Thank you, Jamie, and thanks everyone for joining us today for Benchmark's third quarter fiscal year 2022 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 third quarter of 2022 and we have prepared a presentation that we’ll reference -- 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 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 fact are forward-looking statements, which involve risks and uncertainties, as described in our press release and SEC filings. Actual results may differ materially from these statements, Benchmark undertakes no obligation to update any forward-looking statements.

For today's call, Jeff will begin by covering a summary of our third quarter results. Roop will then discuss our detailed financial results, including a cash and balance sheet summary and our fourth quarter 2022 guidance.

Jeff will then return to provide more insight on sector demand trends, which we'll be discussing in more detail at our November 8, Investor and Analyst Day event. If you'll please turn to Slide 3, I will turn the call over to Jeff Benck, CEO.

Thank you, Paul. Good afternoon, and thanks to everyone for joining our call today.

Hopefully, by now, you've seen our press release and the results for the third quarter 2022, which represented continued execution of our revenue and earnings growth strategy. Revenue of $772 million was up nearly $200 million versus the same quarter last year, with five of our six sectors delivering greater than 35% growth.

I'm particularly pleased with our performance in advanced computing, next generation communications and industrial sectors. At the same time, we again delivered earnings growth greater than revenue with non-GAAP earnings up 46% year-over-year and $0.05 above the midpoint of our guidance.

As we said before, Benchmark is clearly benefiting from two key drivers. Our success in capturing new wins over the last several years, which are now ramping in the marketplace and our existing customer success addressing high growth markets with their innovative products.

Roop will share more details on our third quarter results in a minute. Turning to the fourth quarter.

We continue to see robust demand across the majority of our market sectors. The midpoint of our guidance positions us to achieve full year revenue growth of around 30% and earnings of $2.11, which would represent year-over-year earnings growth of greater than 55%.

We're encouraged by improvements we're seeing in supply chain, availability and many commodity areas. However, we still see constraints in some semiconductor families, which continues to limit our production output.

I'm proud of the great job our team has done working through these challenges to deliver the results we've provided to you today. We look forward to sharing with you more details on the continued execution of our strategy and longer term financial targets during our upcoming Analyst Day on November 8 at the NYSE.

With that, Roop over to you.

Thank you, Jeff, and good afternoon. Please turn to Slide 5 for our revenue by market sector.

Total Benchmark revenue was $772 million in Q3, which is 6% higher sequentially and 35% higher year-over-year. Medical revenues for the third quarter were flat sequentially and increased 41% year-over-year due to growth with existing customers and new program ramps.

Semi-Cap revenues increased 7% sequentially and increased 39% year-over-year. Demand levels throughout 2022 have remained high for a complex precision machining and large electromechanical assembly services.

A&D revenues for the third quarter decreased 4% sequentially and 14% year-over-year due to supply chain constraints with certain programs. Industrials revenue for the third quarter were down 2% sequentially due to material constraints and up 44% year-over-year from demand improvements from energy related products building infrastructure and LiDAR solutions.

Turning to our traditional markets. We continue to focus on higher value subsectors within compute and telco that of high performance computing and next generation networking respectively.

Computing was up 38% sequentially and 67% year-over-year from the ramp up high performance computing programs. In the telco sector, revenues were up 20% sequentially and 52% year-over-year from continued demand strength and new ramps for broadband infrastructure.

In the third quarter, our top 10 customers represented 53% of sales. Please turn to Slide 6.

Our GAAP earnings per share for the quarter was $0.53, which represents 130% growth on a year-over-year basis. Our GAAP results included restructuring and other one-time costs totaling $1.3 million related to the closure of our previously announced site in Moorpark, California and other smaller restructuring activities through our global network.

For Q3, our non-GAAP gross margin of 8.6% is inclusive of supply chain premiums, improved 50 basis points sequentially due to higher revenue, better absorption and a reduction in supply chain premiums. Our SG&A was $38.7 million up sequentially due primarily to higher variable compensation and continued investment in IT infrastructure.

Non-GAAP operating margin was 3.6% excluding the impact of supply chain premiums, our operating margin is 4%. In Q3 2022, our non-GAAP effective tax rate was 19.4% which is as forecasted.

Non-GAAP EPS was $0.57 for the quarter, which is $0.05 higher than the midpoint of our Q3 guidance and 14% higher sequentially. Please turn to Slide 7.

