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BE

BENCHMARK ELECTRONICS INC (BHE)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue of $658M and non-GAAP EPS of $0.57 were above the midpoint/high end of guidance, with non-GAAP operating margin at 5.3% marking the 16th consecutive YoY expansion; free cash flow was $29M and TTM FCF reached $245M .
  • Semi-Cap grew double digits YoY while Medical and AC&C softened; management reiterated Semi-Cap recovery signs and strong A&D demand, with continued inventory reductions driving cash generation .
  • Q4 guidance was modestly raised versus Q3 guidance: revenue $640–$680M, GAAP EPS $0.40–$0.46, non-GAAP EPS $0.53–$0.59; non-GAAP GM ~10.2%, OM 4.9%–5.1%, and non-GAAP tax rate 22%–24% .
  • Catalysts: Semi-Cap upcycle positioning (new Penang facility), A&D wins, resumed buybacks ($5.1M), dividend increased to $0.17; watch AC&C weakness and Medical inventory normalization into 2025 .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP operating margin expanded YoY for the 16th straight quarter to 5.3%, with non-GAAP gross margin at 10.2%; management emphasized disciplined cost control and portfolio focus .
  • Strong Semi-Cap growth (+13% YoY) and A&D resilience; new wins and capacity expansion (Penang) position BHE for share gains in the next upcycle .
  • Free cash flow generation remains robust ($29M in Q3; $245M TTM), supported by inventory reductions; debt reduced sequentially, net cash positive .

What Went Wrong

  • Revenue fell 9% YoY to $658M as Medical (-28% YoY) and AC&C (-27% YoY) softness persisted; GAAP EPS declined to $0.42 from $0.57 YoY .
  • AC&C pressured by HPC program completions and a communications customer disengagement; follow-on ramps shift out to late 2025 .
  • Medical devices demand remained weak due to OEM inventory normalization; management does not expect a near-term rebound .

Financial Results

MetricQ3 2023Q2 2024Q3 2024
Revenue ($USD Millions)$720 $666 $658
GAAP Diluted EPS ($)$0.57 $0.43 $0.42
Non-GAAP Diluted EPS ($)$0.65 $0.57 $0.57
GAAP Gross Margin %9.6% 10.2% 10.1%
Non-GAAP Gross Margin %9.7% 10.2% 10.2%
GAAP Operating Margin %4.2% 4.1% 4.3%
Non-GAAP Operating Margin %5.2% 5.1% 5.3%
Net Cash from Operations ($M)$38 $56 $39
Free Cash Flow ($M)$18 $47 $29

Segment Breakdown (Revenue and Mix)

SegmentQ3 2023Q2 2024Q3 2024
Semi-Cap$165, 23% $172, 26% $188, 28%
Complex Industrials$154, 21% $142, 21% $151, 23%
Medical$149, 21% $111, 17% $107, 16%
A&D$100, 14% $109, 16% $102, 16%
AC&C$152, 21% $132, 20% $110, 17%
Total$720, 100% $666, 100% $658, 100%

KPIs

KPIQ3 2023Q2 2024Q3 2024
Cash Conversion Cycle (days)105 90 90
Accounts Receivable (days)60 51 51
Contract Assets (days)24 25 26
Inventory (days)100 90 89
Accounts Payable (days)(53) (52) (54)
Advance Payments (days)(26) (24) (22)
Cash ($M)$261 $310 $324
Term Loan / Revolver ($M)n/a$125 / $165 $125 / $155

Guidance Changes

MetricPeriodPrevious Guidance (Q3 2024)Current Guidance (Q4 2024)Change
Revenue ($M)Quarterly$630–$670 $640–$680 Raised
GAAP Diluted EPS ($)Quarterly$0.36–$0.42 $0.40–$0.46 Raised
Non-GAAP Diluted EPS ($)Quarterly$0.52–$0.58 $0.53–$0.59 Raised
Non-GAAP Gross Margin %Quarterly~10.0% ~10.2% Raised
Non-GAAP Operating Margin %Quarterly4.8%–5.0% 4.9%–5.1% Raised
Non-GAAP SG&A ($M)Quarterly$33–$35 $34–$36 Raised
Other Expenses, Net ($M)Quarterly~$6.0 ~$6.4 Raised
Stock-based Comp ($M)Quarterly~$4.5 ~$3.5 Lowered
Amortization of Intangibles ($M)Quarterly~$1.2 ~$1.2 Maintained
Restructuring Charges ($M)Quarterly~$1.0 ~$1.0 Maintained
Effective Tax Rate %Quarterly22%–24% 22%–24% Maintained
Diluted Wtd Avg Shares (M)Quarterly~36.5 ~36.6 Slight increase

