Benchmark Electronics, Inc. (BHE) Q3 2021 Earnings Report, Transcript and Summary

00:06 Good afternoon, everyone, and welcome to the Benchmark Electronics, Inc. Third Quarter Twenty Twenty-One Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. 00:40 At this time, I would now like to turn the conference over to Lisa Weeks, SVP, Strategy, and Investor Relations. Ma’am, please go ahead.

00:50 Thank you, Jamie, and thanks everyone for joining us today for Benchmark’s third quarter twenty twenty-one earnings call. Joining me this afternoon are Jeff Bank, our CEO and President and Roop Lakkaraju, our CFO. After the market closed today, we issued an earnings release highlighting our financial performance for the third quarter of twenty twenty-one. And we have prepared presentation that we will reference on this call. 01:14 The press release and presentation are available online under the Investor Relations section of our website at www.bench.com. This call is being webcast live and a replay will be available online following the call. The company has provided a reconciliation of our GAAP to Non-GAAP measures in the earnings release as well as in the appendix of the presentation. 01:38 Please take a moment to review the forward-looking statements advice on slide two in the presentation. During our call, we will discuss forward looking information. As a reminder, any of today's remarks that are not statements of historical facts are forward-looking statements which involve risks and uncertainties, as described in our press releases and SEC filings. 02:00 Actual results may differ materially from these statements, most notably from the ongoing impact of the global supply chain constraint and the COVID-19 pandemic. Benchmark undertakes no obligation to update any forward-looking statements. 02:14 For today's call, Jeff will begin by covering a summary of our third quarter results including new program wins. Roop will then discuss our detailed second quarter results including a cash and balance sheet summary, and fourth quarter twenty twenty-one guidance. Jeff will wrap-up with an outlook by market sector and a progress update on our strategic initiatives for the year, before we conclude the call with Q&A. 02:40 If you will now, please turn to slide 3, I will turn the call over to our CEO, Jeff Benck.

02:47 Thank you, Lisa and thank you everyone for joining our call this afternoon. I'm really proud of how our team performed in the third quarter amidst this unprecedented supply chain prices. Despite these challenges, we delivered strong results with both revenue and profit growth. As we announced earlier today, revenue of five seventy-two million dollars was in line with our guidance and was up nine percent year-over-year. 3:11 Third quarter revenue growth was driven by continued strength in Semi-Cap, improving demand recovering in industrials, and ongoing program ramps in high performance computing. Now turning to profits, with improving revenue on Non-GAAP gross margins improved to nine-point four percent and non-GAAP operating margins improved to three-point three percent, which represents a thirty eight percent sequential improvement in operating margins. As a reminder, our non-GAAP operating margins includes stock compensation expenses, which were approximately seventy basis points in the quarter – in the third quarter. 03:51 Earnings per share of zero point three nine dollars was above the midpoint of our guidance and cash conversion cycle results were seventy-one days. Albeit higher than last quarter, driven by an increase in inventory due to the supply environment. As mentioned previously, these results were achieved with a backdrop of ongoing supply chain challenges that made it significantly more difficult to meet all customer demand and delivery expectations. 04:19 In the third quarter, we estimated that we were unable to fulfil over one hundred million dollars of demand requested in the quarter from our customers. This demand is being aligned to component availability in Q4 and into the first half of twenty twenty-two. While we expect a fair amount of the unfulfilled demand this quarter to roll in the twenty twenty-two, we also appreciate that some demand will likely parish as OEMs balance their demand plans against component availability in the new year. 04:53 Late supplier decommits and component delivery timing challenges are also creating inefficiencies for our operations team with continued replanning to manage volatile delivery schedule and allocations. On the COVID front, we are pleased that vaccine availability is improving around the world, especially for our international locations. 05:17 Having said that, we did continue to experience intermittent disruptions to our global operations based on the need to comply with government requirements and our own health and safety policies to protect our employees. Despite all the challenges I'm proud of how our teams have worked tirelessly and persevere to improve our position in support of our customers. 05:41 Please turn to slide four. In addition to strong sequential and year-over-year revenue growth, we had another great quarter of bookings. We are excited to see more and more of our customers have the opportunity to experience both our world class design engineering capabilities and our complex high quality manufacturing skills at our operations around the world. Our go-to-market team continues to perform well and we had some meaningful new program wins in Q3. 06:13 In medical, we are awarded new manufacturing programs for a glucose monitoring device and robotic surgery systems. On the engineering front, we were awarded the design of a new mobile medical card, which we hopefully do a near term manufacturing opportunity. Leading with engineering design capabilities is a key tenant of our medical strategy and it's working well. 06:38 In Semi-Cap, we continue with new programs that build on our current robust portfolio. In Q3, we awarded programs related to a wafer handling system and a wafer inspection tool. This was the second straight quarter where we had wins in Semi-Cap that leverage multiple business lines, including precision machining, engineering services and electronics manufacturing. 07:04 In the A&D sector, we awarded new manufacturing programs for satellite antennas and advanced imaging sensors as well as product design and manufacturing for combat system electronics. In Industrials, we were awarded manufacturing for advanced microelectronics related to test and instrumentation products as well as manufacturing for lidar systems. 07:30 In Q3, our customer AI announced that benchmark had been selected as a manufacturing partner for optical modules for AI’s next generation adaptive light or sensor. We'll probably to be a partner for AI and we are continuing to build on our strong core competencies for manufacturing, very complex light our products. 07:53 And finally, in the competing telco sectors, we were awarded new manufacturing programs and commercial printers and free space optics along with a new test design program for an optical application. Overall, our funnel and new business outlook remains strong with all the great work from our go-to-market, engineering services and operations team. 08:18 Now, I will turn the call over to Roop to give you more details on our third quarter financial results, as well as our guidance for Q4. Roop, over to you.

