Benchmark Electronics, Inc. (BHE) Q1 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Benchmark Electronics First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Weeks, Senior Vice President of Strategy and Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today for Benchmark's first quarter 2021 earnings call. Joining me this afternoon are Jeff Benck, CEO and President; and Roop Lakkaraju, CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the first 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 earnings presentation. Please take a moment to review the forward-looking statements advice on Slide 2 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 facts 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, most notably from the ongoing impact of the COVID-19 pandemic, and Benchmark undertakes no obligation to update any forward-looking statements. For today's call, Jeff will begin by covering a summary of our first quarter results, including new program wins. Roop will then discuss our detailed first quarter results, including a cash and balance sheet summary, and second quarter 2021 guidance. Jeff will wrap up with an outlook by market sector and progress to-date on our strategic initiatives, including ESG and sustainability. We will conclude the call today with Q&A. If you will please turn to Slide 3, I will now turn the call over to our CEO, Jeff Benck.

Thank you, Lisa. Good afternoon, and thanks to everyone for joining our call today. Overall, we delivered a solid start to 2021. Our first quarter results reinforced our commitment to executing the strategy we have laid out and continuing to demonstrate operational excellence. In Q1, revenues of $506 million were above the midpoint of our guidance for the quarter, led by continued global strength in our Semi-Cap sector, which grew 37% year-over-year. Our non-GAAP gross margins of 8.3%, non-GAAP operating margins of 2.3%, and earnings per share of $0.21 were all in line with our forecast guidance. We had another strong quarter of working capital results as our cash conversion cycle was at 65 days, which enabled $37 million of operating cash flow and $30 million of free cash flow for the quarter. Despite some significant disruptions due to COVID that temporarily shut-down two of our facilities in Malaysia, our teams did an amazing job of caring for our people, recovering in the quarter and delivering for our customers. Our leadership and COVID Task Force continued to navigate our organization through the challenges of the pandemic and we are taking actions to encourage vaccinations across our employee population first here in the US and in other countries as the vaccine is available. I'm really proud of our team around the world who continue to deliver solid results, while successfully navigating COVID. Please turn to slide four. In addition to positive results, we had another strong quarter of bookings where the outsourcing and new deal opportunity environment remains strong even in the pandemic. Our pipeline continues to grow and our trailing four quarter wins are over $800 million, which is a new record for our organization. Now, I'd like to highlight a few key wins in the quarter. In the Medical sector, we were awarded new manufacturing programs for insulin infusion pumps, a bacterial diagnostic instrument and a mobile MRI device. In the A&D sector, we were awarded new programs for RF satellite control electronics, advanced optical manufacturing for night vision applications, and a precision machining program for a military application. We are excited to further expand our world-class machining capabilities into the A&D sector. In industrials, I wanted to highlight two customer case study. The first is with our customer Ouster, a leading provider of high-resolution digital LiDAR sensors used in Industrial automation, smart Infrastructure, robotics and automotive applications. In our Thailand facility, we are providing complex microelectronics, optics and printed circuit boards assemblies for Ouster. After completion of certifications in 2019, we are now scaling capacity to meet full volume production. Our team has done an outstanding job meeting the rigorous quality requirements to bring these programs to market and we look forward to fulfilling volume demands in support of Ouster in the coming years. The second is with our new customer Geophysical Technology, Inc., which utilizes the seismic systems for measuring various subsurface for resource extraction, earthquake monitoring, construction and hydrothermal projects. Benchmark was selected based on our strong reputation for quality and reliability and to assist the nearshoring manufacturing to North America for the next generation of products. We're excited to be GTI's manufacturing partner. In computing and telco, we were awarded design services for a new hyperscale computing product and manufacturing services for new broadband product. Our new business pipeline remains strong across all of our sectors and we expect to grow bookings year-over-year. Now, I will turn the call over to Roop to discuss the first quarter financial results. Roop, over to you.

