Benchmark Electronics at Sidoti’s Small-Cap Virtual Conference: Strategic Growth Insights

On Thursday, 12 June 2025, Benchmark Electronics (NYSE:BHE) presented at Sidoti’s Small-Cap Virtual Conference, providing a detailed overview of its strategic initiatives and financial health. The company highlighted consistent gross margin performance and a robust cash flow, while also acknowledging challenges in certain sectors like medical and AC&C. Despite these hurdles, BHE remains optimistic about future growth in aerospace, defense, and industrial sectors.

Key Takeaways

• Benchmark Electronics reported a consistent gross margin above 10% for six consecutive quarters.
• Free cash flow over the last twelve months reached $140 million, with a net cash position of $79 million.
• Aerospace and defense sectors showed positive growth, while medical and AC&C sectors faced declines.
• The company is focusing on operational efficiencies and exploring opportunities in AI and liquid cooling technology.
• BHE is strategically allocating capital toward dividends, share buybacks, and potential M&A opportunities.

Financial Results

• Revenue: Q1 revenue was $632 million, aligning with guidance. Semi-cap revenue grew 18% year-over-year, despite a 2% quarter-over-quarter decline. Aerospace and defense saw a 4% increase, while medical and AC&C experienced a 12% decline.
• Margins: Non-GAAP gross margin was 10.1% in Q1. Operating income margin fell below 5%, with a target to restore it to 5%.
• Cash Flow: Q1 cash flow from operations was $32 million, with free cash flow at $27 million. Over the past year, free cash flow totaled $140 million.
• Balance Sheet: Net cash stood at $79 million, with a leverage ratio of 0.6%.
• Working Capital: Improved by 3 days from Q4 to Q1, with inventory days decreasing from 94 to 89 year-over-year.

Operational Updates

• Sector Performance: Expansion in Penang 4 for semi-cap is expected online by mid-2026. Aerospace and defense sectors are benefiting from strong demand and new program wins. Medical and AC&C sectors are facing temporary declines.
• Tariffs: BHE is partnering with customers to navigate tariffs, leveraging its US and Americas footprint.
• Inventory Management: Targeting inventory turns of 5-5.5 to optimize working capital.

Future Outlook

• Semi-cap: Positive outlook with Penang 4 expansion and new customer engagements.
• Medical: Outsourcing trends expected to drive recovery in the latter half of the year.
• Industrial: Anticipating long-term growth with continued wins.
• Aerospace and Defense: Sustained growth expected.
• AC&C: Anticipates a return to growth by Q4 or Q1 next year, leveraging water-cooled systems technology.

Q&A Highlights

• End Market Drivers: Growth in semi-cap market share, medical outsourcing, and industrial wins.
• Hyperscale and AI CapEx: Focus on supercomputers and liquid cooling.
• China Exposure: Limited to less than 10% of overall revenue.
• Cash Flow Improvement: Strategies include optimizing working capital and leveraging SG&A.
• Operating Margin Expansion: Aiming for efficiencies and automation to enhance margins.

For a deeper dive into Benchmark Electronics’ strategic plans and financial performance, refer to the full transcript below.

Full transcript - Sidoti’s Small-Cap Virtual Conference:

Anja Soderstrom, Senior Equity Analyst, Sidoti: Yes. Welcome to the Sidoti virtual investor conference, and thank you for joining us today. As I mentioned, next up, we have Benchmark Electronics. And I’m Anja Soderstrom, the senior equity analyst here at Sidoti that covers the name. And with me today, I have Brian Schumacher.

He’s the CFO, and I’ll also have Paul Mansky. He’s the head of investor relations and corporate development. And, this will be conducted as a presentation followed by q and a. And if you would like to participate, you can do so by, submitting your question in the q and a function at the bottom of your screen. And with that, I’m I’m happy to, wish you wish you welcome.

