Participants

Paul Mansky; Investor Relations and Corporate Development; Benchmark Electronics Inc

Jeffrey Benck; President, Chief Executive Officer, Director; Benchmark Electronics Inc

Bryan Schumaker; Chief Financial Officer; Benchmark Electronics Inc

James Ricchiuti; Senior Analyst; Needham & Company LLC

Steven Fox; Analyst; Fox Advisors LLC

Jaeson Schmidt; Analyst; Lake Street Capital LLC

Melissa Ferben; Analyst; Raymond James

Anja Soderstrom; Analyst; Sidoti & Company LLC

Presentation

Operator

Good afternoon, ladies and gentlemen. and welcome to the Benchmark fourth-quarter and fiscal year 2024 earnings call and webcast. (Operator Instructions) This call is being recorded on Wednesday, January 29, 2025.
I would now like to turn the conference over to Paul Mansky, Investor Relations and Corporate Development. Please go ahead.

Paul Mansky

Thank you, John, and thanks everyone for joining us today for Benchmark's fourth-quarter and fiscal year end 2024 earnings call. Joining us today are Jeff Benck, our CEO and President; Bryan Schumaker, our CFO.
After the market closed, we issued an earnings release pertaining to our financial performance for the fourth-quarter and fiscal year end 2024, and have prepared a presentation which we'll reference on this call. Both the press release and presentation are available under the investor relations section of our website at bench.com.
This call is being webcast live and a replay will be available online. After we conclude, the company is providing a reconciliation of our GAAP to non-GAAP measures in the earnings release as well as the appendix to the presentation. Please take a moment to review the forward-looking statements disclosure on slide 3 in the presentation materials.
During our call, we will discuss forward-looking information as a reminder, any of today's remarks which are not statements of historical fact are forward-looking statements which involve risks and uncertainties as described in our press releases and SEC fillings. Actual results may differ materially from these statements. Benchmark undertakes no obligation to update any forward-looking statements for today's call.
Jeff will start with an overview followed by Brian's deeper dive into the results in our first quarter guidance. We will conclude with Jeff sharing more insight into demand trends by sector new business wins and some final remarks.
If you will, please turn to slide 4, and I'll turn the call over to our CEO, Jeff.