Thank you, Jeff, and good afternoon. Please turn to Slide 6 for our revenue by market sector. Total Benchmark revenue was $506 million in Q1, which was slightly above the midpoint of our guidance. As expected, decreased revenues primarily from A&D were up - partially offset by increases in Semi-Cap and telecom. Medical revenues for the first quarter were relatively flat sequentially from continued lower demand for products involved in COVID therapies and softer demand related to cardio care and other elective surgery devices. As Jeff will comment later, we do expect an uptick in the second half from new programs. Semi-Cap revenues were up 12% in the first quarter and up 37% year-over-year from continued demand strength from our wafer fab equipment customers who are continuing to boost capacity to support greater chip output. As a reminder, we provide primarily non-electronic precision machining and electromechanical assembly to these customers. A&D revenues for the first quarter decreased 19% sequentially from further deterioration in demand from our commercial aerospace customers with no signs of demand recovery in the near future. As a reminder, revenues to commercial aerospace customers was approximately 25% of our 2020 A&D sector revenue. Industrial revenues for the first quarter were slightly down from continued softness in oil and gas, infrastructure, primarily building and transportation, and new program ramp delays. Overall, the higher value markets represented 80% for our first quarter revenue. Revenues from computing and telco sectors, our traditional market, was flat quarter-over-quarter. Revenue increases in testing products were offset by continued softness in commercial satellite programs. Our traditional markets represented 20% of first quarter revenues. Our top 10 customers represented 44% of sales in the first quarter. Turning to slide seven. Our GAAP earnings per share for the quarter was $0.22. Our GAAP results included restructuring and other one-time costs totaling $1.6 million related to reductions in force and other restructuring activities around our network of sites, $3.4 million of insurance recovery. For Q1, our non-GAAP gross margin was 8.3%. This is 10 basis points better than the midpoint of our Q1 '21 guidance and 10 basis points less than our year-over-year comparison, which had stronger, higher value market mix. On a sequential basis, we were lower by 130 basis points as a result of our lower revenue, reduced absorption, higher discrete medical claims activity and higher variable compensation. Our SG&A was $30.5 million, a decrease of $1.9 million sequentially due to lower variable compensation costs. Non-GAAP operating margin was 2.3%. In Q1 2021, our non-GAAP effective tax rate was 16.9% as a result of the mix of profits between the US and foreign jurisdictions. Non-GAAP EPS was $0.21 for the quarter, which is $0.01 higher than the midpoint of our Q1 guidance and non-GAAP ROIC was 6.4%. Turning to slide eight to review our cash conversion cycle performance. Our cash conversion cycle days were 65 in the first quarter, an improvement of 6 days from the fourth quarter from the timing of inventory receipts, shipments to customers and collections within the quarter. Turning to slide nine for an update on liquidity and capital resources. Our cash balance was $400 million at March 31 with $153 million available in the US. Our cash balances grew $4 million sequentially, because of our strong cash conversion cycle performance even while we have invested in inventory for future ramps. We generated $37 million in cash flow from operations in Q1 and our free cash flow was $30 million. At March 31, we had $135 million outstanding on our term loan with no borrowings outstanding on our available revolver. Turning to slide 10 to review our capital allocation activity. In Q1, we paid cash dividends of $5.8 million and used $13.1 million to repurchase 441,600 shares. As of March 31, we had approximately $191 million remaining in our existing share repurchase authorization. In Q2, we expect to repurchase shares opportunistically while considering market conditions. Please turn to slide 11 for a review of our second quarter 2021 guidance. We expect revenue to range from $515 million to $555 million, which at the midpoint represents a 9% year-over-year improvement. We expect that our gross margins will be 8.5% to 8.7% for Q2 and SG&A will range between $31 million and $32 million. The sequential increase in gross margins is expected due to higher revenues and improved absorption. We still expect gross margins for the full year to be at least 9%. Implied in our guidance is a 2.5% to 2.9% 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 Q2 of approximately $800,000 to $1.2 million. Our non-GAAP diluted earnings per share is expected to be in the range of $0.23 to $0.29 for a midpoint of $0.26. Based on the strength of new bookings, execution of new program ramps and continued growth in our Semi-Cap sector, we are increasing our CapEx plans for the year to be between $50 million to $60 million. We estimate that we will generate approximately $80 million to $100 million of cash flow from operations for the fiscal year 2021. This range contemplates increased working capital investments in inventory to support growth for our customers through the year. Other expenses net is expected to be $2.5 million, which is primarily interest expense related to our outstanding debt. We expect that for Q2 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 Q2 are 36.5 million. Before I turn the call back over to Jeff, I wanted to comment on our perspective on components play. As you are aware, the overall demand environment is gaining strength for the macroeconomic recovery, which has outpaced electronic component supply. Lead times are extending as more components are going on allocation, primarily in semiconductors. We are maintaining close alignment with our suppliers and distributors to minimize disruptions to existing orders and working to secure supply to support customer demand increases. In some cases, we are actively working with customers to re-plan mix and redesign some products to enable alternate component sourcing. These actions will give us confidence that we will grow revenue in 2021. 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. That is also assumes no material changes to end market conditions due to COVID. And, with that, I'll turn the call back over to you, Jeff.

