Welcome to the Sidoti Virtual Investor Conference, and thank you for joining us today. As I mentioned, next up we have Benchmark Electronics, and I'm Anja Soderstrom, the Senior Equity Analyst here at Sidoti that covers the name. With me today, I have Bryan Schumaker. He's the CFO, and I also have Paul Mansky. He's the Head of Investor Relations and Corporate Development. This will be conducted as a presentation followed by Q&A. If you would like to participate, you can do so by submitting your question in the Q&A function at the bottom of your screen. With that, I'm happy to wish you welcome.
Great. I'd like to thank everyone for joining today and to learn more about Benchmark Electronics. I'd like to first start off by pointing you to our forward-looking statements for 2025 and our non-GAAP financial information. You can take a moment to look at that. Again, this is the participants that are here today: Paul Mansky, Head of IR and Corporate Development; myself, Bryan Schumacher, CFO. If you look at Benchmark Electronics, a $2.7 billion company that operates in the electronics and precision technologies manufacturing space, our vision is really to positively impact the lives of by solving complex challenges with our customers, creating innovative products that no one imagined were possible.
We do that kind of by partnering up with the product lifecycle, starting with the starting point through the innovative technology, engineering, design services, and just leveraging our global supply chain and our technology base to basically do world-class manufacturing services. Over the last 12 months, we've been able to deliver $140 million of free cash flow, greater than 10% gross margin, which is basically six consecutive quarters on that front, and about $79 million of net cash as we ended Q1. Big focus on that. We have 21 global manufacturing. We'll hit a little bit on the next slide on that: 12,500 associates with the engineers of 420, as I talked about.
But really, a lot of what stands us apart is that product design engineers and what we're able to do on the front end of the services with our customers as the product develops, which is a good attach rate onto that for the manufacturing side of the business. Do you want to go forward, Paul? Looking at our global service footprint, you can see across the globe, we're really positioned with 21 manufacturing locations. 55% of that is in the Americas region. About 35%-36% is in the U.S. China footprint is mostly China for China, so not a lot of impact from tariffs there. Europe is primarily for Europe. The other Asia locations really set us apart: top great manufacturing facilities on that front. You can see the bit of Mexico there with our two locations in Guadalajara and Tijuana, which are great positions.
If you look at this, the sectors that we participate in being medical, aerospace and defense, industrial, semi-cap, and AC&C, and the expertise that we can deliver on that front with AI, automation, miniaturization, satcom, and space, and the big one, liquid cooling, as people talk about kind of what's going on in the AI space. We have that capability too. What we've tried to do is lay out both the life cycles and the attach rates. Once you get in with a product, it's not easy to move, especially on the medical space and some of that. Good attach rate with the 8+ years on that front.
What you start to see is with kind of expansion, you can see the CAGR on the one side, but then as people continue to grow and outsource along with that and shift to us, we expect higher growth rates. Especially on the manufacturing of the industrials and the medical space. We see good ability there to continue these under-penetrated markets and the outsourcing trend to continue. Now, you look at our margin and how we've been able to achieve the greater than 10% gross margin for six consecutive quarters. You can see since 2012, really how we've shifted that sector base. If you look at communications and computing being approximately 57% between the two of those, coming down to kind of the 18%.
On the positive kind of factor and the more material margin pieces of it, you can see the semi-cap really growing from 5% to the 27% of semi-cap business and the A&D, which was really nonexistent before, up to 16% in 2024. Great momentum on that front. Those are really driving where we're at with the more complex products and the regulatory, which are really contributing to the increase on margin on that front. Now, in the strategic focus and what we're doing, I've kind of hit a little bit on the greater than 10% gross margin and continued focus on that. Part of that is through operational execution as revenue has fluctuated, just being able to really maintain those margins on that road, basically based on the project and the sectors we're focusing on and not just chasing revenue and driving the margin down.
Real focus on the margin piece of it. On the cash flow, we've been able to drive over $140 million in free cash flow over the last 12 months. A lot of focus on inventory, as you can imagine, coming out of COVID. Some of that's ramped up. We've been able to drive that down with continued focus, but not only stopping where we're at today, but really trying to drive our turns back up. We were closer to four at the end of Q1, and we're going to continue to push that to five, five and a half turns is kind of how we're going to focus on the inventory and the working capital piece of it. On the tariff front, we've really partnered closely with our customers to really understand the dynamic environment, where we can help them out.
I think really moving to what we've seen, this flat 10% globally right now has put a pause on some of that, but we're still working closely with our customers. What I will say is, again, the U.S. footprint of approximately 36% and the Americas of 55% really position us well for anything kind of changes that happen on the tariff front. We are just working closely with our customers. I will just highlight that the tariffs are a pass-through for us. It's zero calorie, meaning it'll hit revenue and COGS, but it's not like it's dilutive to our earnings on the bottom line. As a dollar amount, it does not impact us. As you look at the first quarter and our results that came, the $632 million was in line with our guidance.