Brian Schumacher, CFO, Benchmark Electronics: Great. I’d like to thank everyone for joining today and to learn more about Benchmark Electronics. I’d like to start off by pointing you to our forward looking statements for 2025 and our non GAAP financial information, so you can take a moment to look at that. Again, this is the participants that are here today, Paul Mansky, head of IR and corporate development, myself, Brian Shoemaker, CFO. So if you look at Benchmark Electronics, 2,700,000,000 company that operates in the electronics and precision technologies manufacturing space.

Our vision is really to positively impact the lives of by solving complex challenges with our customers, creating innovative products, that no one imagined were possible. So we do that kind of by partnering up with the product life cycle starting with the starting point, through the innovative technology, engineering design services, and just leveraging our global supply chain and our technology base to basically do world class manufacturing services. And over the last twelve months, we’ve been able to deliver a 140,000,000 of free cash flow greater than 10% gross margin, which is basically six, consecutive quarters on that front, and about 79,000,000 of net cash as we ended q one. So big focus on that. We have 21 global manufacturing.

We’ll hit a little bit on the next slide on that. 12,500 associates with the engineers of 420 as I talked about. But Really, a lot of, what stands us apart is that product design engineers and what we’re able to do on the front end of the services with our customers as the product develops, which a good attach rate onto that for the manufacturing side of the business. Do you wanna go forward, Paul? So looking at our global service footprint, you can see across the globe, we’re really positioned with 21 manufacturing locations.

55% of that is in the Americas region. About 35, 36% is in The US. China footprint is mostly China for China, so not a lot of impact from tariffs there. Europe is primarily for Europe. And the Asian other Asia locations, really set us apart Top, great manufacturing facilities on that front.

And then you can see the bit of Mexico there with our two locations in Guad and Tijuana, which are great positions. So if you look at this, the sectors that we participate in being medical, aerospace and defense, industrial, semi cap, and a c and c, and the expertise that we can deliver on that front with AI automation, miniaturization, is Satacom and space, and the big one, liquid cooling, as people talk about kind of what’s going on in the AI space. So we have that capability too. What we’ve tried to do is lay out both the late life cycles, and the attach rates. So once you get in with a product, it’s not easy to move, especially on the medical space and some of that.

So good attach rate with the eight point eight plus years on that front. And then what you start to see is with kind of expansion, you see the CAGR on the one side, but then as people continue to grow and outsource along with that and shift to us, we expect higher growth rates. So especially, on the manufacturing of the industrials and the medical space. So we see good ability there to continue these underpenetrated markets, and the outsourcing trend to continue. Now you look at our margin and how we’ve been able to achieve the greater than 10% gross margin for six consecutive quarters, you can see since 02/2012, really how we’ve shifted that sector base.

So if you look at, communications and compute computing being approximately 57% between the two of those coming down to kind of the 18%. And then on the positive kind of factor and the more material margin pieces of it, you can see the semi cap really growing from five to the 27% of semi cap business in the a and d, which was really, nonexistent before up to 16% in 2024. So great momentum on that front. So those are really driving where we’re at with the more complex products, in the regulatory, which are really contributing to the increase on margin on that front. Now on the strategic focus and what we’re doing, I’ve kinda hit a little bit on the greater than 10% gross margin and continued focus on that.

Part of that is through operational execution As revenue is fluctuated, just being able to really maintain those margins on that road, basically, based on the project and the sectors we’re focusing on and not just chasing revenue and driving the margin down. So real focus on the margin piece of it. On the cash flow, we’ve been able to drive over a 140,000,000 in free cash flow over the last twelve months. A lot of focus on inventory, as you can imagine, coming out of COVID. Some of that’s ramped up.

We’ve been able to drive that down with continued focus, but not only stopping where we’re at today, but really trying to drive our turns back up. We were closer to four at the end of q one, and we’re gonna continue to push that to five, five and a half turns is kinda how we’re gonna focus on the inventory and the working capital piece of it. On the tariff front, we’ve really partnered closely with our customers to really understand the dynamic environment where we can help them out. I think really moving to what we’ve seen this flat 10% globally right now, has put a pause on some of that, but we’re still working closely with our customers. What I will say is, again, The US footprint of approximately 36% and The Americas of 55% really position us well for anything kind of changes that happen on the tariff front.