Thanks, Roop, for that update. Following Roop's comments on our second quarter guidance, I wanted to provide some additional color on our view of demand by sector for the remainder of 2021. This is on slide 13. For the second quarter, we expect revenue to be up sequentially by about $30 million. This strength is led by expected sequential growth in Semi-Cap, A&D and Computing. In Semi-Cap, the demand outlook continues to build for semiconductor capital equipment and a strengthening in Q2 over our Q1 results. The strong demand for semiconductors due to the accelerating pace of digital transformation is fueling this growth, and we remain well positioned with the industry leaders in this sector. We believe this wafer fab equipment growth cycle has the potential to continue for several years not only due to the current severe semiconductor shortages, but also driven by government investment to address concerns about supply chain security and overall competitiveness. With this current demand strength and signals from our customers, we are revising our outlook for this sector upward from 10% growth to greater than 20% revenue growth over 2020 levels. In A&D, growth in the second quarter is led by increased demand for defense related communications, radar and security products. Growth is expected in Q2, even though demand for commercial aerospace programs, which was about 25% of the sector demand in 2020, continues to deteriorate. As such, we expect the A&D sector will still be flat for 2021. In the computing sector, we expect strong revenue growth in 2021 from high-performance computing projects with expected ramp starting in Q2 and continuing through second half 2021. In the medical sector, we are expecting revenue to remain relatively flat in the first half as elective surgery and demand for cardiac-related products have not yet returned to pre-pandemic levels. We are receiving some early indications from our customers that elective surgery demand is strengthening and this, coupled with a number of new program ramp starting in Q3, point to stronger medical sector growth in the second half of this year. We expect 2021 will be another growth year for the medical sector. In the telco market, where we remain highly selective in our engagements, overall demand is stable in Q2 and is it proving through second half 2021 from broadband infrastructure product growth. In industrials, we've yet to see significant demand recovery in our oil and gas and our building and transportation infrastructure customers. We are excited about a tremendous number of new program ramps in the industrial space. Many of these programs are new designs and technologically advanced programs and, as such, we are experiencing some program delays. Based on these dynamics, we believe industrials will now be flat for the year. If you turn to slide 14, I wanted to provide further updates on our ESG and sustainability efforts. Since the February call, our ESG Council has successfully worked to deliver our first SASB Factsheet, which can be found on the Sustainability page of our website. This document highlights our current performance against the technical requirements for the EMS and ODM industry within the SASB framework. The objective of releasing this Factsheet is to provide continued transparency as we further enhance our performance within the framework of our five key ESG tenet. Beyond the SASB report, we have also provided further updates on our progress in both our most recent Annual Report and Proxy. At Benchmark, we value diversity and expect our leaders to embrace all people regardless of gender, race, class or creed. Recognizing the greater inclusion fosters better decision-making and increased innovation. We are strengthening our diversity equity and inclusion programs through a planned set of actions around training, policies and through a revitalized recruiting strategy. As such, we have engaged a consultant who is leading a DVI perception study to establish a framework for how we listen, learn and act to achieve our goals. We are very proud to have been awarded