We have shown the effects of supply chain premiums on a trended basis over the last seven quarters on the slide for comparison. In Q3 2022, we incurred approximately $74 million.

Sequentially, this number decreased by $17 million, but on a year-over-year basis increased $48 million due to the challenging supply chain environment. Magnitude of these premiums are temporary in nature and as the supply chain environment requires less premiums to be paid, this cost recovery revenue will decrease.

Excluding supply chain premiums, our revenue in the third quarter of 2022 is $698 million, a sequential increase of $61 million or 10% growth and a year-over-year increase of $152 million or 28% growth. As discussed, gross and operating margins are diluted by this pass-through revenue, while gross profit, operating profit and EPS are unaffected.

Please turn to Slide 8. Non-GAAP ROIC in the third quarter was 9.8%, a 20 basis point increase sequentially and a 200 basis point improvement year-over-year.

In the period between Q1 2021 to Q3 2022, ROIC has grown by 53% as a result of 53% revenue growth and 137% operating income growth. Turning to Slide 9 to review our cash conversion cycle performance.

Our cash conversion cycle days were 79 in the third quarter compared to 77 days in Q2 with the increase primarily due to higher inventory days offset by higher customer advanced deposit base. Our customer advanced deposits grew $38 million sequentially or 22% higher.

Please turn to Slide 10 for an update on liquidity and capital resources. We used $31 million of cash in operations and invested $10 million in CapEx.

We expect to spend $45 million to $55 million on CapEx in 2022. In Q4, we anticipate generating $15 million to $25 million of cash flow from operations as we consume inventory.

As a reminder, the majority of our inventory primarily consists of raw components to support our growing EMS demand. In fiscal year 2023, we expect to generate positive cash flow from operations and free cash flow.

Our cash balance was $249 million at September 30. As of September 30, we had $131 million outstanding on our term loan, $170 million outstanding borrowings against our revolver, and had $280 million available on our revolver.

Turning to Slide 11 to review our capital allocation activity. In Q3, we paid cash dividends of $5.8 million.

As of September 30, we had approximately $155 million remaining in our existing share repurchase authorization. We will evaluate share repurchases opportunistically, while considering market conditions in the fourth quarter of 2022.

Please turn to Slide 12 for review our fourth quarter 2022 guidance. We expect revenue to range from $760 million to $800 million which at the midpoint represents a 23% year-over-year growth, a revenue range comprehends supply chain premiums of approximately $55 million.

We expect that our gross margin will be between 9% to 9.2% for Q4, as a result of strong revenue growth and continued improving absorption. SG&A will range between $37.8 million and $40.8 million or approximately $39 million at the midpoint.

Implied in our guidance is 4.1% non-GAAP operating margin for modeling purposes. The guidance provided does exclude the impact of amortization of tangible assets and estimated restructuring and other costs.

We expect to incur restructuring and other non-recurring costs in Q4 of approximately $800,000 to $1 million. The costs relate to continued activities associated with previously announced site closures.

Our non-GAAP diluted earnings per share is expected to be in the range of $0.58 to $0.62 or a midpoint of $0.60. Other expenses net is expected to be $5.4 million which is primarily interest expense.

We expect that for Q4, our non-GAAP effective tax rate will be between 18% and 20%/ The expected weighted average shares for Q4 are approximately $35.4 million. Finally, from a cash flow perspective, we anticipate generating positive cash from operations in the period.

And with that, I'll turn the call back to you, Jeff.

Thanks, Roop. Please turn to Slide 14.

Before I go into our sector outlook, I wanted to highlight some wins we secured in the September quarter. Once again, we saw good balance across our focus sectors, reflecting the diversity of complex projects that we take on to help customers navigate through the product lifecycle and accelerate time to market to realize their product vision.

In Semi-Cap, we continue to grow existing customers while adding new customers into the portfolio. This past quarter, we secured new manufacturing and engineering wins for wafer surface conditioning, advanced process control and automated vacuum cure tools.

Reflecting on our diversification, I'd like to highlight a recent press release regarding our expanding partnership of Yield Engineering Systems, where we are helping them transfer manufacturing of their flagship product line to Malaysia, as well as providing engineering and manufacturing support for an upcoming wet process system in the Phoenix area. 2022 has been a great year for new program awards in the Semi-Cap space and we look forward to converting those to revenue in 2023 and beyond.

