Plexus Corp.

Good morning and welcome to the Plexus Corporation conference call regarding its fiscal fourth quarter 2020 earnings announcement. My name is Sarah and I'll be your operator for today's call. At this time, all participants are in listen-only mode. After a brief discussion by management, we will open the conference call for questions. The conference call is scheduled to last approximately one hour. Please note that this conference is being recorded. I would like to turn the call over to Ms. Heather Berspart, Nexus Senior Director, Communications and Investor Relations. Ms. Heather, you may begin.

Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements, as they will not be limited to historical facts. The words believe, expect, intend, plan, anticipate, and similar terms often identify forward-looking statements. Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of factors that could cause actual results to differ materially from those discussed, please refer to the company's periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended September 28, 2019, as supplemented by our Form 10-Q filings, and the Safe Harbor and Fair Disclosure Statement in yesterday's press release. Plexus provides non-GAAP supplemental information, such as ROIC, economic return, and free cash flow, because those measures are used for internal management goals and decision-making, and because they provide additional insight into financial performance. In addition, management uses these and other non-GAAP measures, such as adjusted operating income, adjusted operating margin, adjusted net income, and adjusted earnings per share to provide a better understanding of core performance for purposes of period-to-period comparisons. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday's press release and our periodic SEC filings. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.gov. dot plexus dot com, clicking on Investors at the top of that page. In light of the current situation with COVID-19, we are conducting this quarter's call virtually. Joining me today are Todd Kelsey, President and Chief Executive Officer, Steve Frisch, Executive Vice President and Chief Operating Officer, and Pat Germain, Executive Vice President and Chief Financial Officer. Consistent with prior earnings calls, Todd will provide summary comments before turning the call over to Steve and Pat for further details. Let me now turn the call over to Todd Kelsey. Todd?