a 2021 Silver Medal from EcoVadis in recognition of our sustainability progress. EcoVadis is one of the world's most trusted providers of business sustainability ratings and their assessment covers a broad range of non-financial management systems, including environmental labor and human rights, ethics and sustainable procurement. This recognition puts us in the top 25% of companies rated. Looking ahead, we have started both quantitative and qualitative data collection to align the reporting to the Global Reporting Initiative, or GRI, standards. As we have announced previously, we are committed partner with Applied Materials and other strategic customers as part of the electronic supply chain ecosystem. There is tremendous momentum at Benchmark surrounding ESG and Sustainability, and I look forward to providing further updates as we continue our journey. I now want to wrap up the call today with a summary of our progress towards our three strategic initiatives for 2021 on slide 15. Growing revenue is a top priority at Benchmark through the efforts of the entire Benchmark organization and led by our go-to-market team, we are continuing to see strong new bookings both with the existing accounts and targeted new customers with innovative products aligned to our sector strategies. We are very focused on helping our customers to accelerate their time in market, provide - providing more of the complete solution, which includes both engineering and manufacturing services. This is reflected in our increased attach rate of design engagements to manufacturing wins and vice versa. To that point, in Q1, about 50% of our new wins have an engineering component. Our differentiated offerings and support in the Semi-Cap market and our new program wins have enabled significant growth in the Semi-Cap vertical, which we expect will now grow over 20% this year. This strength, coupled with new programs in high performance computing in mid-2021 and additional new program ramps in the higher value markets, gives us confidence that we can achieve greater than 5% growth in 2021. In order to support our long-term growth and scale objectives, we must also invest in sustainable infrastructure and talent, needed to support our long-term business. As I discussed earlier, ESG and sustainability initiatives and advancing diversity and inclusion underpin this foundational imperative. But they are not our only areas of investment as we are also investing in tools, processes and manufacturing assets to drive further operational effectiveness. As we evaluate how to best serve our customers, including exploring advances in technology, we are also contemplating incremental capital investments aligned to our strategy, as Roop referenced earlier. Even though we continue to invest in our business, we are committed to driving an efficient shared services organization and continuing our focus on expense management to maintain our SG&A spend at or below 6% of revenue. Finally, we expect to grow earnings faster than revenue. Our model is predicated on revenue growth that enables higher utilization to better leverage our fixed costs. With revenue growth from increasing demand and new ramps, we still expect to achieve 9% gross margin for the full year. Given the current supply chain environment, we do expect inventory growth in support of securing component supply for our customers, but we are still forecasting cash flows from operations for the full year between $80 million and $100 million. In support of efficient use of capital and returning value to our shareholders, we plan to continue buybacks and our recurring dividend. All in all, 2021 is off to a good start. I remain energized and excited about our capabilities and the progress we are making in developing our strategic customer relationships. I want to express my continued thanks to our hard-working and valuable employees and our suppliers for their incredible support. I look forward to providing further updates on our call in July. And, with that, I'll turn the call over to the operator to conduct the Q&A. Operator?