In Medical, we continue to be awarded critical medical device and life science programs with the addition of manufacturing programs for a novel ophthalmology ultrasound system. That's designed for imaging and biometry of the eye.

We also received a manufacturing award for a new automatic external defibrillator. Finally, our medical design team won a project for a unique cardiology treatment platform.

In industrials, sustainability is at the core of our own internal initiatives and we extend that focus to customers who share that vision, particularly in the areas of clean energy, energy efficiency and automation. In the past quarter, we won a manufacturing program for a power inverter going into an advanced energy storage system.

We also extended our relationship with an existing customer who is focused on solutions that accelerate electrification, where we will manufacture industrial drives, power and control systems. Within engineering, we're partnering with an innovative company to help design autonomous mobile robots for the healthcare, hospitality and manufacturing industries.

In the A&D sector, within aviation, we are also seeing new win momentum. Such as a new program where we are designing communication systems for the emerging commercial drone or UAV market.

Within defense, we also saw solid growth in the quarter. Recording manufacturing wins for aviation radar, artillery pilot controls and high speed RF next generation radars.

In advanced computing and communications, wins include an LTE/5G smart coverage solutions and a high volume fully automated manufacturing win for an RF filters. Expanding on our HPC business, we won an additional project with a longtime existing computing OEM.

Now turning to Slide 15. I'll provide some color on expected demand trends by sector for the fourth quarter.

As mentioned, we are cognizant of the recession risk and inflation's potential impact to the broader economy. However, we believe the transformation work we accomplished over the last few years has provided us with greater diversity and stability.

Coupled with the minimal exposure to consumer centric markets, demand indicators across the majority of our sectors remain robust in Q4 and into 2023. In Semi-Cap, revenues have grown double-digit year-on-year for 12 consecutive quarters.

And while we expect Q4 to again grow double-digits year-on-year, industry demand is expected to soften in the near future given memory market weakness, new China restrictions and supply constraint rebalancing. Thankfully, the aforementioned strength in new program wins and diversification of our customer base will enable us to help offset this industry level weakness.

Longer term, we remain bullish on the sector given our customer win momentum in the space, strong secular drivers in the form of semiconductor proliferation and the investment in new domestic manufacturing aided in part by the CHIPS act. In our Medical sector, we once again delivered strong growth in this business with Q3 improving 41% year-over-year.

We certainly could have shipped more, but is one of our most supply chain impacted sectors with long qualification cycles required and any redesigns to provide alternative component selection, we were limited in our ability to meet upside. We expect Q4 performance to be similar to Q3 sequentially with strong double-digit year-on-year growth.

In Industrials, September quarter revenue grew over 40% versus the prior year, demonstrating another strong performance. For 4Q, we expect Industrial to be consistent with September quarter.

We see a good balance between demand for existing products such as test and measurement devices, and new program ramps in advanced LiDAR applications, energy management systems and industrial robotics as growth catalyst over the next several quarters. Moving to the A&D sector outlook.

Q3 performance was in line with our expectations, as here or two, supply chain challenges continue to be acutely felt in this sector. As our recent design wins begin to ramp in the coming quarters, we expect further recovery next year.

Within telco, the September quarter once again performed well with 20% sequential and greater than 50% annual growth reported in the period. We continue to be encouraged by the growth prospects supported by ramping broadband infrastructure wins and government programs aimed to enable broadband from anywhere.

Finally, in advanced computing, we continue to help build some of the largest and most sophisticated high performance computing systems in the world, including the current effort underway on a new supercomputer platform that will contribute to the next few quarters performance in this sector. Let's now turn to Slide 16.

Back in the fall of 2020, we laid out our midterm model for the company, which we committed to achieving by the time we exit 2022. We've made steady progress on these goals and excluding the effect of pass-through revenue associated with supply chain premiums, I'm pleased to say we met or exceeded each of our targets in Q3.

Furthermore, at the midpoint of guidance for Q4, we are poised to exceed our targets for the full year. This would include revenue growth excluding premiums of greater than 20% with non-GAAP gross margin of 9.6% at the high end of our target range.

Operating expense is well within the range and non-GAAP operating margin of 3.9% for the year above the high end of the range. If we were to exclude stock-based compensation like many of our peers, our non-GAAP operating margin for the year is expected to be greater than 4.5%.