But we are just working closely with our customers, and I will just highlight that the tariffs are a pass through for us. It’s zero calorie, meaning it’ll hit revenue and COGS, but it’s not like, it’s dilutive to our earnings on the bottom line. So as a dollar amount, it does not impact us. So as you look at the first quarter, and our results that came, the 632,000,000 was in line with our guidance. Again, the consecutive quarter of greater than 10% non GAAP gross margin and actually quarter of positive free cash flow that we delivered.

So on the if you look at the margin front, even with the decreased revenue, we were able to deliver gross margin of 10.1% as opposed to a year earlier with a 10 o percent. So really good on that front and continue to deliver on EPS, and trying to deliver what we say, when we put it out there to the street. On the sector performance, semi cap revenue, decreased 2%. However, if you look over year over year, we actually were at 18% growth there. So growing higher than that overall market, by continuing to gain logos and market share from our customers.

On the industrial revenue, similarly down 2% quarter over quarter. However, some of the existing customer had some softness in that offset by new program ramps. So again, very, looking into the future and kind of where we’re positioning ourselves, feel good about that sector. On the aerospace and defense, was up 4% quarter over quarter. Commercial aerospace, on that front, remains fairly consistent while defense continues to be robust, and we’re also starting to move into some of the space, piece of it.

So, again, another big piece on that sector as we continue to see growth. Medical, had 12% decline quarter over quarter. Little bit of demand softness on that sector, led by medical devices, but ideally seeing that pickup in the back half of the year as inventory rebalancing. And then on the AC and C side, 12% quarter over quarter decrease, and so a lot of this was anticipated decline driven by market weakness and some of the HPC, high performance compute shifting off to the right and some of the communications business. And then you can see by sector kinda where we were at, of the 632 on a percentage basis for the first quarter and how we delivered on that.

For the trended non GAAP results, again, on the revenue headwinds that we’ve seen, however, we’ve continued to execute on the margin line. So still feel good no matter with the operational execution being able to fluctuate along with where revenue is coming in at. And then overall margin, we did drop down below that 5% on operating income and margin sector. However, our focus is to get it back up at 5% leveraging with the growth in revenue. We feel good about our positioning on the s g and a and being able to scale over the longer term with growth on the top line, where we’re not gonna be be able to absorb that and continue to improve that bottom line.

As you look at the balance sheet and cash flow, delivered the cash flow from operations of 32,000,000, free cash flow of 27,000,000. That’s again another eight quarters that we’ve delivered positive free cash flow. And if you look at kind of what we’re delivering on the free cash flow line and, with the dividend, that we do, it’s about a 10% return on that front. So good progress with free cash flow and dividends. We’re gonna continue to focus on dividend payout, as you look at our overall structure and kinda return to capital.

We did have 8,000,000 of shares in buyback that we did in q one, and we’ll continue to look at that, from a dilution standpoint and just on the buyback. And then on net cash, actually, at 79,000,000, and then as calculated under the leverage ratio, 0.6%. So this is still a big focus for us. We’ll continue to drive kinda keeping a great balance sheet intact and while maintaining the dividend out there. So looking at the working capital trends, great progress if you look just from q four to q one, improvement of the three days.

A lot of focus is being made across this. The biggest thing is on the inventory days. What we’ve been able to do from q one of last year, again, some of this contributed to the 140,000,000 of free cash flow, but from the ninety four days to ’89, and we’re gonna continue to, again, drive that as we look at getting closer to that five, five and a half turns driving that as a benchmark, and then some of the other changes that we have. But you can see our primary focus across the board and where it is from accounts receivable, contract days, etcetera. So looking across our sectors and the overall outlook there, so q one, again, saw good growth year over year on the semi cap space.

