Benchmark Electronics, Inc.

Good afternoon everyone and welcome to the Benchmark Electronics Inc third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star and then one. To withdraw your questions you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Lisa Weeks, SVP of Strategy and Investor Relations. Sam, please go ahead.

Thank you, Jamie, and thanks, everyone, for joining us today for Benchmark's third quarter 2021 earnings call. Joining me this afternoon are Jeff Bank, our CEO and president, and Roop Lakharaju, our CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the third quarter of 2021, and we have prepared a presentation that we will reference on this call. The press release and presentation are available online under the Investor Relations section of our website at www.bench.com. This call is being webcast live, and a replay will be available online following the call. The company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as in the appendix of the presentation. Please take a moment to review the forward-looking statements advice on slide two in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today's remarks that 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 material from these statements, most notably from the ongoing impact of global supply chain constraints and the COVID-19 pandemic. Benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will begin by covering a summary of our third quarter results, including new program wins. Root will then discuss our detailed third quarter results, including a cash and balance sheet summary and fourth quarter 2021 guidance. Jeff will then wrap up with an outlook by market sector and a progress update on our strategic initiatives for the year before we conclude the call with Q&A. If you will, please turn to slide three. I will now turn the call over to our CEO, Jeff Banks.

Thank you, Lisa, and thank you to everyone for joining our call this afternoon. I'm really proud of how our team performed in the third quarter amidst this unprecedented supply chain crisis. Despite these challenges, we delivered strong results with both revenue and profit growth. As we announced earlier today, revenue of $572 million was in line with our guidance and was up 9% year over year. Third quarter revenue growth was driven by continued strength in SEMICAP, improving demand recovery in industrials, and ongoing program ramps in high performance computing. Now turning to profits. With improving revenue, our non-GAAP gross margins improved to 9.4%, and non-GAAP operating margins improved to 3.3%, which represents a 38% sequential improvement in operating margins. As a reminder, our non-GAAP operating margins include stock compensation expenses, which were approximately 70 basis points in the third quarter. Earnings per share of 39 cents was above the midpoint of our guidance, and cash conversion cycle results were 71 days, albeit higher than last quarter, driven by an increase in inventory due to the supply environment. As mentioned previously, these results were achieved with a backdrop of ongoing supply chain challenges that made it significantly more difficult to meet all customer demand and delivery expectations. In the third quarter, we estimated that we were unable to fulfill over 100 million of demand requested in the quarter from our customers. This demand is being aligned to component availability in Q4 and into the first half of 2022. While we'll expect a fair amount of the unfulfilled demand this quarter to roll into 2022, we also appreciate that some demand will likely perish as OEMs balance their demand plans against component availability in the new year. Late supplier decommits and component delivery timing challenges are also creating inefficiencies for our operations team, with continued replanning to manage volatile delivery schedules and allocations. On the COVID front, we are pleased that vaccine availability is improving around the world, especially for our international locations. Having said that, we did continue to experience intermittent disruptions to our global operations, based on the need to comply with government requirements and our own health and safety policies to protect our employees. Despite all the challenges, I'm proud of how our teams have worked tirelessly and persevered to improve our position in support of our customers. Please turn to slide four. In addition to strong sequential and year-over-year revenue growth, we had another great quarter of bookings. We are excited to see more and more of our customers have the opportunity to experience both our world-class design engineering capabilities and our complex, high-quality manufacturing skills at our operations around the world. Our go-to-market team continues to perform well, and we had some meaningful new program wins in Q3. In medical, we were awarded new manufacturing programs for a glucose monitoring device and robotic surgery systems. On the engineering front, we were awarded the design of a new mobile medical cart, which we hope will lead to a near-term manufacturing opportunity. Leading with engineering design capabilities is a key tenant of our medical strategy, and it's working well. In SEMICAP, we continue to win new programs that build on our current robust portfolio. In Q3, we were awarded programs related to a wafer handling system, and a wafer inspection tool. This was the second straight quarter where we had wins in SEMICAP that leveraged multiple business lines, including precision machining, engineering services, and electronics manufacturing. In the A&D sector, we were awarded new manufacturing programs for satellite antennas and advanced imaging sensors, as well as product design and manufacturing for combat system electronics. In industrials, we were awarded manufacturing for advanced microelectronics related to test and instrumentation products, as well as manufacturing for LiDAR systems. In Q3, our customer AI announced that Benchmark had been selected as their manufacturing partner for optical modules for AI's next generation adaptive LiDAR sensor. We're proud to be a partner for AI and we are continuing to build on our strong core competencies for manufacturing very complex LIDAR products. And finally, in the computing and telco sectors, we were awarded new manufacturing programs in commercial printers and free space optics, along with a new test design program for an optical application. Overall, our funnel and new business outlook remains strong, with all the great work from our go-to-market engineering services, and operations team. Now, I will turn the call over to Rup to give you more details on our third quarter, financial results, as well as our guidance for Q4. Rup, over to you.