Jeffrey Benck

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

Bryan Schumaker

Thank you, Jeff, and good afternoon, everyone. Please turn to slide 6 for our fourth-quarter 2024 revenue by market sector. Semi-Cap revenue increased 18% year over year and Industrial grew 5%, both supported by improving demand and new customer wins. Medical revenue was down 7% versus the prior year, albeit up 9%. Sequentially, we continue to see inventory rebalancing, impacting year on year performance led by weakness in medical devices.
A&D revenue was up 15% year over year. Commercial aerospace demand remains strong both within aviation and space applications. Meanwhile, we continue to see robust domain within defense including existing programs, momentum and a number of new program wins. AC&C decreased 48% year over year. As expected, this decline was driven by a couple of large HBC programs being completed earlier in the year combined with continued weakness in our communications business
Please turn to slide 7, revenue in the quarter of $657 million was flat sequentially and down 5% year over year. Our GAAP earnings per share for the quarter was $0.50. Our non-GAAP EPS was $0.61 which was above the high end of our guidance range of 53% to $0.59.
As a reminder, our non-GAAP results exclude stock-based compensation, amortization of intangible assets, and restructuring expenses for Q4. Our non-GAAP gross margin was 10.4%. This represents a 10 basis point increase year over year. Non-GAAP SG&A expense was $35.1 million, up 9% sequentially and up 6% year over year, due to higher variable compensation.
Non-GAAP operating margin was 5.1%, down 20 basis points sequentially and down 40 basis points year over year, driven by higher variable compensation expense. Our fourth quarter, non-GAAP effective tax rate was 22.4%. Non-GAAP ROIC in the fourth quarter was 9.9%.
Please turn to slide 8 for a revenue comparison by market sector for the full year. 2024 Semi-Cap revenue increased 12% year over year supported by improving demand and new customer wins. Industrial revenue decreased 4%. The decline was driven by reduced demand from existing customers, partially offset by new program ramps Medical revenue was down 19% versus the prior year due to the previously mentioned inventory rebalancing and in demand weakness within medical devices.
A&D revenue was up 20%. Commercial aero demand remains steady, while space demand continues to grow within defense. We see fraud-based strength from existing programs as well as the launch of new program wins. AC&C decreased 30% year over year, driven by previously discussed weakness in both HPC and communications which we expect to persist at least through the first half of 2025.
Please turn the slide now for the fiscal year revenue of $2.7 billion was down over the prior year, 6%. Our GAAP earnings per share for fiscal year 2024 was $1.72. Our GAAP results included restructuring and other one-time costs totaling $6.3 million related to resource rebalancing at certain manufacturing sites on a non-GAAP basis. Fiscal year 2024 EPS was $2.29.
GAAP and non-GAAP gross margin of 10.2% each increased 70 and 60 basis points respectively, due to the improved operational efficiencies, proactive cost reductions taken by our manufacturing sites and favorable revenue mix. Our non-GAAP SG&A was $136 million, up 2% year over year, due to higher variable compensation and wage increase. Non-GAAP operating margin was 5.1%, an increase of 20 basis points driven by gross margin expansion. Our non-GAAP effective tax rate was 23.5% for the year.
Please turn to slide 10 for trended non-GAAP financials. As you will see, despite demand challenges amongst some of our end markets, we continue to focus on protecting gross margin which again expanded year over year. Although operating margin declined sequentially and year over year, we were pleased to report another quarter of 5% or greater performance.
Please refer to slides 11 through 13. For discussion of our cash conversion cycle, liquidity and capital allocations, cash conversion cycle in the quarter was 89 days. An improvement of one day sequentially and nine days versus the prior year.
In Q4, we continue to emphasize working capital efficiencies which combined with our net income enable us to generate $46 million in operating cash flow and $37 million of free cash flow in the period. In fiscal year 2024, we generated $156 million in free cash flow.
Our cash and restricted cash balances on December 31 was$ 328 million. A sequential increase of $4 million during the quarter, we reduced debt by another $22 million leaving $123 million outstanding on our term loan and $135 million outstanding against our revolver from which we have $411 million available to borrow our Q4 2024 liquidity ratio. As calculated by our debt covenant was 0.6 down from 1.1 in the prior year period.
We invested approximately $33 million in capital equipment in 2024, including $9 million in Q4 in support of continued growth and enhanced capabilities in our Mexico, Malaysia, and Romanian facilities in support of returning capital to our shareholders. We paid cash dividends of $6.1 million in the quarter and $23.9 million during 2024.
Finally, in 2024, we repurchased $5.1 million of our outstanding shares. At the end of the year, we had approximately $150 million remaining in our existing share repurchase authorization.
Please advance to slide 14. Let me now turn to our guidance for fiscal Q1 ending in March. We expect revenue to be within a range of $620 million to $660 million. We expect non-GAAP gross margin to be between 10% and 10.2% which is consistent with our performance over the last several quarters, Non-GAAP SG&A expenses are expected to be within a range of $34 million to $36 million.
With those assumptions, we would expect non-GAAP operating margin to be between 4.5% and 4.7% on a GAAP basis. We expect expenses to include $4 million to $5 million of stock based compensation and $2.6 million to $2.8 million of non-operating expenses including amortization, restructuring and other charges.
Our non-GAAP diluted earnings per share is expected to be in the range of $0.48 to $0.54. Interest and other expenses are expected to be between $4 million to $5 million. We expect our Q1 effective tax rate will be between 23% and 24%. Our weighted average share count is expected to be approximately $37.3 million.
We are planning to spend between $15 million and $20 million CapEx in Q1, and $65 million to $75 million for the full year. The majority of our Q1 spinning is in support of our Penang 4 building which breaks ground in the current quarter with an expected completion in 2026.
Finally, we are anticipating free cash flow in Q1 for the full year. We expect this to amount to $50 million to $80 million, inclusive of the elevated CapEx spend associated with the investment in the new building in Malaysia. And with that, I would like to turn the call back over to you, Jeff.