08:27 Thank you, Jeff, and good afternoon. Please turn to slide six for our revenue by market sector. Total benchmark revenue was five seventy-two million dollars in Q3, which is five percent higher sequentially and nine percent higher year-over-year. Medical revenues for the third quarter were up eight percent sequentially and slightly higher than expected from improving demand in the cardio and respiratory care markets as planned, our second half medical sector revenues are improving over first half twenty twenty-one levels from new programs and improving demand. Semi-Cap revenues were up thirty five percent year-over-year and down slightly in the third quarter due to capacity issues at several external vendors. 09:10 This demand will be shipped in Q4 when products complete processing into our facilities. Demand levels remain high, and our future backlog is increasing for our precision machining and large electro-mechanical assembly services, which are primarily related to front end wafer fab equipment. 09:28 A&D revenues for the third quarter increased four percent sequentially from stronger demand and Defense for secure communications relates to several brown-based customer programs. While our Defense programs remains strong, A&D sector revenues were down four percent year-over-year because of our commercial aerospace programs, have yet to recover to pre-pandemic levels. Industrial revenues for the third quarter were up eight percent sequentially and twenty six percent year-over-year from continued demand improvements from oil and gas, building infrastructure and commercial transportation programs, as well as a new program ramp provide our applications. We expect industrials to be up ten percent over first half twenty twenty-one revenue levels. 10:13 Overall, the higher value markets represented eighty one percent of our third quarter revenue. In our traditional markets, computing was up forty three percent sequentially from the planned ramp of high-performance computing programs that will continue into next year. In the telco sector, revenues were down sequentially and year-over-year primarily from delays in new program ramps by the component shortages. Our traditional markets represented nineteen percent of third quarter revenues, our top ten customers represented fifty percent of sales in the third quarter. 10:48 Please turn to slide seven. Our GAAP earnings per share for the quarter was zero point two three dollars. Our GAAP results included restructuring and other one-time costs totalling six point four million dollars related to various restructuring activities throughout our global network aligned to future business focus. 11:07 For Q3, our Non-GAAP gross margin was nine-point four percent this is twenty basis points better than the midpoint of our third quarter guidance driven by a better mix and continued productivity improvements across our global facilities. On a sequential basis, we were up sixty basis points because of our higher revenue, improved productivity and utilization somewhat offset by supply chain inefficiencies. Our SG&A was thirty four point four million dollars which was sequentially flat from the prior quarter. 11:37 Non-GAAP operating margin was three-point three percent. In Q3 twenty twenty-one Our Non-GAAP effective tax rate was twenty-one-point seven percent because of the mix of profits between the U. S. and Foreign Jurisdictions. Non-GAAP EPS was zero point three nine dollars for the quarter, which is two sets higher than the midpoint of our Q3 guidance and zero point one zero dollars sequential improvement. Non-GAAP ROIC was seven-point eight percent sequentially flat and a two hundred basis point improvement year-over-year. 12:07 Please turn to slide eight to review our cash conversion cycle performance. Our cash conversion cycle days were seventy-one in the third quarter. The increase in cycle days as compared to Q2 was primarily due to investing in higher levels of inventory to support growth while navigating the constrained supply chain market. 12:25 Please turn to slide nine for an update on liquidity and Capital Resources. Our cash balance was two ninety-one million dollars at September thirty. with one hundred and six million dollars available in the U. S. Our cash balances decreased seventy-nine million dollars sequentially. The decrease in cash is primarily the results of higher inventory levels as previously we discussed. We used forty-two million dollars in cash flow in operations in Q3 and our free cash flow was use of fifty-five million dollars after capital expenditures. As of September thirtieth, we had one hundred and thirty-one million dollars outstanding on our term loan and our cash net of debt is a positive one hundred and sixty million dollars. We currently have no borrowings outstanding on our available revolver. 