Q four of last year, we actually announced Penang 4 as an expansion, that we’re doing there that will primarily be related to semi cap. That goes online mid twenty six. That will be made up of kind of a combination of new logos plus the expand expansion with existing customer base. So that will not necessarily drag on us right now, but as it curves up and ramps up into mid next year, we’ll be ready for that capacity to go online as that business continues to grow over that period. So excited about the semi cap space and what’s going on there.

On the industrial front, again, looks very good outlook into the future as we continue to see momentum on booking demand and what kind of, is being presented to us and what we’re looking winning out there for new things. And a lot of the focus here is the test and measurement, subsectors, which was a little softer than expected. However, for the year, we expect some growth in this area. With the aerospace and defense, the sector continues to perform well, for us against strong defense demand as you’ve seen on kind of what the budgets have happened and continue to be out there along with kind of the overall demand wars out there around the what’s going on there, us winning new programs, both on the defense side and on the space side. So and then commercial is really remaining fairly stable on that front.

So really feel good about where the aerospace and defense is positioning itself for the continued growth. On the medical front, had some continued demand softness, as I mentioned earlier, in some of the existing programs and customer delays and new program ramps. However, we continue to see, wins in this area. However, this is one of our longest terms to market. So by the time you win, just because of all the regulatory and some of the other approvals necessary around medical, so it can take up to twenty four months to get from a product when to actually in the market producing and recognizing revenue.

So it’s one of our largest one of the sectors with the longest lead time from wind to getting to market. But, again, we are confident we have not lost market share in this area, with the existing programs. It’s just kind of the rebalancing of the inventory, and we feel good about the market recovery and where it’s going. It’s just taking a little longer than we had thought. So between wins, market recovery, again, the tailwind behind this, looks pretty good.

And on the ACNC side, again, HPNC platform launch continue to push a little to the right. Some of the delays from that and then new program, five g wireless programs, There were some delays on that. However, we’re, excited about our ability to leverage the water cooled systems and what our technology is there. So looking out into the future, we’ve talked about that on a few conference calls. So really having good discussions on that front and what we can bring to the table with some of our existing customers and be able to leverage our US footprint for that technology.

So really feeling pretty good about our positioning around that piece of it and how that’s going to look. So as you think about capabilities and expected return to growth kind of as early as q four or, q, ’1 of next year on that front too. So and on this AC and C front, I mean, we’ve essentially delivered three of the top five supercomputers. So our technology and capability is proven there, and this liquid capability will give us that added benefit. So in summary, we continue to deliver greater than 10% non GAAP gross margin.

We are actively partnering with our customers to navigate through this dynamic tariff environment. So we talked about on the q one call some push in push out, pull in, nothing material that still continues today. So we’re really positioning ourselves with our customers well on this dynamic tariff environment and good feel good about that positioning. And the gross margin, generated over $150,000,000 or $140,000,000 of free cash flow over the last twelve months. We’ve talked about kind of longer range, what that looks like, more in the 70 to 90,000,000 range for free cash flow as we look to go out into the future and, continue to maintain our capital allocation of paying the dividends, targeting repurchase of shares to offset dilution, and maintain a modest, leverage profile.

So that’s kind of in summary where things are. Again, a lot of optimism to look out into the future and really leverage our s g and a line to fall to the bottom line as we return to growth.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Great. Thank you so much. I wonder, can we just start with maybe talking about the the end markets you serve and sort of the broader drivers for longer term growth there? And also how penetrated is the outsourcing trend within within itch?

Brian Schumacher, CFO, Benchmark Electronics: Yeah. So I’ll start off with semi cap, and looking at that. So as we look out into kind of the future and how it’s kinda looks, I mean, overall, we feel really good about that. That’s why we had that expansion in the Penang 4 and what we’re able to capitalize on that. So that market share with the growth of the new facility and being able to do that, we’ll have wins both with existing customers and new logos.

So really feel good about that as a longer range, especially as the market turns. I mean, we keep keep talking about kind of the six months when it’s going to turn, on the computer side of it, and we’re well positioned for that. And in the early days of the market recover, ideally, just continue to see that growth. On the medical front, again, this is one that we continue to see new logos and see growth on that. We see the outsourcing trend continues and excited about that and kinda what it will deliver into the future.

