Benchmark Electronics(BHE) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q4 revenue of $704 million, representing a high single-digit increase year-over-year and exceeding prior guidance [5][11] - Full year 2025 revenue was $2.66 billion, flat compared to the prior year, but showed improving momentum throughout the year [7][12] - Q4 non-GAAP EPS was $0.71, surpassing the guidance range of $0.62-$0.68 [11] - Gross margin for Q4 was 10.6%, up 50 basis points sequentially and 20 basis points year-over-year [11][12] - Operating margin for Q4 was 5.5%, demonstrating leverage in the company's model [5] Business Line Data and Key Metrics Changes - Semi-Cap revenue decreased 8% quarter-over-quarter and 14% year-over-year, but full year revenue grew 2% [12][13] - Industrial revenue was flat for the full year but up 3% year-over-year [13] - A&D revenue grew 17% year-over-year and 19% for the full year [13] - Medical revenue increased 23% year-over-year in Q4, leading to 7% growth for the full year [13] - AC&C revenue rebounded in Q4, up 27% year-over-year, with expectations for continued growth [14] Market Data and Key Metrics Changes - The company noted improved sell-through and healthier end demand across sectors as channel inventory normalized [20] - The semi-cap sector is expected to see a demand inflection in the back half of 2026, with early signs of improvement [21][22] - Industrial sector performance is expected to gradually improve throughout 2026, driven by demand in transportation and HVAC [22] - A&D revenue growth is expected to moderate in 2026 due to program timing, but bookings momentum in space applications is promising [23][24] - Medical sector is anticipated to maintain double-digit growth in 2026, supported by strong bookings in MedTech [24] Company Strategy and Development Direction - The company targets five core high-value markets, focusing on complex, high-mix opportunities while avoiding commoditized markets [8] - Continued investment in global precision technology and production equipment is planned to align with new business wins [10][16] - The company aims to improve working capital efficiency and maintain positive free cash flow while investing in growth [9][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the momentum of bookings and operational execution, particularly in medical and AC&C sectors [9][20] - The company anticipates a strong recovery in the semi-cap sector in 2026, with proactive capacity planning already in place [10][59] - Management remains optimistic about mid-single-digit growth guidance for 2026, with potential for further strengthening as visibility improves [26] Other Important Information - The company generated $85 million in free cash flow for fiscal year 2025 and maintained a net cash positive position of $111 million [15][16] - An $11.1 million non-cash impairment was recorded on certain assets due to program end-of-life [18] - The cash conversion cycle improved to 67 days, with significant improvements in inventory management [17][70] Q&A Session Summary Question: Areas of increased confidence beyond Semi-Cap - Management indicated that medical and AC&C sectors have shown improved momentum, with industrial gradually picking up as well [31][32] Question: Thoughts on gross margins and operating leverage - Management noted that while gross margins are stable, operating margins are where leverage can be realized as revenue accelerates [33][34] Question: Expansion of Total Addressable Market (TAM) in industrial - Management highlighted the broad nature of the industrial segment, with opportunities in HVAC, transportation, and agriculture [41][43] Question: Insights on space applications and bookings - Management expressed excitement about the momentum in space bookings, which is expected to contribute positively to A&D growth [44][45] Question: Details on medical program wins and momentum - Management confirmed ongoing success in medical devices and life sciences, with expectations for continued growth into 2026 [55][56] Question: Timeline for semi-cap recovery - Management indicated that they are prepared to respond to orders within 1-3 months, with proactive capacity planning already in place [58][59] Question: Expectations for cash cycle days and CapEx - Management aims to maintain stability in cash conversion cycle days while anticipating a slight increase in CapEx due to new projects [70][72]