13:08 Turning to slide ten to review our capital allocation activity. In Q3, we paid cash dividends of five point nine million dollars and used nine point nine million dollars to repurchase three hundred and seventy-two thousand shares. As of September thirtieth, we had approximately one hundred and sixty-four million dollars remaining and our existing share repurchase authorization. 13:29 Please turn to Slide eleven for a review of our fourth quarter twenty twenty-one guidance. We expect revenue to range from five sixty million dollars to six ten million dollars which at the midpoint represents a twelve percent year-over-year improvement. We expect that our gross margins will be nine-point two percent to nine-point four percent for Q4 and SG&A will range between thirty-three million dollars and thirty-five million dollars. We are still targeting gross margins for the full year to be at nine percent. Implied in our guidance is a three point four billion dollars to three-point percent Non-GAAP operating margin range for modelling purposes. 14:06 The guidance provided does exclude the impact of amortization of intangible assets and estimated restructuring and other costs. We expect to incur restructuring and other non-recurring costs in Q4 of approximately four million dollars to four point five million dollars. Part of the forecasted restructuring in Q4 is related to the decision to discontinue manufacturing in more part California, EMS locations and transition programs into other benchmark locations. Jeff will give you more color on the strategic rationale for this decision. But I wanted to advise that the Q4 restructuring charges associated with this disclosure are expected to be between two point five million dollars and three million dollars are included in the previous guidance we provided for Q4. Once the site closure is completed, we expect future annualized savings of approximately four million dollars per year. 14:55 Our Non-GAAP diluted earnings per share is expected to be in the range of zero point three seven dollars to zero point four five dollars or a midpoint of zero point four one dollars. We expect our CapEx spending for the year to be between forty-five million dollars and fifty-five million dollars. We estimate that we will generate approximately forty to sixty million dollars of cash flow from operations for fiscal year twenty twenty-one. This range contemplates higher inventory to support growth for our customers through Q4 twenty twenty-one and into fiscal year twenty twenty-two. We are committed to positive operating and free cash flow generation as part of our business model. 15:31 Other expenses math is expected to be two point four million dollars, which is primarily interest expense related to our outstanding debt. We expect that for Q4 our Non-GAAP effective tax rate will be between nineteen percent and twenty one percent because of the distribution of income around our global network. The expected weighted average shares for Q4 are approximately thirty-five point seven million dollars. Before I turn the call back over to Jeff, I wanted to comment on our perspective on components supply. 15:59 As you're aware, end market demand continues to be strong as Jeff stated earlier. However, continued supply chain constraints across all commodity categories are constraining our ability to produce the full demand forecast we are receiving from our customers. The most significant changes in Q3 were an increase in push outs of previously committed component orders and tighter allocation across the component suppliers. To counteract access volatility, we have temporarily increased our inventory investment in raw materials to secure components aligned to our future customer demand. 16:35 We are actively working with customers to replay and mix and redesign some products to enable alternate component sourcing. In general, our ability to fill upside demand is challenging due to component constraints, but we do believe these actions will give us confidence that we will grow revenue in twenty twenty-one in the high single digits. 16:55 In summary, our guidance takes into consideration all known constraints the quarter and assumes no further significant interruptions for supply base operations or customers. Gains also assumes no material changes to end market conditions and our operations due to COVID. 17:10 And with that, I'll turn it back over to you, Jeff.