Thank you, Jeff, and good afternoon. Please turn to slide six for our revenue by market sector. Total benchmark revenue is $572 million in Q3, which is 5% higher sequentially and 9% higher year over year. Medical revenues for the third quarter were up 8% sequentially and slightly higher than expected from improving demand in the cardio and respiratory care market. As planned, our second half medical sector revenues are improving over first half 2021 levels from new programs and improving demand. Semi-cap revenues were up 35% year over year and down slightly in the third quarter due to capacity issues at several external vendors. This demand will be shifted in Q4 when products complete processing through our facilities. Demand levels remain high, and our future backlog is increasing for our precision machining and large electromechanical assembly services, which are primarily related to front-end wafer fab equipment. A&D revenues for the third quarter increased 4% sequentially from stronger demand in defense for secure communications related to several ground-based customer programs. While our defense programs remain strong, A&D sector revenues were down 4% year-over-year because of our commercial aerospace programs have yet to recover to pre-pandemic levels. Industrial revenues for the third quarter were up 8% sequentially and 26% year-over-year from continued demand improvements from oil and gas, building infrastructure, and commercial transportation programs, as well as a new program ramp for LIDAR applications. we expect industrials to be up 10% over first half 2021 revenue levels. Overall, the higher value markets represented 81% of our third quarter revenue. In our traditional markets, computing was up 43% sequentially from the planned ramp of high-performance computing programs that will continue into next year. In the telco sector, revenues were down sequentially and year over year primarily from delays in new program ramps tied to component shortages. Our traditional markets represented 19% of third quarter revenues. Our top 10 customers represented 50% of sales in the third quarter. Please turn to slide seven. Our GAAP earnings per share for the quarter was 23 cents. Our GAAP results included restructuring and other one-time costs totaling 6.4 million related to various restructuring activities throughout our global network aligned to future business focus. For Q3, our non-GAAP gross margin was 9.4%. This is 20 basis points better than the midpoint of our third quarter, guidance driven by a better mix and continued productivity improvements across our global facilities. On a sequential basis, we were up 60 basis points because of our higher revenue, improved productivity, and utilization, somewhat offset by supply chain inefficiencies. Our SG&A was 34.4 million, which was sequentially flat from the prior quarter. Non-GAAP operating margin was 3.3%. In Q3 2021, our non-GAAP effective tax rate was 21.7% because of the mix of profits between the U.S. and foreign jurisdictions. Non-GAAP EPS was $0.39 for the quarter, which is $0.02 higher than the midpoint of our Q3 guidance, and $0.10 sequential improvement. Non-GAAP ROIC was 7.8% sequentially flat and a 200 basis point improvement year over year. Please turn to slide 8 to review our cash conversion cycle performance. Our cash conversion cycle days were 71 in the third quarter. The increase in cycle days as compared to Q2 was primarily due to investing in higher levels of inventory to support growth while navigating the constrained supply chain market. Please turn to slide 9 for an update on liquidity and capital resources. Our cash balance was $291 million at September 30, with $106 million available in the U.S. Our cash balances decreased 79 million sequentially. The decrease in cash is primarily the result of higher inventory levels, as previously discussed. We used 42 million in cash flow in operations in Q3, and our free cash flow was