In summary, if you turn to Slide 17. Demand among our target sectors continues to be robust and we are helped by our diversified strategic focus.

Our strategy to pick leading companies and partner with them on their innovative products is paying off, positioning us to potentially deliver 56% non-GAAP earnings growth in 2022. Looking forward to 2023, we believe this strategy, our portfolio and continued pipeline of new customer wins positions us to grow faster than the market.

We look forward to sharing more with you at our Analyst Day in a couple of weeks. With that, I'll now turn the call over to the operator to conduct our Q&A session.

Hey, guys. Thanks for taking my questions.

Jeff, just want to follow-up on your commentary on the Semi-Cap space. I know you do expect an eventual softening just given the dynamics you outlined.

But just curious if you guys are already seeing signs of things slowing down a bit?

Yeah. Thanks, Jaeson.

Good to have you on the call and thanks for the question. Of course, we've seen a lot of the announcements by not only customers, but others in the space about the predicted trend towards reduced front end wafer fab equipment spending next year.

We're not immune to that. We certainly see it.

But we also have had a really strong year of new wins in 2022. In fact, I'd put it up there with one of the top two sectors for new wins.

Many of those will start contributing in ‘23 and beyond to the continued revenue there. And then also we're getting more diversified across the set of customers that we think also kind of helps overcome downward pressure.

That being said, you see that our fourth quarter guide is strong and as we look into next year, we feel like we're pretty well positioned to continue to do well in that segment. But we don't anticipate the kind of growth rates we had been seeing because the overall industry seems a little bit softer and a little more unsure.

Some of that is also the memory side. I will say we're a bit higher biased to logic.

So we tend to work more on logic tools. Although we do have some memory related business, but that's kind of what we're thinking about it.

We're still also very long positive, constructive on the long tier secular trend and think the investments we made are going to pay big dividends, particularly when you look out over the next few years here.

Okay. That's helpful.

And I know Jeff, when you joined a big initiative was kind of really focusing on doing engineering design services besides just manufacturing. I know you guys don't break out kind of your wins based on those categories anymore.

But how much of the growth recently do you think is just being able to expand your services at your customers beyond just the underlying demand trends?

One thing we track, Jaeson, is the attach rate of wins to EMS opportunities and making sure that we're not just doing manufacturing, but how do we help whether it's building or engineering a test system or actually helping complete the product design. I'm pleased to say again in the third quarter we saw over 75% attach rate to those deals.

So there's strong contribution there. As you've seen, I mean, our overall business is growing pretty fast.

So I won't say that there's an outpacing growth in engineering, but both sides are growing and helping in that total number. We haven't typically broken it out because engineering is still small part of the total, but it definitely helps with why we're winning and why folks come to us because we're not -- we could be more of a one stop shop and help them at any point in that product life cycle.

And we're actually spending more energy on product realization and you might have a concept and you might help getting it through design. Maybe you got a redesign to free up alternative parts so that you help a supply chain or maybe it's an end to end and we're really getting participation in all three of those kind of areas.

So we feel pretty good about our engineering business. But with the way things are growing, we’ve got to keep moving forward and adding to our capabilities.

Got it. And then just the last one from me and I'll jump back into queue.

How should we think about your traditional markets that computing and telco? I know, I mean, you've made a strategic focus to kind of focusing on certain programs here.

And obviously, 2022 is a big step forward from a growth standpoint. But do you view this growth this year more reflective of sort of the underlying demand trends or is this more simply you guys are just now focused on the right programs?

I'm just trying to get a sense on sort of the sustainability of these two segments?

Yeah. We're going to give more color at the Analyst Day on how we're thinking about that, but maybe I'll just sort of preview a little bit.

We really have narrowed our focus on advanced computing to those high performance computing platforms. We built some of the largest most sophisticated boards.

You talk about water cooling systems and very complex compute mechanisms. And so even the way we think about it, the margins from that work, the value add that's there, it's no longer that traditional commodity compute business.

And same thing when you flip over and look at telco, we're really involved with next generation networking infrastructure. We don't build set top boxes, for example, we built really sophisticated RF infrastructure.

And again, it's a much more meaningful contribution from a margin standpoint and such. So it's the fact that like this quarter you'll see the traditional markets, what we've used to categorize traditional are a bigger percent of the total.

