Benchmark Electronics 2026 Q3 Earnings Call

Please go ahead. Thank you, Piercy, and thank you everyone for joining us today for Benchmark's third quarter 2026 earnings call.

With us today are David Moezidis, our President and CEO, and Bryan Schumaker, our CFO. After the market closed, we issued an earnings release pertaining to our financial performance for the quarter, along with the presentation, which we will reference on this call. Both are available under the investor relations section of our website, ir.bench.com. This call will be webcast live with a replay available approximately one hour after we conclude. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release, as well as in the appendix to the presentation. Please take a moment to review forward-looking statements disclosure on slide 2 of the presentation. During our call, we will discuss forward-looking information.

As a reminder, any of today's remarks, which are not statements of historical fact, are forward-looking statements, which involve risks and uncertainties as described in our press releases and SEC filings. Actual results may differ materially from these statements. Benchmark undertakes no obligation to update any forward-looking statements. For today's call, David will start with highlights from the quarter, followed by Bryan, who will provide more detail on our results and our guidance. We'll then return to David for his perspective on sector trends and closing remarks before opening for Q&A. I'll now refer you to slide 4 as we turn the call over to our CEO, David Moezidis.

David? Thank you, Paul. Good afternoon and thank you for joining us today.

I'm pleased to report another strong quarter for Benchmark. Demand continued to improve across much of our portfolio, our teams executed well, and we delivered record revenue alongside earnings growth that significantly outpaced sales. Let me quickly recap the quarter. Revenue and EPS both came in above the high end of prior guidance. Revenue of $811 million was a record for Benchmark and increased 19% year-over-year. EPS of $0.84 increased 35%, nearly twice the rate of revenue growth. Our operating margin improved 70 basis points from the prior year, demonstrating the leverage potential in our model. We also maintained discipline around working capital in support of growth, resulting in a 30% year-over-year improvement in cash conversion cycle days.

Looking ahead, demand continues to improve across most of our markets, supported by healthy bookings activity and strong engagement from our customers. Given the acceleration we expect to maintain throughout the back half, this gives us the confidence to raise our outlook for the fourth quarter and the full year as we now expect 2026 revenue to exceed $3 billion. Let me share a few additional highlights from the quarter shown on slide five. Over the last several years, we have transformed our go-to-market approach to engage more effectively with both existing and prospective customers. We are now seeing that translate into growth across a broader portion of the portfolio. Semi-Cap and AC&C again delivered significant growth, while medical remains on pace to deliver double-digit growth for the year. Industrial has also begun to turn the corner, and it is encouraging to see that progress reflected in the results.

Meanwhile, A&D is performing as expected into 2026, with recent bookings and program wins positioning the sector to return to growth in 2027. We continue to see healthy bookings momentum across the portfolio. In Q2, A&D led our bookings performance. In Q3, the strongest contributions came from medical, industrial, and Semi-Cap. That is the advantage of a balanced portfolio. Different sectors will lead at different times, but the common thread is we are winning business and converting those wins into growth. Our commitment to customer success is equally evident in our operations. A recent example involved a key AI infrastructure customer that needed additional capacity on a compressed timeline. Our teams moved quickly to expand our manufacturing footprint, support the customer's requirements, and successfully execute the ramp. This is the type of responsiveness and execution that strengthens customer relationships and creates additional opportunities for Benchmark.

Financial discipline remains just as important. Last quarter, we said we intended to grow earnings at 1.5 to 2 times the rate of revenue growth in 2026. Based on our Q3 performance and the midpoint of our Q4 guidance, we are well-positioned to deliver on that commitment. We are also managing this acceleration in growth while strengthening the balance sheet and generating free cash flow. At the same time, we will continue investing where we see attractive opportunities. That includes investments in capacity and capabilities such as PT4 in Penang, which is ramping well, and our planned building in Thailand, which is expected to be completed in late 2027. As additional opportunities emerge, whether organic or otherwise, we will continue to invest with discipline and a clear focus on returns.

With that, I'll turn the call over to Bryan to walk through the financial details for the quarter.

Bryan? Thank you, David, and good afternoon, everyone.

Please turn to slide six. Revenue for the quarter was $811 million, up 19% year-over-year, and non-GAAP EPS was $0.84, up 35% year-over-year. Both exceeded the high end of guidance from our last earnings call. As a reminder, our non-GAAP results exclude certain items as detailed in Appendix one of this presentation. For the third quarter, non-GAAP gross margin was 10.5%, improving 40 basis points year-over-year and in line with the prior quarter. Non-GAAP operating margin was 5.5%, improving 70 basis points year-over-year and 30 basis points sequentially. The improvement reflected favorable mix, higher revenue and expense efficiencies partially offset by higher variable compensation. Our third quarter non-GAAP effective tax rate was 24.9%. Please turn to slide seven for revenue performance by sector.

Semi-Cap revenue grew 30% year-over-year at 8% sequentially, attributed to strong in-market demand and new program wins. Industrial revenue increased 13% year-over-year, primarily due to new program awards from key existing customers. Sequentially, industrial revenue grew 7%. We are particularly pleased with that result, given the one-time revenue benefit in Q2 that we discussed on our prior earnings call. Meanwhile, medical revenue grew 9% year-over-year and 3% sequentially, primarily due to program ramps. Within AC&C, revenue grew considerably, up 50% over the prior year and 4% versus the June quarter. Finally, although A&D was down 1% year-over-year, sequential performance was strong at 15% growth. Please turn to slide eight for our trended non-GAAP financials. In Q3, we delivered year-over-year and sequential improvement in revenue, profitability, and earnings, reflecting disciplined execution and favorable mix.

Please refer to slides nine and 10 for an update on our balance sheet, cash flow, and working capital performance. We continue to improve on our already strong balance sheet, giving us the flexibility to invest in growth at an attractive cost to capital. We will continue to maintain a disciplined approach to our capital allocation decisions. We ended the quarter with $291 million of cash and $133 million net of debt. During Q3, we added a $45 million revolver in Malaysia as part of our global cash management initiative, bringing our total available borrowing capacity to $576 million. In the third quarter, we generated $30 million in operating cash flow and $14 million in free cash flow while continuing to invest strategically in inventory, capacity, and capabilities to support future growth. During the quarter, we returned $14 million to investors through dividend and share repurchases.