use of 55 million after capital expenditures. As of September 30th, we had 131 million outstanding on our term loan, and our cash net of debt is a positive 160 million. We currently have no borrowings outstanding on our available revolver. Turning to slide 10 to review our capital allocation activity. In Q3, we paid cash dividends of $5.9 million and used $9.9 million to repurchase 372,000 shares. As of September 30th, we had approximately $164 million remaining in our existing share repurchase authorization. Please turn to slide 11 for a review of our fourth quarter 2021 guidance. We expect revenue to range from $560 million to $610 million, which at the midpoint represents a 12% year-over-year improvement. We expect that our gross margins will be 9.2% to 9.4% per Q4, and SG&A will range between $33 and $35 million. We are still targeting gross margins for the full year to be at 9%. Implied in our guidance is a 3.4 to 3.6% non-GAAP operating margin range for modeling purposes. The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs. We expect to incur restructuring and other non-recurring costs in Q4 of approximately $4 to $4.5 million. Part of the forecasted restructuring in Q4 is related to the decision to discontinue manufacturing in Moorpark, California EMS location and transition programs into other benchmark locations. Jeff will give you more color on the strategic rationale for this decision, but I wanted to advise that the Q4 restructuring charges associated with this closure are expected to be between $2.5 million and $3 million and are included in the previous guidance we provided for Q4. Once the site closure is completed, we expect future annualized savings of approximately $4 million per year. Our non-GAAP diluted earnings per share is expected to be in the range of $0.37 to $0.45, or a midpoint of $0.41. We expect our capex spending for the year to be between $45 and $55 million. We estimate that we will generate approximately $40 to $60 million of cash flow from operations for fiscal year 2021. This range contemplates higher inventory to support growth for our customers through Q4 2021 and into fiscal year 2022. We are committed to positive operating and free cash flow generation as part of our business model. Other expenses net is expected to be $2.4 million, which is primarily interest expense related to our outstanding debt. We expect that for Q4, our non-GAAP effective tax rate will be between 19% and 21% because of the distribution of income around our global network. The expected weighted average shares for Q4 are approximately 35.7 million. Before I turn the call back over to Jeff, I wanted to comment on our perspective on component supply. As you're aware, end market demand continues to be strong, as Jeff stated earlier. However, continued supply chain constraints across all commodity categories are constraining our ability to produce the full demand forecast we are receiving from our customers. The most significant changes in Q3 were an increase in push-outs of previously committed component orders and tighter allocation across the component suppliers. To counteract this volatility, we have temporarily increased our inventory investment in raw materials to secure components aligned to our future customer demand. We are actively working with customers to replan mix and redesign some products to enable alternate component sourcing. In general, our ability to fulfill upside demand is challenging due to component constraints, but we do believe these actions still give us confidence that we will grow revenue in 2021 in the high single digits. In summary, our guidance takes into consideration all known constraints for the quarter and assumes no further significant interruptions to our supply base, operations, or customers. Guidance also assumes no material changes to end market conditions and our operations due to COVID. And with that, I'll turn it back over to you, Jeff.