17:13 Thanks for that update, Roop. Following Roop’s comments on our third quarter guidance, I want to provide some additional color on our view of demand by vertical industry. That's shown on slide thirteen. For the fourth quarter, we expect sequential and year-over-year revenue growth from the Semi-Cap and computing sectors. With ongoing demand strength and signals from our customers in the front-end wafer fab processing, capital equipment space. We are now revising our Semi-Cap forecast from thirty percent to forty percent growth over twenty twenty sector revenues. If you will recall as we entered the year, expecting a ten percent annual growth rate and we have revised this outlook, upward every quarter driven by continued strong demand for semiconductor capital equipment. 18:01 It has taken hard work by our team and a focused investment strategy to support this amazing in year increase in demand. We expect growth to continue in Semi-Cap next year fueled by the super cycle, and we are investing in additional global capacity to further expand production output next year. In computing, we expect continued growth in Q4 in high performance computing as we had projected earlier this year due to a number of new programs at our OEMs. We have continued to win new projects in this complex targeted subsector, which supports our expectation for continued strength and high-performance computing revenues throughout twenty twenty-two. 18:43 And industrials, we are pleased to see demand increasing in the second half of twenty twenty-one from our oil and gas and building infrastructure customers. With improving demand and a number of new program rents, we now expect approximately ten percent growth in this sector for the full year of twenty twenty-one. 19:02 In the telco market, we expect a strong second half across the portfolio with strength from broadband infrastructure products. However, component shortages are prohibiting near-term revenue upside in this sector. In A&D demand for the Defense programs remain strong, albeit with some quarterly fluctuations based on product certifications and supply chain. 19:28 While we expect Defense demand strength to continue in Q4 and into next year Our commercial aerospace portfolio is yet to see signs of any recovery. For a commercial aerospace subsector, we are primarily position on the multi-aisle aircraft, which you use for long haul international flights, which are lagging in demand recovery. As such, we expect A&D Sector remained flat for twenty twenty-one as Defense strength does not offset all aerospace weakness. 19:58 In medical sector revenues grew sequentially in Q3, but we are expecting flat revenues in Q4. While we have seen strong demand improvement in our base business, component availability is impacting our ability to fulfil all open customer orders and achieve the revenue growth we had previously expected for this year. On a positive note, improving demand as well as completion of new program qualifications are setting up medical to be a strong growth sector in twenty twenty-two. 20:30 If you will turn to slide fourteen as we head into the final quarter of twenty twenty-one, I wanted to provide a few highlights on our strategic objectives that were set for the year. Growing revenue remains a top priority at benchmark and I'm pleased that our expected revenue growth in twenty twenty-one is pacing ahead of our mid-term model. 20:52 Revenue growth begins to strong bookings aligned with our targeted sector focus our rich technical capabilities and our ability to tackle complex manufacturing problems. New programs along with continued demand expansion in Semi-Cap, medical, industrial and computing give us great momentum headed into the next year. 21:16 We are continuing to invest in a sustainable infrastructure and our talent for the future. We have momentum in our ESG and sustainability initiatives and we are well into our project plan to deliver our corporate sustainability report next year aligned to our proxy. Building on the SASB fact sheet we published last spring, our sustainability report will align with the global reporting initiatives and other frameworks such as the taskforce on climate related financial disclosures and the United Nations sustainable development goals. 21:52 All with the objective of increasing our transparency for investors and customers. We are also advancing our diversity equity and inclusion efforts aligned to our multi-year continuous improvement roadmap. Recently, we launched our global inclusion council that will be comprised of team members from different levels departments and regions within the organization. The charter of this team is to discuss the company's role in DE&I and to provide advice to integrate inform and shape the DE&I strategy at benchmark. 22:30 I'm really excited about the tremendous amount of employee support we have received for this council. And I believe our employee voices are critical to the success of this program. Lastly, we're focused on growing earnings. In the Q3, we grew earnings over forty percent sequentially. These results were enabled by our continued revenue growth trajectory and our commitment to control our expenses. For the full year twenty twenty-one,s we expect non gross margin of nine percent and the earnings growth greater than thirty percent over twenty twenty. 23:07 As part of the strategic planning process for twenty twenty-two and beyond. We analyzed our network of operations, including current and future utilization of our global sites. As part of this process, we consider many factors including scale, geographic placement, current and future costs, and customers long ranger needs for increased volume manufacturing. 23:32 As Roop mentioned earlier, the outcome of this is that we have decided to close our Moorpark California EMS operations, with a target closure date by the end of twenty twenty-two. As a result of this action, we will be reducing our workforce in California by approximately two hundred employees and reducing our global footprint by three percent. We will transfer customer programs from the site to other manufacturing locations in our network, which will in turn improve our overall asset utilization and efficiency. 24:07 These decisions that impact our teams are never easy. I want to thank our lower employees at the Moorpark location for their past and future support to benchmark. And to our customers for their ongoing support during the transition process. 24:23 In summary, on slide fifteen based on the continued strong demand in Semi-Cap and high-performance computing, with improving demand in industrials, we expect revenue growth in the high single digits for the year. With this revenue growth in mix, we are anticipating nine percent gross margins in twenty twenty-one and year-over-year earnings growth of over thirty percent. As Roop discussed earlier, we are revising our operating cash flow downward based on our inventory investments, but we still expect positive operating cash flow for the year. 24:59 In closing, I'm very excited about our progress thus far in twenty twenty-one and our expected outlook for the full year. I want to express again my deep appreciation to our teams and hardworking suppliers who are working tirelessly to support our customers. I look forward to giving you an update on our results for twenty twenty-one new and our views on twenty twenty-two in our earnings call in February. 25:23 And with that, I'll turn the call over to the operator to conduct Q&A.