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Semi-Cap recovery/positioningQ1: +12% YoY; investing in precision machining; early signs of recovery; bookings from ’22–’23 ramping . Q2: +5% YoY; double-digit 2024 growth outlook; capacity expansion (Penang) .+13% YoY; recovery led by memory; new wins; Penang facility opened .Improving; 2025 growth expected; near-term choppiness .
A&D demandQ1: +33% YoY; supply chain easing; program wins . Q2: +36% YoY; >20% FY growth .Q3: +2% YoY; expects double-digit growth in Q4; new platform wins .Strong, accelerating into Q4.
Medical softnessQ1: -16% YoY; inventory normalization; biotech wins . Q2: -23% YoY; softness to persist .-28% YoY; weakness continues; Q4 ramps not offsetting YoY .Weak through H1’25; new wins may help later.
AC&C weaknessQ1: Comms disengagement; HPC program episodic . Q2: -26% YoY; pressures to persist; new wireless transport win for 2025 .-27% YoY; HPC completions and comms softness; new geospatial imaging win; 2025 ramps .Weak near term; potential late-2025 recovery.
Working capital/FCFQ1: Inventory down $140M YoY; raised FCF target $80–$90M . Q2: Inventory down; raised FY FCF >$120M .$29M FCF; TTM $245M; FY FCF >$130M .Sustained improvement.
Pricing/competitionQ2: Rational pricing; differentiation via engineering .Pricing “rational”; customers focus on cost savings .Stable.
FX/interestQ2: Other expenses ~ $6M; FX headwinds .Other expenses ~$6.4M; interest down, FX up .Neutral to slightly negative.

Management Commentary

  • “Total revenue of $658 million was above the midpoint…non-GAAP operating margin of 5.3% represents the 16th consecutive quarter of year-over-year operating margin expansion…$0.57 in non-GAAP EPS…$29 million in free cash flow…$245 million TTM.” — Jeff Benck, CEO .
  • “We expect revenue $640–$680M…non-GAAP gross margin 10.2%…non-GAAP operating margin 4.9%–5.1%…non-GAAP EPS $0.53–$0.59…other expenses net ~$6.4M…non-GAAP tax rate 22%–24%.” — Bryan Schumaker, CFO .
  • “Semi-cap revenue grew 13% year-over-year…we continue to see signs of recovery…new wins…Penang opened in September.” — Jeff Benck .
  • “Medical devices softness…inventory rebalancing…AC&C declined 27% YoY due to HPC program completions and comms weakness…new geospatial imaging win ramping in 2025.” — Jeff Benck .
  • “Cash balance $324M; term loan $125M; revolver $155M; repurchased ~$5.1M at $40.27; remaining authorization ~$150M.” — Arvind Kamal .

Q&A Highlights

  • Sector outlook: management more constructive on Semi-Cap recovery and confident A&D growth resumes in Q4; pricing environment remains rational .
  • Operating margin upside: Semi-Cap uniform recovery could add 25–50 bps; revenue growth leverage and site utilization in Mexico/Romania can further expand margins .
  • Green shoots: Industrial appears to be stabilizing with potential YoY growth in Q4; AC&C recovery more back-half 2025 given NPI timing .
  • Engineering services: Increased number of wins across sectors; higher margin than corporate average and a lead-in to manufacturing engagements .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q3 and Q4 was unavailable at time of analysis due to SPGI access limits; therefore, comparisons to consensus estimates could not be provided. Where applicable, performance was evaluated versus company guidance ranges provided in the press release and call .

Key Takeaways for Investors

  • Mix-driven resilience: Despite revenue down 9% YoY, sustained double-digit non-GAAP gross margins and 16th consecutive YoY operating margin expansion indicate structural profitability improvements .
  • Cash discipline: Continued inventory reductions, net cash positive balance sheet, and TTM FCF of $245M support ongoing buybacks and the raised dividend ($0.17) .
  • Semi-Cap cycle leverage: Capacity investments (Penang, Phoenix) and share gains position BHE to outperform in the upcycle; monitor memory-led recovery trajectory into 2025 .
  • A&D strength offsets softness: Defense and space bookings should re-accelerate in Q4; watch for sequential momentum .
  • AC&C and Medical headwinds: Expect these to weigh on topline through H1’25; new program ramps (wireless transport, geospatial imaging, biotech devices) are potential back-half tailwinds .
  • Q4 guide raised: Slightly higher revenue and EPS ranges, with non-GAAP margins maintained; FX remains a modest headwind to other expenses .
  • Trading implications: Near-term setups favor margin and cash flow stability over top-line growth; upside optionality tied to Semi-Cap recovery pace and A&D execution while avoiding AC&C/Medical drags .