Thanks for that update, Rube. Following Ruth's comments on our third quarter guidance, I want to provide some additional color on our view of demand by vertical industry. That's shown on slide 13. For the fourth quarter, we expect sequential and year-over-year revenue growth from the semi-cap and computing sectors. With ongoing demand strength and signals from our customers in the front-end wafer fab processing capital equipment space, we are now revising our semi-cap forecast from 30% to 40% growth over 2020 sector revenues. If you will recall, as we entered the year expecting a 10% annual growth rate, and we have revived this outlook upward every quarter driven by continued strong demand for semiconductor capital equipment. It has taken hard work by our team and a focused investment strategy to support this amazing in-year increase in demand. We expect growth to continue in SEMICAP next year fueled by this super cycle, and we are investing in additional global capacity to further expand production output next year. In computing, we expect continued growth in Q4 in high-performance computing as we had projected earlier this year due to a number of new programs at our OEMs. We have continued to win new projects in this complex, targeted subsector, which supports our expectation for continued strength and high performance computing revenues throughout 2022. In industrials, we are pleased to see demand increasing in the second half of 2021 from our oil and gas and building infrastructure customers. With improving demand and a number of new program ramps, we now expect approximately 10% growth in the sector for the full year of 2021. In the telco market, we expect a strong second half across the portfolio with strength from broadband infrastructure products. However, component shortages are prohibiting near-term revenue upside in this sector. In A and D, demand for the defense programs remain strong, albeit with some quarterly fluctuations based on product certifications and supply chain. While we expect defense demand strength to continue in Q4 and into next year, our commercial aerospace portfolio has yet to see signs of any recovery. For our commercial aerospace subsector, we are primarily positioned on the multi-aisle aircraft, which are used for long-haul international flights, which are lagging in demand and recovery. As such, we expect the A&D sector to remain flat for 2021, as defense strength does not offset all of aerospace weakness. In medical, sector revenues grew sequentially in Q3, but we are expecting flat revenues in Q4. While we have seen strong demand improvement in our base business, component availability is impacting our ability to fulfill all open customer orders and achieve the revenue growth we had previously expected for this year. On a positive note, improving demand as well as completion of new program qualifications are setting up medical to be a strong growth sector in 2022. If you will turn to slide 14, as we head into the final quarter of 2021, I wanted to provide a few highlights on our strategic objectives that were set for the year. Growing revenue remains a top priority at Benchmark, and I'm pleased that our expected revenue growth in 2021 is pacing ahead of our midterm model. Revenue growth begins with strong bookings aligned with our targeted sector focus, our rich technical capabilities, and our ability to tackle complex manufacturing problems. New programs, along with continued demand expansion in SEMICAP, medical, industrial, and computing, give us great momentum headed into the next year. We are continuing to invest in a sustainable infrastructure and our talent for the future. We have momentum in our ESG and sustainability initiatives, and we are well into our project plan to deliver our corporate sustainability report next year, aligned to our proxy. Building on the SASB fact sheet we published last spring, our sustainability report will align with the global reporting initiative and other frameworks such as the Task Force on Climate-Related Financial Disclosures and the United Nations Sustainable Development Goals, all with the objective of increasing our transparency for investors and customers. We are also advancing our diversity, equity, and inclusion efforts aligned to our multi-year continuous improvement roadmap. Recently, we launched our global inclusion council that will be comprised of team members from different levels, departments, and regions within the organization. The charter of this team is to discuss the company's role in DE&I and to provide advice to integrate, inform, and shape the DE&I strategy at Benchmark. I'm really excited about the tremendous amount of employee support we have received for this Council, and I believe our employees' voices are critical to the success of this program. Lastly, we're focused on growing earnings. In the Q3, we grew earnings over 40% sequentially. These results were enabled by our continued revenue growth trajectory and our commitment to control our expenses. For the full year 2021, we expect non-growth margins of 9% and earnings growth greater than 30% over 2020. As part of the strategic planning process for 2022 and beyond, we analyzed our network of operations, including current and future utilization of our global sites. As part of this process, we consider many factors, including scale, geographic placement, current and future costs, and customers' long-range needs for increased volume manufacturing. As Rube mentioned earlier, the outcome of this is that we have decided to close our Moorpark California EMS operations with a target closure date by the end of 2022. As a result of this action, we will be reducing our workforce in California by approximately 200 employees and reducing our global footprint by 3%. We will transfer customer programs from the site to other manufacturing locations in our network, which will, in turn, improve our overall asset utilization and efficiency. These decisions that impact our teams are never easy. I want to thank our lower employees at the Moorpark location for their past and future support to Benchmark, and to our customers for their ongoing support during the transition process. In summary, on slide 15, Based on the continued strong demand in semi-cap and high-performance computing, with improving demand in industrials, we expect revenue growth in the high single digits for the year. With this revenue growth and mix, we are anticipating 9% gross margins in 2021 and year-over-year earnings growth of over 30%. As Rup discussed earlier, we are revising our operating cash flow downward based on our inventory investments. but we still expect positive operating cash flow for the year. In closing, I'm very excited about our progress thus far in 2021 and our expected outlook for the full year. I want to express again my deep appreciation to our teams and hardworking suppliers who are working tirelessly to support our customers. I look forward to giving you an update on our results for 2021 and our views on 2022 in our earnings call in February. And with that, I'll turn the call over to the operator to conduct our Q&A.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handsets before pressing the keys. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from Jason Schmidt from Lake Street. Please go ahead with your question.