Again, the sixth consecutive quarter of greater than 10% non-GAAP gross margin and actually eighth quarter of positive free cash flow that we delivered. If you look at the margin front, even with the decreased revenue, we were able to deliver a gross margin of 10.1% as opposed to a year earlier with the 10.0%. Really good on that front and continue to deliver on EPS and trying to deliver what we say when we put it out there to the street. On the sector performance, semi-cap revenue decreased 2%. However, if you look over year- over- year, we actually were at 18% growth there. Growing higher than that overall market by continuing to gain logos and market share from our customers. On the industrial revenue, similarly down 2% quarter- over- quarter.
However, some of the existing customers had some softness in that offset by new program ramps. So again, very looking into the future and kind of where we're positioning ourselves, feel good about that sector. On the aerospace and defense, was up 4% quarter- over- quarter. Commercial aerospace on that front remains fairly consistent while defense continues to be robust. And we're also starting to move into some of the space piece of it. So again, another big piece on that sector as we continue to see growth. Medical had 12% decline quarter- over- quarter. A little bit of demand softness on that sector led by medical devices, but ideally seeing that pick up in the back half of the year as inventory rebalancing. And then on the AC&C side, 12% quarter- over- quarter decrease.
A lot of this was anticipated decline driven by markets weakness and some of the HPC, high-performance compute shifting off to the right and some of the communications business. You can see by sector kind of where we were at of the $632 million on a percentage basis for the first quarter and how we delivered on that. For the trended non-GAAP results, again, on the revenue headwinds that we've seen, however, we've continued to execute on the margin line. Still feel good no matter with the operational execution being able to fluctuate along with where revenue is coming in at. Overall margin, we did drop down below that 5% on operating income and margin sector. However, our focus is to get it back up at 5%, leveraging with the growth and revenue.
We feel good about our positioning on the SG&A and being able to scale over the longer term with growth on the top line where we're not going to be able to absorb that and continue to improve that bottom line. As you look at the balance sheet and cash flow, delivered the cash flow from operations of $32 million, free cash flow of $27 million. That's again another eight quarters that we've delivered positive free cash flow. If you look at kind of what we're delivering on the free cash flow line and with the dividend that we do, it's about a 10% return on that front. Good progress with free cash flow and dividends. We're going to continue to focus on dividend payout.
As you look at our overall structure and kind of return to capital, we did have $8 million of shares in buyback that we did in Q1, and we'll continue to look at that from a dilution standpoint and just on the buyback. On net cash, actually at $79 million. As calculated under the leverage ratio, 0.6%. This is still a big focus for us. We'll continue to drive kind of keeping a great balance sheet intact while maintaining the dividend out there. Looking at the working capital trends, great progress. If you look just from Q4 to Q1, improvement of three days. A lot of focus is being made across this. The biggest thing is on the inventory days, what we've been able to do from Q1 of last year.
Again, some of this contributed to the $140 million of free cash flow, but from the 94 days to 89 days. We're going to continue to, again, drive that as we look at getting closer to that five, five and a half turns, driving that as a benchmark. Then some of the other changes that we have. You can see our primary focus across the board and where it is from the accounts receivable, contract days, etc. Looking across our sectors and the overall outlook there. Q1, again, saw good growth year over year on the semi-cap space. Q4 of last year, we actually announced Penang Four as an expansion that we're doing there that will primarily be related to semi-cap. That goes online mid-2026. That will be made up of kind of a combination of new logos plus the expansion with existing customer base.
That will not necessarily drag on us right now, but as it curves up and ramps up into mid-next year, we'll be ready for that capacity to go online as that business continues to grow over that period. Excited about the semi-cap space and what's going on there. On the industrial front, again, looks very good outlook into the future as we continue to see momentum on booking demand and what kind of is being presented to us and what we're looking winning out there for new things. A lot of the focus here is the test and measurement subsectors, which was a little softer than expected. However, for the year, we expect some growth in this area. With the aerospace and defense, the sector continues to perform well for us.
Again, strong defense demand, as you've seen on kind of what the budgets have happened and continue to be out there along with kind of the overall demand wars out there around the world, what's going on there. Us winning new programs, both on the defense side and on the space side. Commercial is really remaining fairly stable on that front. Really feel good about where the aerospace and defense is positioning itself for the continued growth. On the medical front, had some continued demand softness, as I mentioned earlier, in some of the existing programs and customer delays and new program ramps. However, we continue to see wins in this area. However, this is one of our longest terms to market.