That really hasn't concerned us because it's not having the drag that it might have back when we were doing that large, low margin compute project that we decided not to renew. So we really have kind of transformed that.

So even the way we articulated, I think you'll see a shift a bit in the coming year talking about it. But it's a good question.

We definitely feel like we're getting the right programs and that there's some sustainability here. We just might want to shift a bit like how we portray that to you guys.

Okay. That's helpful.

Thanks a lot, guys.

Yeah. No worries.

Thanks, Jaeson.

Hi. Good afternoon.

First question I had was on the supply chain. I'm just looking at the numbers you provided in terms of the premiums and margins et cetera.

It looks like maybe the supply chain was a little incrementally tougher for you guys. I'm not sure if I'm reading that right, but can you just dig into how compared to last quarter.

And anything that you would call out as easing versus how tough it's going to be into next year? And then I had a follow-up.

Yeah, Steve. Thanks for the question.

I'll start out on that. Supply chain premiums came in lower sequentially than the second quarter, which we were happy about.

They were so a little bit higher than what we had initially forecasted, which really speaks to, I think, the continued constraints in certain areas of the market. We are seeing some level of improvement in some areas, but there still is some constraints.

The other thing I'll mention about these supply chain premiums, these are broad-based across all customers of our portfolio. It really is a couple of handfuls of customers who are willing to pay these premiums and really in certain sectors only.

And so it really isn't broad-based from that perspective. But I wouldn't say -- let me just add to that.

We're not -- I wouldn't say supply chain is more difficult than what we saw in Q2. In fact, we were pleased with some of the stuff we freed up to get the revenue growth and ship the products we did.

But while we've seen improvement in a number of categories of components. And as you can imagine, memory is more free now, maybe softness on the consumer side and such.

But there is still are some critical semiconductors that are gating that affectionate golden screw term that is still gating us in some areas from completing critical builds and getting clear to build there. So we hope we see continued improvement, but we still kind of anticipate even through fourth quarter, we're going to have those areas that no one can get that particular part until the capacity frees up or some capacity comes online.

So it's something that we'll continue to deal with in the '23. But as Roop said, I think directionally we saw supply chain premiums kind of peak out and we'll expect that to be a downward trend and we're guiding it lower again in the fourth quarter.

Great. That's really helpful.

And then just back on the Semi-Cap market for you guys. So with some of the CHIP curves that were put in place by the Biden administration.

Is there any like very near term impact that we should see related to who you're building for, who's fully you're in. How does this affect you directly and maybe indirectly this quarter or next quarter?

When you look at the Biden CHIPS Act, I mean, I think that you're not going to see help like this quarter or next. I mean, obviously, just on the appropriation of like the first tranche of that.

You've seen people like Intel say they're going to move forward on an Ohio fab because they got the investment from the government or they're going to do that. When you think about us, we are in -- we support the semiconductor capital equipment that once that building comes out of the ground and the foundation is poured and the concrete is in place and the walls are up, then build semiconductors, they got to build -- they got to buy away for fab equipment and that's part what we help with and what we help produce.

So there is a little bit of a lag, which is why we would say, we probably don't expect huge help from the CHIPS Act even in the front end of '23, I think it will be a little further down the path. But that being said, we have continued to win next generation tools and we participate across a broad spectrum of technologies in the space.

So while we have some customers that are more impacted by memory, let's say, those that are working on sub-5 nanometer demand on next generation CHIPS. They're not seeing a weakness and we're enjoying strong business there that continues to grow.

So it's a little bit -- you got to go a bit deeper there, but we do feel like in general the renaissance of domestic semiconductor manufacturing. We saw that Micron $100 billion fab in upstate New York.

You got TSMC building ton of fabs here in Arizona, you've got Intel building new fabs. Those bodes well for our investments and our growth continued growth long term in this space.

That's helpful. I guess what I was also trying to get at was the near term impact of U.S.

semiconductor companies being told to stop servicing Chinese customers. Like is that something that would blow back on you guys in the near term in terms of what you're physically doing in China or would it just be an indirect impact?

And maybe you want to see more visits for the U.S.

No, that's a good question. And I didn't speak to the new U.S.

restrictions on -- they're pretty broad reaching and it was pretty sudden. So a lot of our OEM partners are still assessing, what does it mean, what does the licensing look like?

There is potential risk in the near term even in the fourth quarter here. We comprehended that in our guidance.