25:30 Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jaeson Schmidt from Lake Street. Please go ahead with your question.

26:06 Hey, guys. Thanks for taking my questions. I just want to start with the supply constraints, obviously, you're really well known out there and seem to be pretty broad-based, but you specifically called out medical, just curious if you could sort of rank order, where you're seeing the most headwinds? I mean, it does sound like the Semi-Cap constraints will be easing in Q4, but what are you seeing sort of in the other kind of higher value markets?

26:33 Hey, Jason good to talk to you. So, I'll start, and I have Jeff add. Really from a constraint and, we did call it some comments on medical, but the constraints we're seeing really across all the sectors to some degree because again, the constraints are cutting across all commodity areas of this supply chain. And so, that's also part of the reason, we've invested in the inventory that we have to help support demand we're seeing from an end market standpoint. As we move forward, and I think that investment will allow us to address the demand we're seeing as we move forwarded. 27:09 Let me just add a little bit on the Semi-Cap. Obviously, not as many components necessarily because we do precision machining of metal a lot of the work, we do there. We had a lot of outside process supplier issues in the quarter and third quarter that we believe we're working our way through some of those have to do with coatings and cleaning and other things. More COVID related, not really necessarily part of the broader component criticality, which you could argue COVID out of factor there too, Jaeson, but is a little bit different when you think of that supply chain for that type of business. So that's probably we were, I know that's what we were referring to because Semi-Cap didn't see the sequential growth. Even though it's way up year-over-year. 27:58 And Jaeson, maybe the only other things specific to medical, if you think about it, it constraints it really keeping us from seeing upside in medical and that's probably more specific to point out for you.

28:11 Okay. No, that's really helpful. And then just to clarify your comments on seeing some decommits, is that just your expectation just given how long these constraints have lasted and are expected to last? Or are you actually seeing some decommits today?

28:31 Yes, It's a great question. It’s really decommits or replanning of the component and pushing them out, that's affecting us. And again, this especially affects us where we've got the demand bills expected and when they delayed, it pushes our build scheduled out, right, and defers that revenue opportunity. So, we then replan it and we work with our customers to try and get allocation of those components to see if we can still finish building it or getting it more near-term versus long-term?

29:04 There's currently two dynamics going on here. One dynamic is lead times are extending if you have upside within lead time, it's harder to get that product for customers right because just it's just taken longer to get the components you need. But we have seen and within quarter demand that was lined up and had been on order for a long time, where suppliers say, I'm not going to be able to deliver it when I thought it was. So, we've seen anyone flying out of [Indiscernible] long beach with all the containerships hanging out there trying to unload. So, there's a lot of risk in the supply chain as you can see from the results and we've been managed – been able to manage through that pretty well, but certainly it's a crazy environment.