Hey, guys. Thanks for taking my questions. I just want to start with the supply constraints. Obviously, really well-known out there and seem to be pretty broad-based. You specifically called out medical. Just curious if you could sort of rank order where you're seeing the most headwinds. I mean, it does sound like the semi-cap constraints will be easing in Q4, but what are you seeing sort of in the other kind of higher value markets?

Hey, Jason, good to talk to you. So I'll start and have Jeff add. You know, really from a constraints end, we did call out some comments on medical, but the constraints we're seeing really across all the sectors are to some degree because, again, the constraints are cutting across all commodity areas of the supply chain. And so, you know, that's also part of the reason we've invested in the inventory that we have to help support the demand we're seeing from an end market standpoint as we move forward. And I think that investment will allow us to address the demand we're seeing as we move forward.

Let me just add a little bit on the SEMICAP. Obviously, not as many components necessarily because we do precision machining of metal, a lot of the work we do there. We had a lot of outside process supplier issues in the quarter and third quarter that we believe we're working our way through. Some of those have to do with coatings and cleaning and other things. More COVID-related, not really necessarily part of the broader component criticality which you could argue COVID had a factor there too, Jason, but it was a little bit different when you think of that supply chain for that type of business. So that's probably what we were, you know, I know that's what we were referring to because Semicap, you know, didn't see the sequential growth, even though it's way up year over year.

And Jason, maybe the only other thing specific to medical, if you think about it, the constraints are really keeping us from seeing upside in medical. And that's probably more specific to point out for you.

Okay, no, that's really helpful. And then just to clarify your comments on seeing some decommits, is that just your expectation, just given how long these constraints have lasted and are expected to last, or are you actually seeing some decommits today?

Yeah, it's a great question. It really is decommits or replanning of the components and pushing them out that's affecting us. And again, this especially affects us where we've got the demand bills expected and it, when they, when they delayed, it pushes our, our, uh, build schedules out, right. And, and defers that revenue opportunity. So, um, we then replant it and we work with our customers to try and get allocation of those components to see if we can still finish building it or, or, or getting it more near term versus longterm.

There's kind of like two dynamics going on here. One dynamic is lead times are extending. So if you have upside within lead time, it's harder to get that product for customers, right, because it's just taking longer to get the components you need. But we have seen, you know, within quarter demand that was lined up and had been on order for a long time where suppliers say, you know, I'm not going to be able to deliver it when I thought I was. So we've seen anyone flying out of L.A. sees the Port of Long Beach with all the container ships hanging out there. trying to unload. So there's a lot of risk in the supply chain. As you can see from the results, and we've been able to manage through that pretty well, but certainly it's a crazy environment.

Okay. And last one from me, and I'll jump back into Q. I mean, SemiCap has been a really nice bright spot for you guys this year, and it sounds like based on your commentary that that's expected to continue. How far does visibility extend for some of these programs? I mean, is it sort of into the first half of next year, or does it extend all the way through calendar 22?

