wins Stabilizing near-term; recovery later
AC&C exposure (HPC, comms)HPC episodic programs; comms macro/capex pressure; disengagement with large customer -26% YoY, -11% QoQ; pressures to persist through H2’24; new wireless transport/access systems award for 2025 growth Worsening near-term; 2025 rebuild
Industrial demandStrength in energy management; near-term softness; growth resuming late-2024/2025 -15% YoY; pipeline of wins incl. test/measurement, robotics; early indications of growth exiting 2024 Soft near-term; improving late-year
Working capital/FCFInventory reductions driving FCF; target $70–$80M in 2024 Inventory -$38M QoQ; Q2 FCF $47M; FY24 FCF raised to >$120M; target inventory turns from 4 to ~5 by 2025 Strong improvement
Capacity additions/regionalizationMexico expansion; Penang precision; plan to resume buybacks Mexico new building; Penang facility opening; Romania capacity ~doubled; modest OpEx impact Expanding strategically
Tax rateFY24 ~23% (higher due to China and Pillar 2) Q3 non-GAAP effective tax rate 22–24%; FY ~23% Stable

Management Commentary

  • “Our outstanding second quarter results are another proof point… We met or exceeded our guidance range for revenue, margin, non-GAAP EPS and free cash flow.”
  • “Non-GAAP gross margins again exceeded 10%, marking the sixth consecutive quarter of year-over-year margin expansion… non-GAAP operating margin of 5.1%… $0.57 in non-GAAP EPS… above the high end of guidance.”
  • “We… reduced inventory by $38 million… enabling… positive free cash flow of $47 million… We have now generated over $230 million in free cash flow over the last 4 quarters.”
  • “We are in the early stages of the market’s recovery [in Semi-Cap]… enabling low double-digit revenue growth this year… [and] a broadly improved demand environment in 2025.”
  • “A&D revenue was up 36%… robust demand within defense… and strong commercial aerospace demand.”
  • “Medical revenue was down 23%… inventory rebalancing and end demand weakness… we expect these headwinds will persist through the balance of the year.”

Q&A Highlights

  • Free cash flow trajectory: Management views $70–$90M as normalized annual FCF base beyond 2024; FY24 raised to >$120M on inventory reduction .
  • Capacity expansion: Romania capacity nearly doubled with modest OpEx; Mexico Guadalajara expansion; Penang adds machining/clean room/semi-cap assembly—positioned for semi upswing .
  • Semi-Cap cycle tone: “Incrementally more constructive”; double-digit growth in 2024 despite broader capex caution; memory leading; watch inventory for 2H and 2025 slope .
  • Margin durability: Double-digit gross margin seen as run-rate; potential upside with factory load and mix, especially Semi-Cap contributions .
  • Medical outlook: Stabilization now; recovery expected in 2025; biotech engineering/manufacturing wins emerging .
  • Capital allocation: Focus on paying down revolver; dividend increased; buybacks expected to resume .

Estimates Context

  • S&P Global consensus estimates for Q2 2024 (EPS, revenue) were unavailable due to data access limits during retrieval; therefore, specific comparisons to Wall Street consensus could not be provided at this time. Management indicated Q2 results exceeded the company’s guidance for revenue and non-GAAP EPS .
  • Implication: Absent consensus, buyside should anchor on company guidance/actuals and segment dynamics; estimate revisions likely to reflect stronger A&D and Semi-Cap contributions, persistent AC&C and Medical headwinds, and improved FCF profile .

Key Takeaways for Investors

  • Execution remains strong: Q2 beat on revenue and non-GAAP EPS with continued multi-quarter margin expansion; discipline on OpEx and mix is sustaining double-digit gross margin despite sector softness .
  • FCF upgrade is material: FY24 FCF raised to >$120M, supported by inventory reductions; company is net cash positive and reducing debt—de-risking balance sheet and supporting capital returns .
  • A&D and Semi-Cap drive upside: A&D momentum likely continues in H2; Semi-Cap shows recovery signs and share gains aided by capacity additions (Penang, Mexico) .
  • Watch AC&C and Medical: AC&C pressures persist into H2; Medical stabilization but recovery likely 2025; positioning via biotech wins underpins medium-term growth optionality .
  • Q3 setup: Revenue guide $630–$670M, non-GAAP EPS $0.52–$0.58; other expense net easing to ~$6M with some FX headwinds; margin profile maintained (~10% GM) .
  • Capital returns: Dividend increased to $0.17; buybacks expected to resume; near-term cash usage prioritizes debt reduction .
  • Tactical view: Near-term stock catalysts include sustained FCF delivery, Semi-Cap demand progression, and A&D growth; caution for continued AC&C and Medical drags through H2; monitor Q3 bookings and inventory trends to gauge trajectory into 2025 .

Sources note: We searched for an 8‑K 2.02 for Q2 2024; only the earnings press release and call transcript were available in our document catalog during the period. Press release data and detailed reconciliations were used for quantitative tables .