29:50 Okay. And last one for me and I'll jump back into queue. I mean Semi-Cap has been a really nice bright spot for you guys this year and it sounds like based on your commentary, that's expected to continue, how far does visibility extend for some of these programs? I mean, is it sort into the first half of next year, does it extend all the way through calendar twenty-two?

30:17 Yes, we would normally say six months kind of visibility. What's a little bit different is with this current environment, we're sending our horizon we're asking customers to give us visibility for four percent to five quarters just given they want to get product on order components on order. So, we have, I would say a little better visibility through a lot of twenty-two, which is what's really weighing in on our confidence that not only is the backlog strong, but the forecast looks like it's pretty solid through twenty twenty-two.

30:48 Okay, that makes sense. Thanks a lot guys.

30:51 No worries. Thanks for good questions.

30:54 Our next question comes from James Ricchiuti from Needham & Company. Please go ahead with your question.

31:00 Hi. Thank you. Good afternoon. I joined a little bit late, but I may have heard, and this is what I would like to just clarify, did I hear you guys say talk about roughly on the order of one hundred million dollars of demand that you were unable to fulfil on the quarter because of the component challenges?

31:18 That's right, Jim. That's the number of years.

31:22 Okay. That's it's a big number. That's far. I just want to get a little better sense as to I don't know if you can talk a little bit to the, the profitability of that business and perhaps, which verticals it was more pronounced in?

31:45 Yeah, I would say it's necessarily more pronounced in one particular vertical or another Jim and probably Semi-Cap was the least affected other than some of the comments that Jeff just mentioned, the one hundred million dollars or so that's pushing out is really kind across all of the sectors to some degree and cut across our network of sites as well. So, it's fairly consistent from that standpoint.

32:09 And then in terms of actual business that you think maybe perishable on this? Is your way to quantify that?

32:19 Well, that's hard to pinpoint. And we hear from customers that they still want the product. We had a pretty big push from last quarter that was not on similar. So, you could argue this is sort of rolling forward, right as we fulfil demand and continue to grow. Now that some of the demand is rolling through the year end boundary, right? We know we can't fulfil everything in this quarter, either we'll have some rollover. We're just being pragmatic saying look, you're going to have OEMs to look at okay, what am I able to close on with benchmark in terms of what they can supply and we're thinking that they will reset a bit what their expectations are. That being said, they have strong demand, and they'll probably continue to keep the pressure on. And we do believe a large amount will roll into twenty-two. We just don’t, it's really hard to stay right now definitively that we're going to see that, one hundred million dollars upside show up in Q1. That would be unrealistic to characterize it that way. I think we have a better sense than that there's people are going to look at the new fiscal year and go through their operating plan and think about what they're going to set for their own targets, and I think we're going to see some adjustment there.

33:39 Got it. And apart from the component challenges, which are certainly not in significant, I'm wondering to what extent you're being impacted by rising costs elsewhere, which we've all in hearing about and yet, what extent is, are you seeing pressure on just in terms of labor costs as well. I mean certainly it's impacting some folks with U. S. Operations.

34:08 Yes. I mean, we were definitely seeing cost on the material side, right, and pricing pressure there and much of which we look to pass on to customers. From a labor standpoint, there's definitely wage pressures in the various jurisdictions we are in the U. S. And to a certain extent even internationally, but it's things that our teams are doing a very good job of effectively managing and supporting our employees through that.

34:39 Yeah, we have had to make some adjustments on starting salary in certain domains depending on we got to stay competitive, we got to make sure the benefits package competitive. Things like bowling came match and medical benefits. So, we look at all that. We got to make sure the whole package makes sense for our employees. But we know it's beyond just the monetary piece right into the kind of environment and how we care for our employees is important. But it is definitely, there's more pressure on resource and as we grow, we're going to need to add this resource and there's a war on talent and it's something we're paying quite a bit of attention on and also it is putting some pressure on the cost side of things. As Roop described, we also know, there's a lot of leverage in our model as well as we continue to grow revenues. So that's helping it's a bit on margin to not be fully impacted these other increasing costs – by the increasing cost.