By the time you win, just because of all the regulatory and some of the other approvals necessary around medical, it can take up to 24 months to get from a product win to actually in the market producing and recognizing revenue. It is one of our largest, one of the sectors with the longest lead time from win to getting to market. Again, we are confident we have not lost market share in this area with the existing programs. It is just kind of the rebalancing of the inventory. We feel good about the market recovery and where it is going. It is just taking a little longer than we had thought. Between wins, market recovery, again, the tailwind behind this looks pretty good. On the AC&C side, again, HP&C platform launch continued to push a little to the right.
Some of the delays from that and then new program, 5G wireless programs. There were some delays on that. However, we're excited about our ability to leverage the water-cooled systems and what our technology is there. Looking out into the future, we've talked about that on a few conference calls. Really having good discussions on that front and what we can bring to the table with some of our existing customers and be able to leverage our U.S. footprint for that technology. Really feeling pretty good about our positioning around that piece of it and how that's going to look. As you think about capabilities and expected return to growth kind of as early as Q4 or Q1 of next year on that front too. On this AC&C front, I mean, we've essentially delivered three of the top five supercomputers.
Our technology and capability is proven there and this liquid capability will give us that added benefit. In summary, we continue to deliver greater than 10% non-GAAP gross margin. We are actively partnering with our customers to navigate through this dynamic tariff environment. We talked about on the Q1 call, some push out, pull in, nothing material that still continues today. We are really positioning ourselves with our customers well on this dynamic tariff environment and feel good about that positioning. The gross margin generated over $140 million of free cash flow over the last 12 months. We have talked about kind of longer range, what that looks like, more in the $70 million-$90 million range for free cash flow as we look to go out into the future.
We continue to maintain our capital allocation of paying the dividends, targeting repurchase of shares to offset dilution, and maintain a modest leverage profile. That is kind of in summary where things are. Again, a lot of optimism to look out into the future and really leverage our SG&A line to fall to the bottom line as we return to growth.
Great. Thank you so much. I wonder, can we just start with maybe talking about the end markets you serve and sort of the broader drivers for longer-term growth there and also how penetrated is the outsourcing trend within each?
Yeah. I will start off with semi-cap and looking at that. As we look out into kind of the future and how it kind of looks, I mean, overall, we feel really good about that.
That's why we had that expansion in the Penang Four and what we're able to capitalize on that. That market share with the growth of the new facility and being able to do that, we'll have wins both with existing customers and new logos. I really feel good about that as a longer range, especially as the market turns. I mean, we keep talking about kind of the six months when it's going to turn on the computer side of it, and we're well positioned for that. In the early days of market recovery, ideally, to continue to see that growth. On the medical front, again, this is one that we continue to see new logos and see growth on that. We see the outsourcing trend continues and excited about that and kind of what it will deliver into the future.
Kind of talked about the second-half recovery just based on our current programs, but some of the launches of others and when that's going to kick in. A lot of focus on that continued outsourcing trend on that side of the business and feel good about that on the longer front. Industrials, as I mentioned, kind of on the same thing. I mean, continue to see wins on that and longer-term kind of growth. This is one of our key investment sectors that we'll continue to invest in and feel like it's a broad category, industrial, as you can imagine. Again, we continue to see local growth and expect the growth to continue out.
The biggest thing on a lot of these is just the overall tariffs and people making decisions and when is that going to kind of stabilize, which will allow our customers to sign and increase with the new logos. I mean, we're excited about the growth in all of our sectors. That is why, as you look at where we're positioning, we're not necessarily positioning ourselves to grow in other sectors. It is kind of our core base here.
Yeah. You said the industrial segment is very broad. Can you just talk a little bit about what you're doing within the industrial?
Yeah. We've mentioned kind of softness with the test and measurement and some of that on our call. Part of it has to do with that.
If you think about HVAC and some of the energy stuff there on the testing and measurement side, along with sensors and some various things. We play in various different realms of the industrial piece, but probably most of the meaningful is the test and measurement side of it on the industrial front.
Okay. What is your exposure to the hyperscale and AI-related CapEx?
Yeah. As I kind of mentioned, I mean, on the AI front, when you look at it, we do not necessarily build any white-box servers or anything like that. We kind of play in the supercomputers in that realm. We talked about HPC platforms and some of that being delayed. Some of that is kind of filling in, but actually, as we see that kind of build up, ideally in the back half of this year.
On the liquid cooling, kind of what we've talked about there. Excited about that piece of it and that technology that will enable us to play a little bit into that on the peripherals. Also on the peripherals is our semi-cap space and what we do on that front because not only on the HPC, kind of on that, but also with the semi-cap allows us to play some of that on the AI, as you can imagine.
