Benchmark Electronics, Inc.

and webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, January 29, 2025. I would now like to turn the conference over to Paul Manske, Investor Relations and Corporate Development. Please go ahead.

Thank you, John, and thanks everyone for joining us today for Pinchmark's fourth quarter and fiscal year-end 2024 earnings call. Joining us today are Jeff Bank, our CEO and President, and Brian Shoemaker, our CFO. After the market closed, we issued an earnings release pertaining to our financial performance for the fourth quarter and fiscal year-end 2024, and have prepared a presentation which we'll reference on this call. Both the press release and presentation are available under the investor relations section of our website at bench.com. This call is being webcast live, and a replay will be available online after we conclude. The company has provided a reconciliation of our gap to non-gap measures in the earnings release, as well as the appendix to the presentation. Please take a moment to review the forward-looking statements disclosure on slide three in the presentation materials. 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, Jeff will start with an overview, followed by Brian's deeper dive into the results and our first quarter guidance. We will conclude with Jeff sharing more insight into demand trends by sector, new business wins, and some final remarks. If you will, please turn to slide four, and I'll turn the call over to our CEO, Jeff Fagan.

Thank you, Paul. Good afternoon, and thanks to everyone for joining today's call. The fourth quarter and fiscal year 2024 continue to demonstrate our operational execution and reinforce the business model leverage we have as a company. This was exhibited by an outstanding year in margin expansion and free cash flow generation. Let me step through a few highlights. Fourth quarter revenue of $657 million was in line with guidance as semi-cap, A&D, and complex industrials delivered strong results, which were offset by anticipated weakness in medical and AC&C. Non-GAAP gross margin in the quarter of 10.4% continued our multiple quarter trend of year-on-year expansion. Non-GAAP operating margin was again over 5%, but down slightly sequentially due to variable compensation true-ups given our strong annual performance. Turning to slide five, on a full year basis, we grew non-GAAP gross and operating margins by 60 and 20 basis points respectively, which was quite an achievement in the face of mid single-digit revenue declines in 2024. This bodes well for our earnings leverage as we return to revenue growth in 2025. We also reduced inventory in the year by over $130 million, or 20%. This helped enable us to generate over $156 million in free cash flow in the year, even with our ongoing investment of capital to support future growth. I'd like to recognize the team for their efforts on inventory reductions, which helped enable these great results. Looking forward, we expect to see revenue growth across the majority of our sectors in 2025. We will continue to maintain our focus on controlling expenses, improving operational excellence in our factories, and direct working capital to support our customers' growth plans. In fact, as I mentioned in our release, This quarter, we intend to break ground on a fourth building in Penang, Malaysia, primarily in support of our semi-capital equipment customers' needs as we continue to gain share and win new programs. As we look forward to 2025, I'm encouraged about the growth opportunities in front of us, driven by the previous wins we secured, the anticipated demand recovery in our industrial and medical sectors, and a return on the investments we have made in our capacity and capabilities. Collectively, these dynamics position us well to deliver increased shareholder value in 2025 and beyond. I'd now like to pass the call over to Brian for a deeper dive into our results and outlook. Brian, over to you.