Jeffrey Benck

Thanks Bryan. Please turn to slide 15 for a discussion of our performance and outlook by sector.
Our Semi-Cap revenue grew an impressive 18% year over year in Q4 and 12% on the full year. This was driven by new wins, share gains and some recovery in specific sub segments of the Semi-Cap industry. Despite the mixed recovery across the broader sector. We see signs of continued growth and remain supportive of analysts' long term forecasts. Pointing to the semiconductor industry reaching $1 trillion in size by the end of the decade.
It's obvious the current Semi-Cap cycle has not followed historical patterns. However, we are continuing to invest in the long term based on our available capacity and share gains. We remain well-positioned to grow faster than the broader market. In fact, we are anticipating double-digit growth in both the first quarter and for the full year.
The breath of new winds this past quarter that encompassed both precision technology and engineering, provide us greater confidence in our continued momentum in this sector in Medical. Similar to the last few quarters, inventory-related demand, softness has weighed on sector performance with quarterly and full-year revenue declining versus the prior period. We expect this to improve over the next few quarters. This is leading us to a forecast of flat revenue environment for Medical in 2025.
However, we continue to pick up new wins in both Life Sciences and class three medical devices, which is a solid indicator of our long term growth opportunity in the sector. These take time to ramp given the highly regulated nature of the markets. But we believe this is a good leading indicator of our future growth in this traditionally strong sector for benchmark.
Turning to Complex Industrial, we saw a return to year on year growth in Q4 although the full year was still slight, still down slightly. Looking at 2025, we expect low to mid single-digit growth in the sector for the year with modest year on year growth in the first quarter. Macroeconomic challenges persist. But we see plenty of greenfield opportunities both as a function of our unique capabilities and the sector's continued shift towards outsourced manufacturing.
Reflecting this, the fourth quarter was particularly strong in terms of bookings which consisted of competitive takeaways, business expansion, and new wins. This included a competitive win commercial gaming and another in audio control systems, both from new customers.
A&D is performing very well for us as defense continues to experience strong demand while commercial air has recovered and provided stability. Both the fourth quarter and full year 2024 saw strong double-digit year-on-year growth as we benefit from the expansion of existing programs and prior new business wins.
This past quarter A&D was the second biggest booking sector within the company, which is balanced across defense and space and encompassed both manufacturing and engineering programs. In the quarter, we closed an opportunity that expands upon an existing program for us at the Department of Homeland Security where we've been providing surveillance systems that enable better border protection. Looking forward, we expect continued double-digit year on year growth from this sector.
Lastly, AC&C revenue declined 23% year over year in the December quarter and 30% in the full year. As we've been saying, for several quarters, now, sector pressures are expected to persist at least into the first half of 2025. This is being driven by two key factors. One is the delay in timing of the next gen HPC platforms due to a planned technology transition. And the other being the time required to ramp an existing communication, customers, new product line that we want.
Looking forward, we see new product introductions across both subsectors that should enable a return to growth late in the year. At the same time, we're proud to have been a key supplier in support of building three of the top five fastest supercomputers in the 64th edition of the TOP500 list published in November. We look to expand our participation in this market as the next gen platforms are introduced.
In summary, please turn to slide 16. Our fourth-quarter and full year 2024 results once again demonstrated benchmarks ability to manage through volatility while delivering on our commitments both to stakeholders and our valued customers to that end. Even though revenue contracted modestly during the year, benchmark continued to drive non-GAAP gross and operating margin expansion.
At the same time, we've generated positive free cash flow over the last seven quarters and expect this quarter to be our aid. This speaks directly to our top to bottom focus as a company to execute our financial objectives even in times of macro uncertainties like we've seen over the past year, we're anticipating an improved demand environment as we progress through 2025 that should support our return to revenue growth for the year with earnings growth outperforming revenue.
Finally, our execution has allowed us to continue to return capital shareholders in recent years. This has primarily been through our quarterly dividend which we increased last year. However, we anticipate complementing this with increased share purchases over the coming year.
Let me wrap up by saying, regardless of the market environment, we are committed to our strategy, we're going to support our customers in any way they need and at the same time, drive further operational improvements within the company. We're winning new business in our focus markets and have a clear vision of what we need to do to drive future growth.
I look forward to updating you on our success in the quarters to come. And with that, I'll turn the call over to the operator to conduct our Q&A session.

Question and Answer Session

Operator

(Operator Instructions)
Jim Ricchiuti, Needham &Company.

James Ricchiuti

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

Jeffrey Benck

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

James Ricchiuti

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

Jeffrey Benck

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

James Ricchiuti

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

Bryan Schumaker

Yeah. On the first question, as you think of the variable comp component, there is a piece of that flowing into Q1. You also have higher taxes and everything resetting the year that kind of causes some of that increase in that period. So you have both of those that are driving that kind of. So it is normalized for the Q1 time period.
As far as the working capital. Again, we are going to continue to drive that. If you look at the inventory, historically, we've been at turns a while ago -- 5, 5.5 turns, and we're going to continue to drive that from the four that we're at today on the inventory side of that. And we'll continue to work on the other components of the working capital. So there's still more work to do there and we'll continue to drive that.