I guess that speaks to the diversity of our portfolio. But there is potential near term risk on that as they work through that.

I also think there's a bit of a whips sign going on in the sense that people like, oh, we can't ship to China. Oh, wait, we have a license for the next year and it's going to transition.

For us also from a production standpoint, we don't manufacture our semiconductor equipment in China. So that's not a risk for us.

So I might just add that because that's not something we're currently contemplating. It's more -- if our customer demand shifts because that restriction kicks in.

Great. That's all super helpful.

Thank you.

Sure.

Hi. Good afternoon.

This is actually Chris on for Jim. In the previous quarter, you had mentioned that approximately $200 million of demand was unfulfilled.

How is this trending? Is that dollar amount rolling over quarter-to-quarter?

And are you finding that the demand is waiting in the Q as it gets pushed out. Thank you.

So Chris, good to have you on the call. From an unfulfilled demand standpoint, I think Jeff mentioned that we are still more than $200 million of unfulfilled demand.

Now we are seeing some movement within there, so it's not the same demand. So we did obviously fulfill some of the prior -- it's -- we're kind of replenishing itself.

And obviously, as we kind of move forward, as we talked about some of the supply chain challenges or constraints as they ease, that will help support getting those parts in and being able to increase the production for that unfulfilled demand as we move forward. And some of that is contemplated in our Q4, and we'll consider that in 2023 as well as we look out to 2023.

Yeah. One thing Chris is, it's been surprisingly durable in the sense that if order has not been fulfilled, we haven't seen it really be all that perishable.

I would say it's a small percent that's been perishable and we saw that transcend. I think as we continue to grow revenue and fulfill more products, we will burn down on that unfulfilled demand.

But we really haven't seen a significant loss in that. So it has tended to carry forward.

And we don't really see a reason that, that would -- that trend wouldn't continue.

Got it. Got it.

But certainly, [indiscernible] all the two.

Got it. Very helpful.

Are you seeing any signs that the much discussed consumer softness in the broader economy is improving availability of components like semiconductors on your end? And how much of the inventory is in connection with products that are substantially complete, but maybe waiting on a critical component like a semiconductor.

Let me get the front of that, and then I'll let Roop talk about the inventory. That's a good question, though, because I think it's something we should provide a little more clarity on.

I think we are seeing some help in some areas, like I mentioned, memory, right? The consumer drop there, the PC drop.

We are seeing some things free up, and I think it will help. And it's funny is a question I asked our Chief Procurement Officer is like, "hey, consumer weakness here helps on industrial.

Unfortunately, it's not a perfect help because a lot of what we do is we tend to be low -- we tend to be higher mix, lower volume, a lot of custom. If you think about some of the aerospace and defense programs or some of the custom medical equipment we build, they tend to use sometimes very unique components.

And so it's not fully translatable like, hey, that PC didn't need it, we'll take it. So it's -- I would say, broader -- it broadly helps.

It also might free up wafer fab capacity that they could shift to the products we need, but it's not a like -- it's not like that component freed up and we can pop it in our unit. We typically have a little more unique components that go into the solutions that we build for customers.

So it's not like they're -- broadly, I would say there's some help, but it's not like going to be a windfall overnight -- based on that. But maybe you could talk about the.

Yes. And Chris, let me touch on the inventory interesting question that you have there.

First of all, let me step back in terms of our overall inventory, the vast majority of our inventory is raw components, really in support of our EMS industry. And then obviously, we have inventory on the Semi-Cap side as well, but the majority is on the EMS side.

And as you think about the unfulfilled demand that we just talked about on your prior question, if we don't -- we have a lesser amount in our WIP at this point in time at any point in the past, really because if we can build it, the customers want it, and they want it as quickly as possible, right? So that really is -- the inventory is really about the raw materials and waiting for those few components for -- with that incremental demand so we can fulfill it and get it out the door.

Got it. Thank you.

Very helpful. And one more for me, if I may.

In the event of a mild recession, how would you expect that environment to impact the trend of OEMs outsourcing their manufacturing?

I think in the past, when there's been a tougher economic environment, I think you find OEMs saying, what business are we really in? And are we the most -- are we building this product the most efficiently and do we need all the headcount we have?

And could we do it more, could someone else do a better job at it. So we've typically seen a recessionary environment be good for the outsourced the trend in outsourcing.