Thank you, Jeff, and good afternoon, everyone. Please turn to slide six for our fourth quarter 2024 revenue by market sector. Semi-cap revenue increased 18% year-over-year, and industrial grew 5%, both supported by improving demand and new customer wins. Medical revenue was down 7% versus the prior year, albeit up 9% sequentially. We continue to see inventory rebalancing impacting year-on-year performance, led by weakness in medical devices. A&B revenue was up 15% year-over-year. Commercial aerospace demand remained strong. both within aviation and space applications. Meanwhile, we continue to see robust domain within defense, including existing programs, momentum, and a number of new program wins. ACNC decreased 48% year over year, as expected. This decline was driven by a couple of large HPC programs being completed earlier in the year, combined with continued weakness in our communications business. Please turn to slide seven. Revenue in the quarter of 657 million was flat sequentially and down 5% year-over-year. Our GAAP earnings per share for the quarter was 50 cents. Our non-GAAP EPS was 61 cents, which was above the high end of our guidance range of 53 to 59 cents. As a reminder, our non-GAAP results exclude stock-based compensation, amortization of intangible assets, and restructuring expenses. For Q4, our non-GAAP gross margin was 10.4%. This represents a 10 basis point increase year over year. Non-GAAP SG&A expense was 35.1 million, up 9% sequentially, and up 6% year over year due to higher variable compensation. Non-GAAP operating margin was 5.1%, down 20 basis points sequentially, and down 40 basis points year over year, driven by higher variable compensation expense. Our fourth quarter non-GAAP effective tax rate was 22.4%. Non-GAAP ROIC in the fourth quarter was 9.9%. Please turn to slide eight for our revenue comparison by market sector for the full year 2024. Semi-cap revenue increased 12% year over year supported by improving demand and new customer wins. Industrial revenue decreased 4%. The decline was driven by reduced demand from existing customers partially offset by new program ramps. Medical revenue was down 19% versus the prior year due to the previously mentioned imagery rebalancing and in-demand weakness within medical devices. A&D revenue was up 20%. Commercial aero demand remained steady while space demand continues to grow. Within defense, we see fraud-based strength from existing programs as well as the launch of new program wins. ACNC decreased 30% year-over-year, driven by previously discussed weakness in both HPC and communications, which we expect to persist at least through the first half of 2025. Please turn to slide 9. For the fiscal year, revenue of $2.7 billion was down over the prior year, 6%. Our GAAP earnings per share for fiscal year 2024 was $1.72. Our GAAP results included restructuring and other one-time costs totaling $6.3 million related to resource rebalancing at certain manufacturing sites. On a non-GAAP basis, fiscal year 2024 EPS was $2.29. GAAP and non-GAAP gross margin of 10.2%, each increased 70 and 60 basis points, respectively, due to the improved operational efficiencies, proactive cost reductions taken by our manufacturing sites, and favorable revenue mix. Our non-GAAP SG&A was $136 million, up 2% year-over-year due to higher variable compensation and wage increases. Non-GAAP operating margin was 5.1%, an increase of 20 basis points driven by gross margin expansion. Our non-GAAP effective tax rate was 23.5% for the year. Please turn to slide 10 for trended non-GAAP financials. As you will see, despite demand challenges amongst some of our end markets, we continue to focus on protecting gross margin, which again expanded year over year. Although operating margin declined sequentially in year over year, we were pleased to report another quarter of 5% or greater performance. Please refer to slides 11 through 13 for discussion of our cash conversion cycle, liquidity, and capital allocations. Cash conversion cycle in the quarter was 89 days. an improvement of one day sequentially and nine days versus the prior year. In Q4, we continue to emphasize working capital efficiencies, which combined with our net income enable us to generate $46 million in operating cash flow and $37 million of free cash flow in the period. In fiscal year 2024, we generated $156 million in free cash flow. Our cash and restricted cash balances on December 31st was $328 million, a sequential increase of $4 million. During the quarter, we reduced debt by another $22 million, leaving $123 million outstanding on our term loan and $135 million outstanding against our revolver, of which we have $411 million available to borrow. Our Q4 2024 liquidity ratio, as calculated by our debt covenant, was 0.6, down from 1.1 in the prior year period. We invested approximately 33 million in capital equipment in 2024, including 9 million in Q4 in support of continued growth and enhanced capabilities in our Mexico, Malaysia, and Romanian facilities. In support of returning capital to our shareholders, we paid cash dividends of 6.1 million in the quarter and 23.9 million during 2024. Finally, in 2024, we repurchased $5.1 million of our outstanding shares, At the end of the year, we had approximately $150 million remaining in our existing share repurchase authorization. Please advance to slide 14. Let me now turn to our guidance for fiscal Q1 ending in March. We expect revenue to be within a range of $620 to $660 million. We expect non-GAAP gross margin to be between 10% and 10.2%. which is consistent with our performance over the last several quarters. Non-GAAP SG&A expenses are expected to be within a range of 34 to 36 million. With those assumptions, we would expect non-GAAP operating margin to be between 4.5% and 4.7%. On a GAAP basis, we expect expenses to include 4 to 5 million of stock-based compensation and 2.6 to 2.8 million of non-operating expenses, including amortization, restructuring, and other charges. Our non-GAAP diluted earnings per share is expected to be in the range of 48 to 54 cents. Interest and other expenses are expected to be between 4 to 5 million. We expect our Q1 effective tax rate will be between 23 and 24 percent. Our weighted average share count is expected to be approximately 37.3 million. We are planning to spend between 15 and 20 million on CapEx in Q1 and 65 to 75 million for the full year. The majority of our Q1 spending is in support of our Penang 4 building, which breaks ground in the current quarter with an expected completion in 2026. Finally, we are anticipating free cash flow in Q1. For the full year, we expect this to amount to $50 to $80 million, inclusive of the elevated CapEx spend associated with the investment in the new building in Malaysia. And with that, I would like to turn the call back over to you, Jeff.