Yeah, we would normally say six-month kind of visibility. What's a little bit different is with this current environment, we're extending our horizon. We're asking customers to give us visibility for four to five quarters, just given they want to get you know, product on order, components on order. So we have, I would say, a little better visibility through a lot of 22, which is what's really, you know, weighing in on our confidence. Not only is the backlog strong, but the forecast looks like it's, you know, pretty solid through 2022. Okay.

That makes sense. Thanks a lot, guys. No worries. Thanks, guys. Good questions.

Our next question comes from Jim Rusciutti from Needham & Company. Please go ahead with your question.

Hi, thank you. Good afternoon. I joined a little bit late, but I may have heard, and this is what I'd like to just clarify. Did I hear you guys talk about roughly on the order of 100 million of demand that you were unable to fulfill on the quarter because of the component challenges?

That's right, Jim. That's the number we used.

Okay. It's a big number. That's fine. I just want to you know, get a little better sense as to, I don't know if you can talk a little bit to the profitability of that business and, you know, perhaps which verticals it was more pronounced in.

Yeah, I wouldn't say it's necessarily more pronounced in one particular vertical or another, Jim. And probably SemiCap was the least affected other than some of the comments that Jeff just mentioned the a hundred million or so that's pushing out is really cutting across all of the sectors to some degree and, and cutting across our network of sites as well. So it's fairly consistent from that standpoint.

And then in terms of actual, uh, business that you think may be perishable in this, is there a way to quantify that?

Well, that's, that's hard to pinpoint. And, um, You know, we hear from customers that they still want the product. We had a pretty big push from last quarter that was not unsimilar. So you could argue this is sort of rolling forward, right, as we fulfill demand and continue to grow. Now that some of the demand is rolling through the year-end boundary, right, we know we can't fulfill everything in this quarter. Either we'll have some rollover. We're just being pragmatic saying, look, you're going to have OEMs that look at, okay, What am I able to close on, you know, with Benchmark in terms of what they can supply? And we're thinking that they will reset a bit what their expectations are. That being said, they have strong demand and, you know, they'll probably continue to keep the pressure on. And we do believe a large amount will roll into 2022. We just don't – it's really hard, you know, to say right now definitively that we're going to see that, you know, 100 million upside show up in Q1. That would be unrealistic to characterize it that way. I think we, you know, have a better sense than that, that there's people are going to look at the new fiscal year and go through their operating plan and and think about what they're going to set for their own targets. And I think we're going to see some adjustment there.

Got it. And, you know, apart from the component challenges, which are certainly not insignificant. I'm wondering to what extent you're being impacted by rising costs elsewhere, which we've all been hearing about, and yet to what extent are you seeing pressure just in terms of labor costs as well? I mean, certainly it's impacting some folks with U.S. operations.

Yeah, I mean, we're definitely seeing costs on the material side, right, and pricing pressure there. much of which we look to pass on to customers. From a labor standpoint, there's definitely wage pressures in the various jurisdictions we are in the U.S. and to a certain extent even internationally, but it's things that our teams are doing a very good job of effectively managing and supporting our employees through that.

Yeah, we have had to make some adjustments on starting salary and you know, certain domains, depending on, you know, we got to stay competitive. We got to make sure the benefits package is competitive, you know, things like 401k match and medical benefits. And we, we look at all that and we got to make sure the whole package makes sense for our employees, but we know it's beyond just the monetary piece, right. And it's the kind of environment and how we care for our employees is important, but it's, but it is definitely, um, you know, there's more pressure on resource. And as we grow, we're going to need to add additional resource and, There's a war on talent, and it's something we're paying quite a bit of attention on, and also it is putting some pressure on the cost side of things. As Rup described, we also know there's a lot of leverage in our model as well as we continue to grow revenues, so that's helping us a bit on margin to not be fully impacted by these other increasing costs.

Okay, and I may have missed this, but you have talked in the past about the ramp up, the scale up, and that high-performance computing program, which I think was second half. And I don't know how much of that was skewed more to Q4. And is that scaling the way you anticipated?