[Operator Instructions] And our first question will come from Jaeson Schmidt of Lake Street. Please go ahead.

Thanks for taking my questions. I just want to start with your comments on the shutdown of the Malaysian facilities. Could you quantify the revenue impact that had in Q1?

Yes. We - the team did an amazing job, Jaeson. We did have a significant enough impact from COVID that we ended up really halting operations for about 10 days in two of our facilities there. But the team, by working weekends and overtime, did a really quite amazing job in recovering in the quarter. So, I would say, really the impact from that shutdown was somewhat de minimis. I mean, it really was not a - not something that would stand out and really a testament to the team, just working the last two, three weeks of the quarter when they got back fully operational and they did a really nice job of recovering.

Okay. That's helpful. And then just as a follow-up, I know Q1 is always a bit different because of Chinese New Year and obviously the macro remains a bit fluid, but could you just discuss how order patterns and bookings trended in Q1?

I mean, I think it was not all that different than what we've seen in prior quarters, because, like you said, there are some things that are different in Q1 as we start a new year. We don't always experience a ton of seasonality, but I think as the quarter progressed, we certainly have seen customers come in and start to talk about increase in demand, not necessarily all of it in quarter. We talked a little bit as in the commentary that we see indications that second half looks to be stronger than first half. But I think things played out pretty in line with our expectations. We did have some demand that we weren't able to fulfill in the quarter, given some of the tightness in supply, and we can talk more about that. But, all in all, I think the order load was pretty consistent.

Our next question comes from Anja Soderstrom of Sidoti. Please go ahead.

Hi, Jeff and Roop and Lisa, and thank you for taking my question. So if you could just elaborate a little bit on the supply chain challenges you have, what kind of visibility do you have there for the rest of the quarter? And you also said it puts a little bit of the limitations on the upside demand within the quarter, is there any way you can navigate that in the coming quarters?

Yes. Anja, this is Roop. I'll maybe start with a couple of comments. I think to your last question first, can we navigate it? I think, we have the ability to navigate it. With that said, I mean it is a constrained market. It's not just semiconductors that really cuts across all commodities, but our teams are working hard at mitigating the risks associated with it and providing continuity of supply, but that means partnering with our customers and the supply chain environment. If I think about demand, it's strong, it's a strong demand environment across most of our subsectors. And with that in mind, when we look at how we might execute through Q2, we're obviously sequentially guiding up, which tells you the strength that we see. With that said, could we have some unfulfilled demand in the quarter? That's a possibility and it could be to the tune of $30 million to $50 million potentially, but that's not lost demand. That demand push us to the right and they will be fulfilled in the second half of '21 we believe.

I might just add to that, to Roop's commentary, when he talks about the potential for further unfulfilled demand, that's up and above our guidance, right. So that's not factored in and that's not necessarily a risk to what we're putting out as a forecast here. But it is a tough environment. You've got increased demand as the economic recovery continues, but then at the same time we've got the component constraints. So we're working closely with our customers who say, as you guys see it, we need to be working very closely together to plan for that, to ensure that we can get the needed supply to do that. So we are fortunate that we participate in some segments that are not as dependent on our components. When you think about our Semi-Cap business, which is up a lot, and we look for that to be stronger this year than planned, not near as component sensitive, right. In fact, if anything we're helping build the capital equipment with our customer partners that ultimately will help the industry produce more semiconductors. So we're actually part of that solution. But that's an area, for example, that's not near as sensitive to the tightening supply of components. But it's an issue the whole industry is dealing with and we're not - we're certainly not immune to it, but we think we've done a good job in navigating and we've got to stay vigilant on it.

Okay. So, hopefully, since you're part of the solution, you will be prioritized in the line for components. But in terms of the visibility though for the quarter and in the guidance, that supply need is accounted for, right? There is no risk to your guidance? It's just in case there is any upside?

Yes. That's what I was trying to reiterate. It was the fact that our guidance actually takes into account our line of sight to supply barring anything that comes up unexpectedly. But we obviously do a lot of work to align with our suppliers. We did - the reason that we're sharing that - demand is very strong and we're just sharing the fact that it's stronger than what we're likely to be able to close, because some of that's within lead-time as you have demand shifting. We could - in a normal environment, could we have done even more of that potential there. It's not keeping us from growing though. We're still able to grow our business, but ultimately we'd like to resolve all of it. And as we close to suppliers, we will look to drive more revenue. Of course, the - and we want to fulfill any demand our customers have the ability to sell.