Thanks, Brian. Please turn to slide 15 for a discussion of our performance and outlook by sector. Our SEMICAP revenue grew an impressive 18% year-over-year in Q4 and 12% on the full year. This was driven by new wins, share gains, and some recovery in specific subsegments of the SEMICAP industry. Despite the mixed recovery across the broader sector, we see signs of continued growth and remain supportive of analysts' long-term forecasts pointing to the semiconductor industry reaching $1 trillion in size by the end of the decade. It's obvious the current SEMICAP cycle has not followed historical patterns. However, we are continuing to invest in the long term. Based on our available capacity and share gains, we remain well-positioned to grow faster than the broader market. In fact, we are anticipating double-digit growth in both the first quarter and for the full year. The breadth of new wins this past quarter that encompass both precision technology and engineering provide us greater confidence in our continued momentum in this sector. In medical, similar to the last few quarters, inventory-related demand softness has weighed on sector performance, with quarterly and full-year revenue declining versus the prior period. We expect this to improve over the next few quarters, This is leading us to forecast a flat revenue environment for medical in 2025. However, we continue to pick up new wins in both life sciences and Class III medical devices, which is a solid indicator of our long-term growth opportunity in this sector. These take time to ramp, given the highly regulated nature of the markets, but we believe this is a good leading indicator of our future growth in this traditionally strong sector for benchmarks. Turning to complex industrials, we saw a return to year-on-year growth in Q4, although the full year was still down slightly. Looking to 2025, we expect low- to mid-single-digit growth in the sector for the year, with modest year-on-year growth in the first quarter. Macroeconomic challenges persist, but we see plenty of greenfield opportunities, both as a function of our unique capabilities and the sector's continued shift towards outsourced manufacturing. Reflecting this, the fourth quarter was particularly strong in terms of bookings, which consisted of competitive takeaways, business expansion, and new wins. This included a competitive win in commercial gaming and another in audio control systems, both from new customers. A&D is performing very well for us as defense continues to experience strong demand while commercial air has recovered and provided stability. Both the fourth quarter and full year 2024 saw strong double-digit year-on-year growth as we benefit from the expansion of existing programs and prior new business wins. This past quarter, AMD was their second biggest booking sector within the company, which was balanced across defense and space and encompassed both manufacturing and engineering programs. In the quarter, we closed an opportunity that expands upon an existing program for us at the Department of Homeland Security, where we've been providing surveillance systems that enable better border protection. Looking forward, we expect continued double-digit year-on-year growth from this sector. Lastly, ACNC revenue declined 23% year-over-year in the December quarter and 30% in the full year. As we've been saying for several quarters now, sector pressures are expected to persist at least into the first half of 2025. This is being driven by two key factors. One is the delay in timing of the next-gen HPC platforms due to a planned technology transition, and the other being the time required to ramp an existing communication customer's new product line that we want. Looking forward, we see new product introductions across both subsectors, that should enable a return to growth late in the year. At the same time, we're proud to have been a key supplier in support of building three of the top five fastest supercomputers in the 64th edition of the top 500 list published in November. We look to expand our participation in this market as the next-gen platforms are introduced. In summary, please turn to slide 16. Our fourth quarter and full year 2024 results once again demonstrated Benchmark's ability to manage through volatility while delivering on our commitment, both to stakeholders and our valued customers. To that end, even though revenue contracted modestly during the year, Benchmark continued to drive non-GAAP growth and operating margin expansion. At the same time, we've generated positive free cash flow over the last seven quarters, and expect this quarter to be our eighth. This speaks directly to our top to bottom focus as a company to execute our financial objectives even in times of macro uncertainties like we've seen over the past year. We're anticipating an improved demand environment as we progress through 2025 that should support our return to revenue growth for the year with earnings growth outperforming revenue. Finally, Our execution has allowed us to continue to return capital to shareholders. In recent years, this has primarily been through our quarterly dividend, which we increased last year. However, we anticipate complementing this with increased share purchases over the coming year. Let me wrap up by saying, regardless of the market environment, we are committed to our strategy. We're going to support our customers in any way they need, and at the same time drive further operational improvements within the company. We're winning new business in our focused markets and have a clear vision of what we need to do to drive future growth. I look forward to updating you on our success in the quarters to come. And with that, I'll now turn the call over to the operator to conduct our Q&A session.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Jim the Cutie from Needham and Company. Your line is now open.