Kind of talked about the half recovery just based on our current programs, but some of the launches of others and where when that’s going to kick in. So a lot of focus on that continued outsourcing trend on that side of the business and feel good about that on the longer front. And then industrials, as I mentioned, kind of on the same thing. I mean, continue to see wins on that and longer term kinda growth. This is one of our key investment sectors that we’ll continue to invest in and feel like it’s a broad category industrial as you can imagine.

But, again, we continue to see logo growth and, expect the growth to continue out. So the biggest thing on a lot of these is just the overall tariffs and people making decisions and when is that going to kinda stabilize, which will allow our customers to sign and increase with the new logos. And, I mean, we’re excited about the growth in all of our sectors, and that’s why, I mean, as you look at where we’re positioning, we’re not necessarily positioning ourselves to grow in other sectors. It’s kind of our core base here.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Yeah. And you said the in industrial segment is is very broad. Can you just talk a little bit about what you’re doing within the industrial?

Brian Schumacher, CFO, Benchmark Electronics: Yeah. We’ve mentioned kind of softness with the test test and measurement and some of that, on our call. So part of it, it has to do with that if you think about HVAC and some of the energy stuff there on the testing and measurement side along with sensors and some various things. So, we play in various different realms of the industrial piece, but probably most of the meaningful is the test and measurement side of it on the industrial front.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Oh, okay. And what is what is your exposure to the hyperscale and AI related CapEx?

Brian Schumacher, CFO, Benchmark Electronics: Yeah. So as I kinda mentioned, I mean, on the AI front, when you look at it, we don’t necessarily build any white box servers or anything like that. We kinda play in the supercomputers in that realm, and we talked about HPC platforms and some of that being delayed. Some of that is kinda filling in, but actually, as we see that kinda build up, ideally in the back half of this year and then, of course, on the liquid cooling, of what we’ve talked about there. So excited about that piece of it and that technology that will enable us to play a little bit into that on the peripherals.

And also on the peripherals is our semi cap space and what we do on that front because, not only on the HPC, kind of on the that, but also with the semi cap allows us to play some of that on the AI, as you can imagine.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Okay. And we talked about tariffs, but what kind of exposure do you have to China? Are we taking measurements to sort of lower your exposure to China?

Brian Schumacher, CFO, Benchmark Electronics: Yeah. So most of our China is China for China. So, it’s we’re limited exposure. We have one facility. It’s less than 10% of our overall revenue.

And with our customer base being kind of at that China for China, we don’t see a lot of exposure. But, again, we continue to stay on top of that and looking what makes the most sense for that particular site. But, again, not a lot of exposure if you think about total revenue and the current portfolio visibility that we have of China for China.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Yeah. And how what are your sort of drivers for to to to drive the cash flow? You talked about about that a little bit, but maybe just, go over the levers you have to to improve the cash flow further.

Brian Schumacher, CFO, Benchmark Electronics: Yeah. So the main one, which was a focus historically, is basically all the working capital pieces of that. But inventory was a big focus as I kinda mentioned too in the days turns in that front. Other one is just the overall growth as we see this return to growth and kinda look in being able to leverage the free, the s g and a, which will cause kind of a fall to the bottom line of operating income, which will contribute to the dollars amount there. So we feel good about being able to leverage our s g and a line item and continue as the top line grows, utilization of our factories, etcetera.

So and just being able to focus while growing inventory turns on that front along with the ARAP and some of the other levers that we have there. So, again, tremendous focus on that front.