35:44 Okay. I may have missed this, but you've have talked in the past about the ramp up to scale up and that high performance computing program, which I think was second half, and I don't know is how much of that said skewed more to Q4 and is that scaling where you into anticipated?

36:04 Yes, it is. In fact, we were up over forty percent sequentially in Q3. So, it definitely happened and it's continuing because what's happened is we've actually filled in with some additional wins in that segment from other customers and also other programs with the large customer that we had there. So, we're going to see a strong quarter again, particularly year-over-year in compute in Q4. But we also are looking at twenty twenty-two saying, it's going to hold off pretty nicely because of some of the fill in that we've had in the back half of twenty-two on other programs. So, it kind of went from one larger program. There's quite a bit of activity there and we've had good momentum in success.

36:52 Got it Thank you.

36:54 [Operator Instructions] And our next question comes from Anja Soderstrom from Sidoti. Please go ahead with your question.

37:12 Hi Jeff, Roop, and Lisa. Thanks for taking my questions. So, I have some follow-up up on a lot of the questions as already, I have some follow-up on the supply constraints, how did you see that progress? Over the corner and what do you see going into fourth quarter as soon as that works during the quarter, but what is seeing in the fourth quarter?

37:40 Yes, on the [Indiscernible] just a little bit, but I think we've got your comment or question. The constraints in the third quarter, I think that worse. We think that worse. And those constraints are going to continue into the fourth quarter. As we think about it. And really as we look into twenty-two, we think the constraint market is really going to continue throughout twenty-two. So, it's gotten worse in the third quarter. That's all the more reason we look at what our teams were able to accomplish. It's quite extraordinary I would say. 38:13 And the fourth quarter is going to be challenging, but we think we've got that factored into our guidance as we thought about the fourth quarter.

38:20 Yes, that is probably a little subtle chain. We said we saw mid next year, maybe things start to ease. We're now sort of looking at probably dealing with this for all the twenty-two hopefully less impactful as we get to the back half, but I think you're at Intel’s comments about all of twenty-two being constrained. So, unfortunately, we're a part of that. So, we build the effects of that. So, we are thinking it's all twenty-two. Hopefully, Q3 Q4 are some of the tougher constrained environment, but we know it's continuing.

39:00 So how much now is part of them? How much is it like in terms of component constraints versus the supply chain issue with all the ships being out of delay?

39:13 It's more – it's more of the components first because SASB are full the component suppliers don't have more capacity; they're having to allocate maybe they're allocating the automotive because of the government pushing that and maybe medical doesn't get it doesn't get allocated as much and stuff. I think that is the predominant thing. But no question is shipments have increased and things are coming late certainly like the port issues and the trucking issues are exacerbating the problem, but I think in this foundation, it really starts with just frankly not enough capacity of components. And that really goes across the range anymore. It's not limited to memory or passive or just semiconductors. We're seeing it – we're seeing plastics sheet metal even [Indiscernible] there's some restrictions on that, so.

40:15 So I want to ask about the labor inflation, but how do you see the availability of labor in the layer of the vaccination rollout, is it improving or [Technical Difficulty]

40:31 I wouldn’t say it’s just improving. I wouldn’t say it’s improving week, but we have in some cases, how to get agency help to help us find a specific skill and set up a bit or with our own team to recruit talent where we need it when we've got specific skill sets There is a concern a bit about the vaccine mandates and the implications that those could have. We're still working through that for us. And it's a complex issue and there's a lot of noise in the system about that, but it's something that we're going to learn more in the coming weeks here, I think as we go.

41:23 Okay. Thank you. I think that was all for me actually have a good questions.

41:31 Okay. Thanks.

41:35 And ladies and gentlemen, with that, we'll end today's question-and-answer session. I'd like to turn the floor back over to Lisa weeks for any closing remarks.

41:44 Thank you again for joining our call today. If you have any follow-up questions regarding our earnings release today, please don't hesitate to reach out and I'll be happy to follow-up. I also wanted to put a reminder that Benchmark will be supporting the NYSE virtual industrials Access Day on November sixteenth and the Needham Group Conference on January eleven twenty twenty-two. And we look forward to engaging with you at these events as well as our earnings call in February. Thank you all and hope you have a great afternoon.

42:15 Again, ladies and gentlemen, with that we will conclude today's conference call. We do thank you for attending. You may now disconnect your lines.