Yeah, it is. In fact, we were up over 40% sequentially in Q3. So it definitely happened. And it's continuing because what's happened is we've actually filled in with some additional wins in that segment from other customers and also other programs with the large customer that we had there. So we're going to see a strong quarter again, particularly year over year in compute in Q4. But we also are looking at 2022 saying it's going to hold up pretty nicely because of some of the fill-in that we've had in the back half of 22 on the other programs. So it kind of went from one larger program to, you know, there's quite a bit of activity there and we've had good momentum and success.

Got it. Thank you.

Thank you.

And once again, if you would like to ask a question, please press star and then 1. To withdraw your questions, you may press star and 2. Our next question comes from Anja Sodestrom from Sudoti. Please go ahead with your question.

Hi, Jeff, Brooke, and Lisa. Hi, Anja. Thank you for taking my questions. So I have some follow-up on the – a lot of good questions asked already, but I have some follow-up on the supply constraints. How did you see that progress over the quarter, and what do you see going into the fourth quarter? I assume it got worse during the third quarter, but what are you seeing now in the fourth quarter?

Yeah, Anya, you broke up just a little bit, but I think we've got your comment or question. The constraints in the third quarter, I think, got worse. We think got worse. And those constraints are going to continue into the fourth quarter as we think about it. And really, as we look into 22, we think that the constraint market It's really going to continue throughout 22. So, you know, it's gotten worse in the third quarter. That's all the more reason, you know, we look at what our teams were able to accomplish. It's quite extraordinary, I would say. And the fourth quarter is going to be challenging, but we think we've got that factored into our guidance as we thought about the fourth quarter.

Yeah, that is probably a little subtle change. We said we saw mid-next year maybe things start to ease. We're now sort of looking at probably dealing with this for all the 22s. Hopefully less impactful as we get to the back half, but I think you heard Intel's comments about all of 22 being constrained. So unfortunately, we're a part of that, or we feel the effects of that. So we are thinking it's all of 22. Hopefully Q3, Q4 are some of the tougher constrained environment, but we know it's continuing.

So how much now is part of, how much is it like in terms of component constraints versus the supply chain issue with all the ships being stuck out of LA?

It's more the components first because fabs are full, you know, the component suppliers don't have more capacity, they're having to allocate, maybe they're allocating automotive because the government pushing that and maybe medical doesn't get allocated as much and stuff. I think that is the predominant thing, but no question is shipments have increased and things are coming late. Certainly the port issues and the trucking issues are exacerbating the problem, but I think at the foundation it really starts with just frankly not enough capacity of – at components and that really goes across the range anymore it's not limited to memory or passives or just semiconductors you know we're seeing it everywhere we're seeing plastics sheet metal you know even ingots of aluminum you know there's some restrictions on that so okay and someone asked about the labor inflation but how how do you see

The availability of labor in the layer of vaccination rollout, is it improving?

I wouldn't say it's improving. I wouldn't say it's improving, but, you know, we have in some cases had to get, you know, agency help to help us find a specific skill, you know, and set up a bit of a war room with our own team to recruit talent. where we need it when we've got specific skill sets. There is a concern a bit about the vaccine mandates and the implications that those could have. We're still working through that for us and it's a complex issue and there's a lot of noise in the system about that, but it's something that we're gonna learn more in the coming weeks here, I think as we go.

okay thank you um i think that was all for me actually a lot of good questions okay thanks and ladies and gentlemen with that we'll end today's question and answer session i'd like to turn the floor back over to lisa weeks for any closing remarks

Thank you again for joining our call today. If you have any follow-up questions regarding our earnings release today, please don't hesitate to reach out and I'll be happy to follow up. I also wanted to put in a reminder that Benchmark will be supporting the NYSE Virtual Industrials Access Day on November 16th and the Needham Growth Conference on January 11th, 2022. And we look forward to engaging with you at these events as well as our earnings call in February. Thank you all and hope you have a great afternoon.

And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your line.