Anja Soderstrom, Senior Equity Analyst, Sidoti: And in terms of driving operating margin expansion, you I mean, what what drives are you you’ll get leverage on on higher revenue, I assume, but are there other things you can do, and are there other things you’re doing in terms of, efficiencies and automation? Or

Brian Schumacher, CFO, Benchmark Electronics: Yeah. If you look at our factories and what we’re doing there, I mean, some of the I have a focus, of course, on the s g and a, partnering with operations, drop driving operational improvements there at the factories along with the rest of the executive team, to make sure we’re maintaining that gross margin level of greater than 10% as we grow and the operational execution of that. So big focus there. Of course, I have focus on the s g and a, how we’re going to, maintain where we’re at, how we put in kind of, what I’ll call frictionless transactions, streamline a lot of processes to make sure we can grow without growing the s g and a line item. And we are well positioned with the growth of all of our sectors across the board and where we’re at to leverage our existing footprint.

So we’re not adding a lot of new, capacity on that front except for what we’ve already announced with Penang four. So we feel great about that piece of it. So really focus on each of the line items, and we discuss those regularly. And, of course, mine with my experience and background, kinda what I’m bringing to this company is kinda more of the synergies on the s g and a line and how do we make sure we position ourselves to scale. Yeah.

Okay.

Anja Soderstrom, Senior Equity Analyst, Sidoti: I also wanna remind the audience, we encourage you to participate in the q and a. If you have any question, we we’re happy to incorporate it. But I’m also curious within the high performing computing. It’s it’s kind of larger projects for you that can create some lumpiness in your revenue and and earnings. But what do you see there in the future?

Is it, when it comes back or when you get the projects, it sounds like growing. You can get more and more of these large projects, or are you able to handle those then if they come in at the same time? Or

Brian Schumacher, CFO, Benchmark Electronics: Yeah. If you look at where we were before, with our current footprint on the h the high performance computers, I mean, we have plenty of room to expand with our existing footprint and leverage our existing space. So there’s no need for additional investment necessarily, significant investment. I mean, as I talked about, we had liquid cooling capacity at our facilities. We can expand that fairly easily with low cost, minimal amount of additional CapEx to continue to grow with that in our footprint.

So we feel good about that power, everything on those. So, I think we’re well positioned with the customers that we have existing and what we continue to do in the future with them.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Okay. And then, you also sort of touched on on on your balance sheet, your capital allocation priorities. But how do you think about, your priorities there and paying down debt versus buying back shares? Or or, are you even looking at acquisitions at all? Or

Brian Schumacher, CFO, Benchmark Electronics: Yeah. I mean, again, dev dividend stays, not touching that. Of course, we’re, we talked about the $8,000,000 of buyback last quarter that we did. That continues to offset dilution, and we continue to have focus based on where we believe the share price should be and where it’s at and just kind of optimistic buyback on that front. And then like you mentioned, the pay down the revolver, we’ll continue to look at that as the free cash flow, which brings you to the m and a side of the house.

So we haven’t done m and a recently. As you can as you may have heard or others, I mean, there’s been a lot of activity kind of out there, potential deals. I mean, we have two to three a week flow across our desks and looking at them and what could make sense. But it has to be a tuck in. It’s not gonna we’re not gonna just acquire to grow the top line.

Again, we’re gonna really protect that margin. We see a lot of greenfield and other opportunities there within our existing customer base or new customers on that front that we don’t necessarily need to go out and just acquire companies. So, we are looking at everything that comes across. Some of it disregarded quit sooner than others, but, again, we have not acquired anything, recently. So

Anja Soderstrom, Senior Equity Analyst, Sidoti: Okay. And, time is actually up. So I wanna thank you guys, and I want to thank the audience who tuned in. And I I wanna hand it over to to you for some closing remarks before we close it down.

Brian Schumacher, CFO, Benchmark Electronics: Yeah. So, again, I appreciate everyone joining today’s call. Look forward to talking with you guys if you have further questions. Paul Mansky, again, investor relations, as he said, is on all the website and can be easily found if you guys have any additional questions for us. So look forward to continue the conversations.

Anja Soderstrom, Senior Equity Analyst, Sidoti: Okay. Great. Thank you. Thank you, everyone.

Brian Schumacher, CFO, Benchmark Electronics: Thanks. Thank you. Thanks, Sonya.

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