Benchmark Electronics, Inc.

Today and welcome to Benchmark Electronic Inc's second quarter 2023 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, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Manske with Benchmark Electronics. Please go ahead.

Thank you, Betsy, and thanks, everyone, for joining us today for Benchmark's second quarter fiscal year 2023 earnings call. Joining me this afternoon are Jeff Bank, CEO and President, and Rup Lakharaju, CFO. After the market closed today, we issued an earnings release pertaining to our financial performance for the second quarter of 2023, and we have prepared a presentation that we will reference on this call. Both are available on the investor relations section on our website at bench.com. This call is being webcast live and a replay will be available following the call. The company has provided a reconciliation of our gap to non-gap measures in the earnings release as well as in the appendix to 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, which are not statements of historical fact or 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, most notably due to ongoing supply chain constraints, macroeconomic conditions, and semi-cap equipment spending. Benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will begin by providing a summary of our first quarter results. Rup will then discuss our detailed financial results and our third quarter guidance. Jeff will then return to provide more insight on demand trends by sector, business wins, and then closing remarks. If you would please turn to slide three, I'll turn the call over to our CEO, Jeff Bank.

Thank you, Paul. Good afternoon, and thanks to everyone for joining our call today. The company executed well in the second quarter as we delivered revenue and operating income above the high end of guidance. despite continued weakness in the semi-cap market and lingering component availability issues that impacted some output in the quarter. Specifically, we grew revenue 12% year-over-year in the quarter when excluding supply chain premiums, or SCP. We believe assessing our revenue growth, excluding the zero margin pass-through revenue, more accurately reflects company performance. As an example, SCP was $17 million in Q2 2023, and $91 million in Q2 2022. This represents a $74 million year-over-year reduction. Excluding SEP, non-GAAP gross margins were 9.4%, up a point and a half from the prior year, while non-GAAP operating margins were 4.1%, up from 3.6% last year. This enabled us to deliver non-GAAP EPS at the higher end of our guidance range. Inventory came down modestly in the quarter, but we still have more to do to achieve our days of inventory goals. Lastly, we generated positive operating and free cash flow in the quarter. Looking at the drivers of our 12% growth, we saw double-digit year-over-year performance from four of our six sectors, including advanced computing, industrials, medical, and next-generation communications. Although our sequential performance in SEMICAP was encouraging, Industry commentary around potential timing of the broader market recovery appears to be shifting deeper into 2024. Nonetheless, we firmly believe in the constructive long-term secular trends underpinning our anticipated future growth in this sector and are investing accordingly. We remain cautiously optimistic on the demand profile across our diversified sectors, which we believe will allow us to weather the current market uncertainty while continuing continuing to deliver to our profitability targets. Before turning it over to Ru, I'd like to highlight a couple of key announcements we've recently made, reinforcing our ability to attract world-class talent to Benchmark. David Mosadiz has joined us as Chief Commercial Officer, which is a new role at Benchmark. David's 30-plus years of industry experience in operations, engineering, sales, and marketing across tech, and specifically within EMS, making an incredibly valuable strategic addition to the team. David will direct Benchmark's commercial strategy, including vertical market sector plans and our global go-to-market approach, leveraging his deep expertise to drive continued business growth. At the same time, we also announced Dave Valkenoff has joined as our new Chief Operating Officer. Dave's a global manufacturing executive known for his successful track record in driving lean principles and operational excellence. With over 30 years of experience in sectors such as aerospace and defense, industrial, automotive, and semi-cap, he brings extensive global operations knowledge to our team. We are very pleased to have both executives on board, and I'm confident they will make a significant impact. I also want to thank our current Chief Revenue Officer, Rob Crawford, for his contributions over the past four years and Wish & Wellen is retirement set to begin in August. Now, let me pass it over to Rup to share more detail on the June quarter and our guidance for Q3.