Okay. Thank you for that additional information. And in terms of the end markets, you talked about the elective medical coming back, do you see there - how is that trending?

Well, we kind of - we've watched what others have said in the space too. We have seen that. Our medical, kind of in the first half, has been flatter and we had a lot of growth last year, but we do see signals of the elective surgery demand picking up. We also participate quite a bit in the cardiac products and diagnostic products. And in some of that, we're starting to see early signs, I would say, not as much in second quarter but as we look at some forecast for third quarter and four quarter, that looks like there is - that we should see nice growth from first half to second half in our medical business, which is kind of leading us to continue to show that as green in terms of strong growth and in the full year, it's just - as you look in the second quarter, we're not seeing quite the uptake yet in most of that demand. Those demand signals are pointing to second half. And, also, it's probably further influenced by - we have some new products that are ramping that also really look to ramp in third quarter and beyond. So some of the new medical wins we had over the last 18 months are starting to kick in, but that's really more of a second half of that for us. So that's, kind of, how we think about medical right now.

Okay. Thank you. And I think you mentioned that you increased the CapEx guidance for the year, right?

We did, Anja. We moved it up to $50 million to $60 million.

And what's driving that? Is there any further expansion or is this just machineries or?

It really is in support of the bookings environment and the strength in the bookings that we've had and the revenue strength in the ramps. And then on top of that, Semi-Cap continuing to improve and we talked about Q2 strengthening over Q1. Just putting additional capacity in support of the demand that we see in the Semi-Cap in the out quarters.

Semi-Cap is interesting, Anja…

Okay.

Semi-Cap is interesting because we started in the fall-time, we saw 5%, 6% growth in '21, then last quarter we said 10% growth, now we're adjusting that to 20%. So clearly Semi-Cap is continuing to be very strong and strengthening as we've gone forward.

Yes. And, also, how should we think about the gross margin given the computing is going to be a bit stronger and that's part of the traditional markets, right, but is that still at your, sort of, average company gross margin or is that going to affect your margins?

Yes. I think the mix is always - it is important to us in terms of our portfolio of revenue. One thing to reiterate is, we mentioned there are comments that the full year, we expect to be at 9% gross margin. So what that really means is, as you can expect a sequential improvement in the gross margins, the mix - it will be mix dependent and so compute will offset, which is lower gross margins in comparison for Semi-Cap, let's say. So you see that kind of balancing out between the two, if you will, to a certain extent. But, overall, as we continue to execute through the year and with the revenue growth that we spoke of, we expect gross margins to average out to around 9% for the year at least.

Okay, great. And then just one last question, if you don't mind. The more challenging areas were the commercial air and oil and gas and the industrials, what --

Yes.

What do you expect there? What is the --

I'd like to say aerospace, commercial aerospace is going to recover, but we don't see it yet. And we're saying for '21. We're not anticipating that. Obviously, we're watching some of the aircraft manufacturers' announcements and we know people are starting to fly again. So - but we also know international is like non-existent travel right now, it's pretty low, so we're not seeing an improvement in aerospace. As you know, we are 75% - we were 70:30, now we're about 75% defense, 25% commercial aerospace, so, well, it's down even in this year. Because if you remember March quarter last year, aerospace was holding up still because of pre-COVID, but now we've got the full year and wrap around of aerospace being down and frankly it has softened, so that's hurting the A&D segment for us. But our defense business is very strong and it's actually driving a little bit of sequential growth in 2Q. So that's kind of helping us in that segment. On industrial, oil and gas, yes, we - again, that's an area where we have not seen a recovery at this point. We sort of believe in the second half as we get to the back-end of the year that that segment will come back. Our industrial business is pretty diversified, but there are some other areas like some of the infrastructure space that that is also still really hasn't fully recovered for us. We believe that - we did shift a little bit our thoughts on industrial to say it would be flatter this year than what we might have initially projected, because we had a number of new ramps in that segment with new customers that were frankly very technology complex and not due to any fault of our own, some of those programs have moved to the right, just because it's taken longer to get the product completely designed and ready to go and volume manufacturing. So still feel good about our position in industrial, but the growth we had thought we might see in '21 we're sort of now saying it's more likely to be flatter.