James Ricchiuti

All right. Thank you.

Jeffrey Benck

Yeah. Thanks soon.

Operator

Steven Fox, Fox Advisors.

Steven Fox

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

Jeffrey Benck

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

Steven Fox

And in terms of the Penang drag, as you invest in new capacity, any help on what the offset would be from some of that.

Jeffrey Benck

You know we've, kind of, we did well with the Penang 3 building where we absorbed it into our numbers and it really didn't show the drag. Obviously, we're just at the front end of this brand new building of laying the cash out. And we do recognize it, as it comes through, it will hit the depreciation line, but given the outlook and prospects over the next several years, I don't think you'll see much of an impact from us standing up that new facility in Malaysia.

Steven Fox

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

Jeffrey Benck

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

Steven Fox

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

Operator

Jaeson Schmidt, Lake Street.

Jaeson Schmidt

Again. Thanks for taking my questions. Just looking at the Medical segment. I know you noted strong bookings. Just curious what end markets within this vertical? You're seeing strength.

Jeffrey Benck

Yeah, from new bookings. We've done better most recently, Jaeson, and in Life Sciences, whether it's searching for the next cure to some horrible disease. But you know, DNA sequencing, those kind of sophisticated systems and solutions in that sector that are growing in the market and the people investment there.
We also traditionally been pretty strong in medical devices and fluid management. And so we've seen some wins there as well. Another area that we see more interest is just in monitoring solutions, right? Whether that's at your home or in the hospital, being able to track, more and more people want real time feedback, your doctor wants it. And some of those control systems are continuing to grow and we see ourselves participating there just to give you a little sense of where we've seen that.
Of course, some of that does have the longer time to market just given the when you're talking like particularly class three products that you have to go through FDA and all of that. But we're feeling pretty good about some of the new logos that we're bringing on to the company.

Jaeson Schmidt

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

Jeffrey Benck

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

Jaeson Schmidt

Gotcha. And then just the last question for me and I'll jump back into queue. I mean, I believe kind of Q4 gross margin was a record for the company or at least the highest in the recent past, not trying to back you into the corner on sort of a margin target 325 but just given all the dynamics of your business and the mix and bringing on new facilities. How much further expansion do you think is possible here?

Bryan Schumaker

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

Jeffrey Benck

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

Jaeson Schmidt

Got you. No I appreciate the call. You guys. Thanks a lot.

Operator

[Melissa Ferben], Raymond James.

Melissa Ferben

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

Jeffrey Benck

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

Melissa Ferben

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

Bryan Schumaker

Thanks, Melissa.

Operator

(Operator Instructions)
Anja Soderstrom, Sidoti & Company.

Anja Soderstrom

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

Jeffrey Benck

Yeah, it is the one sector that is a bit of a drag on our overall growth. Not surprising though, because there are really two things that we've kind of pointed to that. We've seen this HPC space where we've been more selective in compute to the more complex systems. It does have a programmatic nature to it. We're in a cycle now where, a really large system we completed last year. And now we're in that transition to the next gen platform.
So we're seeing a bit of a lull there from some of our customers while that development is underway. We know that we know we feel confident they'll come back and, and there's certainly ways that we can, participate in smaller systems, but maybe not have quite as much on the big side. But then the other is that we have a communications customer that we're super excited about a new product line that they're bringing on and that we won and we're in the process of ramping that as well, more back half loaded.
And so that will take time. But we're feeling pretty good about the potential that that can have for us. And so those are 22 transitions that we're looking at that's causing us to say we'll probably be down in AC&C this year. But you certainly look to start seeing year-over-year growth in the, in the late quarters of the year.

Anja Soderstrom

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

Jeffrey Benck

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

Anja Soderstrom

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

Jeffrey Benck

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

Anja Soderstrom

Outsourcing trend in general.

Jeffrey Benck

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

Anja Soderstrom

Okay, thank you. Great. That works out for me.

Operator

There are no further questions at this time. I will now turn the call back to Paul Mansky. Please continue.

Paul Mansky

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

Operator

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