Hi, thanks, good afternoon. So it looks like you're still anticipating pretty healthy growth in the semi market in 25. Jeff, how much of that is the continued benefit that you're seeing from share gains or are you actually hearing a more positive tone from some of your OEM customers?

I would say it's a bit of both. we definitely had a strong share gain year last year and it was driven, you know, last year's growth was driven more on the share gain side of things. But as we, as we look to 25 we're seeing, you know, we're seeing some improved demand. It's not across the whole sector, you know, some tools and some divisions of ROEMs are doing a bit better, but we also have won a lot of new bookings, you know, over the last several years. And, Some of those are really ramping, starting to ramp in 25. So it's a combination.

Can you elaborate on some of the areas within the customers that are showing a little better tone to business? Or, you know, conversely, ones that areas that are still somewhat flooded?

Yeah, it's a little bit sensitive. You know, obviously, it's pretty competitive out there. So don't want to give too much detail there. I would say we all kind of saw... memory, you know, start to return a little bit faster and, you know, in terms of where the demand has been, you know, and the tools that support that. Now as we kind of look, it's, you know, a lot more on the front end, I would say, and that's where we have greater exposure in the way for FabSpace than on the test and the back end of that platform. But Some of the OEMs work through inventory in the down cycle, and others were really bringing on inventory. So there's a little bit of movement back and forth as we look across customer sets. But we think the market is healthy, and we're looking for the market to overall be up there. But we think we'll grow faster. Got it.

And maybe a question for you, Brian. Just the Q1 guide, does that reflect the normal seasonal increase in variable costs? Is that pretty much what's also playing? And I know you talked, I think you called it out for Q4 as well. And then just a quick one on cash flow. Congrats on that. Is there much more to do on working capital, particularly with respect to inventory?

Yeah, on the first question, as you think of the variable comp component, there is a piece of that flowing into Q1. You also have higher taxes and everything reset in a year that kind of causes some of that increase in that period. So you have both of those that are driving that kind of so it is normalized for the Q1 time period. As far as the working capital, again, we are going to continue to drive that. If you look at the inventory, Stephen Handler- Historically we've been at turns a while ago five five and a half turns and we're going to continue to drive that from the four that we're at today on the inventory side of that and we'll continue to. Stephen Handler- Work on the other components of the working capital so there's still more work to do there and we'll continue to drive that.

Stephen Handler- Thank you.

Stephen Handler- yeah thanks.

Your next question comes from the line of Stephen fox with fox advisors your line is now open.

Hi, good afternoon. A couple of questions for me. First off, hey, Jeff, this is about as good as you sounded about your ed markets in a couple of years. And I know you were adding, that was a compliment. I'm not sure if it came out. Okay, good. And like, if I go back to, you know, a couple of years ago when you were sort of adding capacity, you know, for some of the new programs that got delayed or had to work through inventories, etc., Um, you know, it seems like you would have some extra operating leverage as things start to improve here. Can you just sort of give us a sense for, you know, how much, you know, as things recover, uh, you can, uh, leverage the margins and maybe what the offset is with the new building. Thanks. And then I had a follow-up.