Sorry. One last question. We talked about the infrastructure, how do yourself being impacted from the new administration's potential new package there?

Well, I think, we typically get the question about like defense budget and what will happen there, we work on military modernization, so we absolutely believe that regardless of the office, they were going to see continued support of defense, you see the challenges we have where we got to keep our military competitive in the world. In terms of infrastructure, as it comes the roads and highways, maybe not as direct of an impact to us, right. We're not - we don't participate as much in that segment. But the - we are really encouraged about the big investment that this is in Biden's package related semi-capital, Semi-Cap equipment and foundries. And very close to home here in Phoenix, where we're headquartered, Intel and TSMC both said that they would open additional multi-billion dollar foundries here in Phoenix, the Phoenix Metro area. So the fact that we support a number of capital equipment players in that segment. As we talked a little bit in the remarks is probably why we think that that may be a longer secular growth story than maybe the typical two, three-year cycle because of the heavy investment for the US to say we're going to do more to incentivize domestic semiconductor production and to build those foundries requires the sophisticated complex equipment that we help develop and build. So we think that that could be very good for us into 2022 and beyond.

Our next question is a follow-up from Jaeson Schmidt of Lake Street. Please go ahead.

Just two quick follow-up questions. On the Semi-Cap market, sort of this incremental, let's call it, $37 million in the revenue you now expect based on sort of the updated guidance, is that being driven by a number of different customers or is it concentrated in a few specific customers or programs?

It's a couple of customers, couple of large customers in the Semi-Cap space, but it's not all Semi-Cap. We also see strength in starting the ramp in some of the high-performance computing large platforms we're working on. That happens to be a large customer there. We also saw some of the defense sort of sequentially up and some projects there, which is multiple customers. So it's not really based on one customer. Semi-Cap is fairly concentrated for us though and a number of large capital equipment players. But the second quarter up is - it's more broader than just Semi-Cap. So I want to leave you with that. That's all Semi-Cap driven.

Okay. No, that's really helpful. And then, just lastly, that 50% attach rate number for engineering to manufacturing services seems early impressive. Is that sort of the range that you'd like to maintain going forward or what, sort of, is the long-term target?

That's a great question. It's a great question, because we've talked a lot about that. We have always, sort of, said we want at least half of the opportunities to involve engineering services and we have been somewhat below that last year. We haven't published it every quarter, but we would like to be at that level. There will be some ups and downs as bookings happen. Sometimes they don't always line up. But the other thing going on is that, as some of the engineering firms working on to leading the manufacturing wins and so it's not all, hey, we win the manufacturing and then can we help with engineering. Many times now we're being asked to develop the product and ultimately build it. So we definitely see it going both directions, but we really are tracking this closely and that's probably why we specifically called it out, because we're looking at every quarter as to are we getting engineering attach rate, because we want to sell a richer suite of services. We know we can do more. We know that engineering services tends to be a little bit higher margin than the EMS world. So it's a good thing for us and helps us with the gross margin, but, yes, we would like to continue to build on that and be north of that 50% going forward.

This concludes our question-and-answer session. I would like to turn the conference 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, please don't hesitate to reach out and I'll be happy to follow up. I also wanted to put in a quick reminder that Benchmark will be supporting the Needham Virtual Tech and Media Conference on May 18th and the Stifel Cross Sector Insight Conference on June 9th. We look forward to engaging you - with you at these events. With that, please have a good afternoon. We look forward to sharing our second quarter results with you in our July earnings call. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.