Okay. We talked about tariffs, but what kind of exposure do you have to China? Are we taking measurements to sort of lower your exposure to China?
Yeah. Most of our China is China for China. We have limited exposure. We have one facility. It is less than 10% of our overall revenue.
With our customer base being kind of at that China for China, we do not see a lot of exposure. Again, we continue to stay on top of that and looking at what makes the most sense for that particular site. Again, not a lot of exposure if you think about it of total revenue and the current portfolio visibility that we have of China for China.
Yeah. What are your sort of drivers to drive the cash flow? You talked about that a little bit, but maybe just go over the levers you have to improve the cash flow further.
Yeah. The main one, which was a focus historically, is basically all the working capital pieces of that. Inventory was a big focus, as I kind of mentioned too, and the days turns in that front.
Other one is just the overall growth as we see this return to growth and kind of looking at it and being able to leverage the SG&A, which will cause kind of a fall to the bottom line of operating income, which will contribute to the dollar amount there. We feel good about being able to leverage our SG&A line item and continue as the top line grows, utilization of our factories, etc. Just being able to focus while growing inventory turns on that front along with the AR, AP, and some of the other levers that we have there. Again, tremendous focus on that front.
In terms of driving operating margin expansion, I mean, what drivers are you? You'll get leverage on higher revenue, I assume, but are there other things you can do?
Are there other things you're doing in terms of efficiencies and automation, or?
Yeah. If you look at our factories and what we're doing there, I mean, some of that I have a focus, of course, on the SG&A, partnering with operations, driving operational improvements there at the factories along with the rest of the executive team to make sure we're maintaining that gross margin level of greater than 10% as we grow and the operational execution of that. Big focus there. Of course, I have focus on the SG&A, how we're going to maintain where we're at, how we put in kind of what I'll call frictionless transactions, streamline a lot of processes to make sure we can grow without growing the SG&A line item.
We are well positioned with the growth of all of our sectors across the board and where we are at to leverage our existing footprint. We are not adding a lot of new capacity on that front except for what we have already announced with Penang Four. We feel great about that piece of it. We really focus on each of the line items. We discuss those regularly. Of course, mine, with my experience and background, kind of what I am bringing to this company is kind of more of the synergies on the SG&A line and how do we make sure we position ourselves to scale. Yeah.
Okay. I also want to remind the audience, we encourage you to participate in the Q&A. If you have any question, we are happy to incorporate it.
I'm also curious within the high-performance computing, it's kind of larger projects for you that can create some lumpiness in your revenue and earnings. What do you see there in the future? Is it when it comes back or when you get the projects, is it also growing? You can get more and more of these large projects, or are you able to handle those then if they're coming in at the same time, or?
Yeah. If you look at where we were before with our current footprint on the high-performance computers, I mean, we have plenty of room to expand with our existing footprint and leverage our existing space. There's no need for additional investment, necessarily significant investment. I mean, as I talked about, we had liquid cooling capacity at our facilities.
We can expand that fairly easily with low cost, minimal amount of additional CapEx to continue to grow with that in our footprint. We feel good about that power, everything on that. I think we are well positioned with the customers that we have existing and what we continue to do in the future with them.
Okay. You also sort of touched on your balance sheet and your capital allocation priorities. How do you think about your priorities there and paying down debt versus buying back shares, or are you even looking at acquisitions at all, or?
Yeah. I mean, again, dividend stays, not touching that. Of course, we talked about the $8 million of buyback last quarter that we did. That continues to offset dilution.
We continue to have focus based on where we believe the share price should be and where it's at and just kind of optimistic buyback on that front. Like you mentioned, the pay down the revolver, we'll continue to look at that as the free cash flow, which brings you to the M&A side of the house. We haven't done M&A recently. As you may have heard or others, I mean, there's been a lot of activity kind of out there, potential deals. I mean, we have two to three a week flow across our desks and looking at them and what could make sense. It has to be a tuck-in. It's not going to we're not going to just acquire to grow the top line. Again, we're going to really protect that margin.
We see a lot of greenfield and other opportunities there within our existing customer base or new customers on that front that we do not necessarily need to go out and just acquire companies. We are looking at everything that comes across. Some of it is disregarded quicker than others, but we have not acquired anything recently.
Okay. Time is actually up. I want to thank you guys. I want to thank the audience who tuned in. I want to hand it over to you for some closing remarks before we close it down.
Yeah. Again, I appreciate everyone joining today's call. Look forward to talking with you guys. If you have further questions, Paul Mansky, again, investor relations, as he said, is on the website and can be easily found if you guys have any additional questions for us.
Look forward to continuing the conversations.
Okay. Great. Thank you. Thank you, everyone.
Thanks. Thank you. Thanks, Arvind.