Yeah, yeah, no, good question. Um, you know, we we've got capacity. There's no question, right? We, you know, we invested in expansion in, um, Guadalajara as well as in Romania. and in Penang, right, and even some in Arizona around the SEMICAP space. So we did stand up over the last two years some new facilities. And in expansion, like Romania, we doubled the size of the current. We didn't, you know, pick a new site or anything like that. So there's no question that we've got opportunity here to drive more leverage as we get utilization up. It is going to depend a little bit where the new business is and where that growth recovery happens because, you know, if it hits the right sites that are under loaded, you know, that will be more beneficial. Part of the reason we did the expansion where we did, some of the low-cost regions allow our customers to regionalize, or semi, we see a lot of demand, a lot of wins there, and so we put capacity where we see that growth. So, you know, some of that is aligned with it. But I think we would say we would, you know, we would expect there to be more leverage there. Um, we're still, you know, we're still transitioning the first half, you know, we're down sequentially, we're down a little bit year over year, but we do see, um, you know, our, our thoughts and the forecast is, you know, for growth on the full year as, as we've kind of indicated. So, um, I, I think your instincts on that are, are, are right in terms of the opportunity there for us.

And, and in terms of the Panang drag, as you invest in new capacity, they're getting help on, what the offset would be from some of that?

You know, we, we've, we've kind of, we did well with the paying three building where we absorbed it into our numbers and it really didn't show the drag. Obviously we're just at the front end of this brand new building of laying the cash out. And, you know, we, we do recognize it'll, you know, as it comes through, it'll hit the depreciation line, but given the outlook and prospects over the next several years, I think it's, I don't think you'll see much of an impact from us standing up that new facility in Malaysia.

Great. And then just as a follow-up, you mentioned precision machining and engineering a couple of times in the prepared remarks, and I know that also can drive margin. Can you talk about maybe what's new and different there in terms of the wins or what you've accomplished maybe as to why you highlighted it? Thanks.

Yeah, it kind of plays into a bit the the Penang growth and the investment there. One of the things we've been working to do is how do we do more vertical integration? And so, you know, it's not just, you know, it's like we have the ability now to be the largest frame builder in that region, right? And that can support not only in Malaysia, but also Singapore and where our OEMs might have facilities. But we could build these really large frames We can grind, powder coat, complete that. We can then build the subassemblies machine, whether it's a showerhead or a platen that the wafer rides on and e-beam weld, cooling coils into that, build electronic cabinets around it, then integrate that all in the frame. I'll tell you, there's not many folks in our space that can do that. And we've continued to invest here to really have that kind of capability. And I think the OEMs are taking notice of that. And we're in the right region. And correspondingly, we're winning there.

Great. That's all very helpful. Thank you.

No worries.

Your next question comes from the line of Jason Schmidt from Lake Street. Your line is now open.

Hey, guys, thanks for taking my questions. Just looking at the medical segment, I know you noted strong bookings. Just curious what end markets within this vertical you're seeing strength.

Yeah, for new bookings, we've done better most recently, Jason, in life sciences, whether it's searching for the next cure or the some horrible disease, but you know, DNA sequencing, you know, those kinds of sophisticated systems and, and, uh, solutions in that sector, uh, that sub sector are, um, growing in, in the market and the people investment there. Um, we also traditionally been pretty strong in medical, uh, devices, fluid management. Um, and, and so we've seen some wins there, um, as well. Another area that we see more interest is just in monitoring solutions, right, whether that's, you know, whether that's at your home or in the hospital, being able to track, you know, more and more people want real-time feedback, your doctor wants it. And some of those control systems are, you know, continuing to grow, and we see ourselves participating there. Just to give you a little sense of where we've seen progress. seeing that. Of course, some of that does have no longer time to market, just given the, when you're talking to like, particularly class three products that, you know, have to go through FDA and all of that. But we're feeling pretty good about some of the new logos that we're bringing on to the company.