Thank you, Heather, and good morning, everyone. Please begin on slide three with our fiscal fourth quarter results. I'm extremely proud of our GlobalPlexus team as they continue to navigate through the complexities stemming from COVID-19 while delivering exceptional results. We produced record quarterly revenue of $913 million in the fiscal fourth quarter, an outcome that exceeded our guidance range. The result represented 7% sequential growth and 13% growth from the fiscal fourth quarter of 2019. All of our sectors performed beyond expectations with our industrial, commercial, and healthcare life sciences sectors delivering outstanding results. We delivered record GAAP diluted earnings per share of $1.26, including 23 cents of stock-based compensation expense. Our GAAP operating margin of 5.5 percent was our best quarterly margin performance in more than a decade and marks the second consecutive quarter in which we have exceeded 5 percent. Please advance to slide four. Next, I will discuss additional accomplishments within fiscal 2020. I will start with our financial performance in relation to our goals. Despite a challenged fiscal second quarter during the early stages of the COVID-19 pandemic, we delivered impressive results for the fiscal year. Through our commitment to operational excellence and customer service excellence, our teams delivered record revenue for the fiscal year of $3.4 billion, representing 7% year-over-year growth. This result included 28% year-over-year growth from our industrial commercial sector. We delivered adjusted operating margin of 4.7 percent. This result included GAAP operating margin of 5.4 percent in the second half of the fiscal year as the team successfully drove long-term productivity improvements. The strong growth coupled with robust operating margin led to record non-GAAP diluted EPS of $4.08 for the fiscal year, an increase of 19 percent from the previous fiscal year. Our return on invested capital finished at 14 percent, representing an economic return of 520 basis points above our weighted average cost of capital of 8.8 percent. This economic return exceeds our enduring goal of 500 basis points. Finally, we generated record-free cash flow of $160 million, a result that exceeded our net income. Please advance to slide five. Over the longer term, our financial results are consistent with our industry-leading enduring goals, highlighting the success of our strategy focused on highly complex products and demanding regulatory environments. Our three-year revenue CAGR of 10% is firmly within our 9% to 12% target range. Additionally, our average economic return is 5.3%, exceeding our 5% enduring goal and resulting in the creation of significant shareholder value. Please advance to slide six. I would now like to highlight some of our non-financial accomplishments in fiscal 2020. 2020 has been a complex year. It has affected each of us as individuals and has impacted our families and our communities. It has also brought into focus the importance of camaraderie and collaboration. At Plexus, we're excelling in this new normal by continuing to do what is right. for each other, our families, our customers, and our communities. At Plexus, we are committed to building a better world, a commitment that goes beyond the products that we partner with our customers to bring to market. At the heart of our efforts is our environmental, social, and governance program, which has been recognized by the Institutional Shareholder Services. We care for our employees, support our communities, and commit ourselves to doing business responsibly all while finding ways to improve the world. We do these things because they are core to our values. Earlier this month, through an unsolicited survey, Plexus was named to Forbes' list of the world's best employers of 2020. I am proud that our efforts as a company have made a positive impact on our team members around the world and are reflected in this esteemed award. I'm incredibly proud of our global team and the contributions they make. To all of our Plexus employees, thank you. The strength and determination you have shown through this unusual landscape is remarkable. Through your efforts, we have been able to help fulfill our vision of creating the products that build a better world. Advancing to our guidance for the fiscal first quarter of 2021 on slide seven. In alignment with our prior projections, we expect demand to moderate in the fiscal first quarter of 2021 and are guiding revenue in the range of $810 to $850 million. As anticipated, we are experiencing a reduction in demand for critical care healthcare products and certain industrial products. Aerospace demand has stabilized, and we expect growth in the aerospace and defense sector from the previous quarter. As a result of the efforts of our operations team in driving productivity gains, we are guiding GAAP operating margin in the range of 4.9 to 5.3 percent. With this strong operating performance, we anticipate delivering GAAP-diluted earnings per share of $1.02 to $1.17, including 19 cents of stock-based compensation expense. Our guidance assumes that COVID-19 will not materially impact end markets or our operations beyond what has already occurred. Please advance to slide eight. Our vision to help create the products that build a better world continues to resonate with our customers and is central to the decisions we make as an organization. Our vision also aligns with the values of our passionate Plexus team and provides a commitment to both our current and future talent as we position Plexus as an employer of choice. As reflected in our mission, we look to leverage our expertise in and focus on highly complex products and demanding regulatory environments to provide advantages in operational efficiency and a globally consistent platform for our customers. Please advance to slide nine. Over the course of the past decade, we have made a conscious effort with great success to align our portfolio around highly complex products and demanding regulatory environments. During fiscal 2020, over 90 percent of our revenue was comprised from programs in the healthcare life sciences, industrial commercial, and aerospace and defense market sectors. Through this transformation, communications has become an opportunistic market in the search for new logos managed by our industrial commercial team. Given this reality, in the fiscal first quarter of 2020, we are creating our industrial market sector. The industrial market sector includes our industrial commercial business and now encompasses communications as a subsector. We will continue to provide visibility into the significant subsectors within the industrial market as we move forward. Please advance to slide 10 for a breakdown of our newly branded industrial market sector. This can be seen from the pie chart in the lower right. The largest subsector is semiconductor capital equipment, comprising about a third of the sector revenue. Communications is the third largest subsector at 14 percent of sector revenue. We remain focused on expanding our business with existing communications customers and will take an opportunistic approach when engaging potential customers. Our subsectors within industrial are primarily focused on high complexity electromechanical products leveraging our skill set and extensive capabilities. Please advance to slide 11. Our portfolio continues to differentiate Plexus from our peers as we strengthen our leadership in highly complex products and demanding regulatory environments. We have delivered consistent growth above 10 percent annually and well beyond EMS market growth rates in each of our three market sectors of healthcare life sciences, industrial, and aerospace and defense. As we move forward, these markets support our 9 to 12 percent revenue growth goal. Please advance to slide 12. I will close with a few thoughts regarding fiscal 2021. As stated earlier, we are observing a moderation in demand for critical care healthcare products and certain industrial products as we enter 2021. However, we anticipate quarterly sequential revenue growth by the second half of fiscal 2021 as we benefit from new program ramps due to our strong fiscal 2020 manufacturing winds performance, which finished at $952 million annualized when fully ramped in production. We are particularly excited about the rampant potential of point-of-care COVID-19 testers, such as the Quidel SOPHIA II, a partnership we announced this past quarter. When considering the overall demand environment and the potential for new program ramps, we expect fiscal 2021 to be a growth year. We anticipate continued strong operating performance throughout the year, despite the expected impacts related to COVID-19. Our goal is to consistently deliver operating margin within or above our target range of 4.7 to 5% in the fiscal year. We believe our differentiated portfolio, advanced service offering, superior execution, talented workforce, and focus on operational efficiency support this goal. The combination of revenue growth and robust operating performance should lead to solid EPS expansion and free cash flow generation for fiscal 2021. And then I'll turn the call over to Steve for additional analysis of the performance of our market sectors and operations. Steve.