We still -- particularly in A&D and in medical, there's still more than half the market is not outsourced. So a lot of opportunity that will naturally I believe, grow the way that compute telco are predominantly outsourced already.

So I think a recessionary environment will cause people to really think hard about that and whether they would -- could do it more cost effectively. The other dynamic going on is folks are looking at what's the most cost-effective way to move material around the world to move products.

And we still see this move towards near shoring, whether that's 60% of our demand is in the U.S. We don't want to ship it all from China or maybe we want to build more in the region or near region.

So a big increase in demand in Mexico, for example, because it's near the U.S. and it's a lot more cost effective to bring product across the border than putting it on a boat or shipping an air from Asia.

So that's another trend that I think that folks will have to look hard at if budgets get tighter.

Yeah, Chris. And one other thing to add.

If you think about the challenge of finding talent, OEMs also have to evaluate whether they can find that tell internally or look for outsourced partners and whether that's on the technical engineering side or the manufacturing side. That's another, I think, driver for their outsourced focus or outsourcing focus that we continue to see.

Got it. Thanks very much and congrats on the result this quarter.

Thanks, Chris.

Thanks.

Hi. Thank you for taking my questions.

I actually had a follow-up on that outsourcing trend question. And Roop, you were alluding to it in terms of tenants.

But would you say the demand is more supply chain driven or engineering-driven at this point?

Is demand engineering or…

Yeah. For the outsourcing of your solutions, are customers turn to you more because you have the supply chain relationships or because you have the engineering talent or which one do you see some more?

I think it really is a function of both Anja. We have customers who are coming to us for design and engineering needs that can't be fulfilled elsewhere.

And there are others that are coming to us from a manufacturing standpoint because of our global scale and our footprints. Fact that we have a relatively smaller footprint in China.

We've got a greater percentage of our footprint in the Americas, whether that's in the U.S. or Mexico.

And so that manufacturing footprint is really supporting near-shoring and reshoring needs of global OEMs. So I think it really is a function of both.

And as Jeff mentioned, the other aspect is we have a focus in terms of attaching engineering with manufacturing and manufacturing with engineering, which we take to market in that way, which also helps support the desires of the customers.

Yeah, I think you're right. Pretty good mix.

Good.

Okay. Thank you.

And then I was curious for the A&D. You said there were certain areas where you saw component shortages.

What are those areas and what can we expect in terms of seeing growth in A&D in the coming quarters?

So what -- the dynamic with A&D, what I would say a little bit is many times, particularly in the defense space, the ultimate customer might be the U.S. government or a defense-related entity.

And there -- just the pace at which today will move to look at getting in front of supply chain constraints. And it's not as simple as one of our customers saying, sure, just use this alternative component, it will be fine.

What ends up happening is they say, well, we like the component. But now we got to go back to the three-letter agency, and it's got to get qualified, and that's a six-month process.

And then we'll get back to you, and then we'll see if we can get the funding to go do that to then place the part of an order. And so it's just more elongated there, and it's not like there's a quick substitution that can happen.

So I wouldn't point to any particular -- it's the same semiconductor constraints that we're kind of seeing in other industries. It's just there -- and this is another one I might add because Roop talked about it before, supply chain premiums, they're unheard of in this.

So like they say, no, no, we'll wait. We can deal without that particular device, and we'll wait six months.

So there's frustration, I would say, and that customer said saying, gosh, I wish I could do better, but they just not been as responsive. And it's not really for the fault of our customers.

It's typically the regulations and things they have to go through their steps to get that to free up. And that's why we're seeing that it's just -- it's more persistent that those challenges are not being alleviated so much in the handy space as quickly.

Okay. Thank you.

That was all for me.

Thanks, Anja.

Thank you, Jamie, and thank you, everyone, for participating in Benchmark's third quarter 2022 earnings call. Before we go, I'd like to remind listeners of a couple of upcoming events.

As mentioned previously, we'll be hosting an Investor and Analyst Day at the NYSE on November 8. We'll be back in New York on December 6 and 7, attending the Raymond James Technology Investor Conference, followed by the Sidoti Virtual Small Cap Conference on December 8.

Then in January, we look forward to attending the 25th Annual Needham Growth Conference taking place from the 10th through the 12th. With that, thank you again for joining us today, and we look forward to seeing you at one or more events in the coming weeks and months.