Okay. No, that's really helpful. And I know it's dependent on sort of what programs you're focused on, but do you think you're losing share in medical or is it simply, sorry, this inventory digestion period? Really the latter.

We really, it's funny, as you can imagine, I'm always challenging our team on looking and understanding that. We're also talking a lot to our customers and we know that there was, you know, post-COVID exuberance where people did believe that some of the demand we saw coming, snapping back was going to stay at that level. And subsequently their channels, you know, absorb some of that. And so I, I don't actually think the end market demand is better than what we're seeing because they've got product they can support that with. So you might see one of our customers grow, but yet we're, we're still, you know, seeing the business be a bit off. I feel very confident that we haven't lost share. And it's not like one customer either, which is another kind of indicative where, you know, we might have four or five customers that are all sort of dealing with that. And some of it's exposure to the particular vertical or sub-segment you're in. And so I won't say that every competitor of mine looks the same, but that's at least what we're experiencing now. right now, that it is much more of an inventory deal that we thought, I will say, we probably thought that was going to work out by the end of last year. We now see it sort of trailing into the beginning of this year. It's certainly stabilized, and that's encouraging, but we'll probably look to the second half to really see growth come back.

Gotcha. And then just the last question from me, and I'll jump back into Q. I mean, I believe kind of Q4 gross margin was a record for the company or at least the highest in the recent past. Not trying to back you into the corner on sort of a margin target for 25, but just given all the dynamics of your business and the mix and bringing on new facilities, how much further expansion do you think is possible here?

Yeah, a lot of it. Thanks for the question, Jason. A lot of it has to do with the mix on that, too, and the operational execution that we continue to do. So on two things, as you continue to hear us talk about the semi-cap expansion A&D and AC&C fall off, some of that is going to drive that margin expansion on that, and we'll see how that kind of levels out throughout the year. And the operation efficiencies, I mean, we are very good at executing on that and will continue to try to be going forward on that whole component is ramping up and down as the factories and kind of what we see the demand to be. So, again, there's a lot of execution around that, and we'll continue to keep our eyes on it and continue to drive that. I mean, it's been a primary focus of ours, and we'll continue to be going forward, as you've seen over the last several quarters in the expansion we've had there, as you mentioned.

I might just add a little color there, too. While we're at the top end of the range against our competition on gross margin and we've done a great job of that and the mix will help. And as, as Brian said, operational efficiency helps too. We, we, we have more focused on the operating margin line and what we can do there. Right. And that's focused on SG&A expense, but also growth that, you know, we know we would get better. We lever up quite well. We worked hard to get, you know, north of five for the year last year. And, you know, obviously we don't want to give up ground there. So, As we look at a full year now kind of crossed with more of our sectors showing opportunity for growth, we're looking at low to middle single-digit growth on the year overall, which is what can help us drive a better bottom operating margin line.

Gotcha. No, I appreciate the call, you guys. Thanks a lot. Thanks.

Your next question comes from the line of Melissa Fairbairn from Raymond James. Your line is now open.

Hey, guys. Thanks so much for taking my question. And I appreciate all the detail that you gave on the medical segment. That was going to be my leading question. But I feel like I'm obligated, someone is obligated to ask about AI on every earnings call, it seems. I know when we last spoke, a lot of your focus on the advanced computing side obviously is just on the supercomputing. When we last spoke, you had kind of suggested that there might be opportunities for you to benefit in some of the broader AI market spend. Just wondering if you could give us an update on that.

Yeah, we continue to talk about that and certainly put energy into it. As you can imagine, building these helping to develop these large supercomputers and manufacture subsystems for that and stuff. We deal with water-cooled infrastructure. And we did mention in the remarks that, hey, we see that having applicability to some of the AI systems. We're real sensitive about commodity server infrastructure that doesn't have the profile that makes sense to us. But as the complexities there are, as there's more interest in doing things domestically. We certainly have infrastructure. So it's an area that we look that that's an opportunity for us to participate more broadly. The other thing I would say about AI, and there's been obviously a lot in the press this week, look, I think there's going to be pressure on bringing down the cost of AI. And, you know, you think about Moore's Law and reducing the cost of computing. that has never gone badly in terms of driving volume and demand. And, you know, we do a lot to help wait for fab equipment guys, build systems to build chips. And so as AI is a driver in that, in fact, we saw a large semi customer today announced some, some, you know, uplift from AI. We think that's a great way for us to participate as well. And that's the precision technology and, and our whole SEMICAP space that, you know, can help there. But I think that's as far as we're willing to go, you know, today on our thoughts there. But we certainly see more opportunity to engage across our, you know, sites and platforms.

Okay, great. Thanks so much. That's all for me.

Thanks, Melissa. As a reminder, if you have a question, please press star 1. Your next question comes from the line of Anja Söderström from CDOTI. Your line is now open.

Hi, thank you for taking my questions. I'm curious what you're seeing in the communications business. It sounded like you expect that to be weak throughout the first half of the year. I'm just curious what you're seeing there.

Yeah, it is the one sector that is a bit of a drag on our overall growth. Not surprising, though, because really two things that we've kind of pointed to that we've seen. This HPC space, where we've been more selective in compute to the more complex systems, it does have a programmatic nature to it. We're in a cycle now where, you know, a really large system we completed last year, and now we're, you know, in that transition to the next-gen platform. So, We're seeing a bit of a lull there from some of our customers while that development is underway. We know that we feel confident it will come back, and there's certainly ways that we can participate in smaller systems but maybe not have quite as much on the big side. But then the other is that we have a communications customer that we're super excited about a new product line that they're bringing on and that we've won, and we're in the process of ramping that as well. More back half loaded, and so that'll take time, but we're feeling pretty good about the potential that that can have for us. And so those are two transitions that we're, you know, looking at that's causing us to say we'll probably be down in ACNC this year, but, um, you certainly look to, to start seeing year over year growth in the, in the late, late quarters of the year.

Okay. Thank you. And then can you remind us what your exposure to Europe is in terms of revenue and then also what you're seeing there?

Europe is, um, Europe is, is just over 10% of our revenue. It's not, you know, a huge contribution, but it's important to us. Um, and, um, I would say industrial in Europe has probably been a little softer. We also do semi-work there as well. And so given that market's softness, it's been okay, but certainly hasn't been a growth driver for us. But as I said, it's approximately 10%. So we're all around that.

Okay, thank you. And just one last, how do you see the outsourcing trends in general?

I'm sorry, I missed the end of it. The outlook? Outsourcing trends.

Oh, outsourcing trends. The outsourcing trend in general.

Yeah. You know, the macro environment, I think every OEM is kind of looking at, should we be doing this in-house or should we leverage a partner like an EMS partner or like Benchmark? And so... I would say there's nice, uh, in our pipeline, um, there's a good healthy dose of customers that are, are looking to, um, you know, either outsourcing first time or don't want to bring on incremental capacity, or maybe they, they just, you know, want to leverage our investment to, uh, to continue to grow. And so I think the outsourcing trend is definitely a tailwind for us. Um, we've seen even in a softer macro environment, um, you know, there, there's still continued, uh, emphasis on that. So, um, and so that's, um, that, that was one thing I'd say. The only other thing is, um, we're also paying close attention to the tariff activity, right. And a lot of discussion right now about what happens with Mexico and, uh, potential China stepping up a little bit. Obviously, the tariffs are already there on China. We have a pretty significant, really the largest is a percent of our total U.S. footprint. We know we've got capacity there. And so, you know, we're standing ready to help customers that might, you know, decide they want to be really onshore, not nearshore, if that move happens. But, you know, You know, we like to see things work out so that it's not super disruptive. But that being said, I think our domestic footprint is a positive.

Okay. Thank you. Great. That was all for me.

Sure. Thanks, Sonia. Thanks, Sonia. There are no further questions at this time. I will now turn the call back to Paul Manske. Please continue.

Yeah. Thank you, John. And thank you, everyone, for participating in Benchmark's fourth quarter and fiscal year 2024 earnings call. For updates to coming investor conferences and events, please check the events section of our IR website at ir.bench.com. With that, we thank you again for your support and look forward to speaking with you soon. Have a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.