Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal third quarter 2021 earnings announcement. My name is Renz and I'll be your operator for today's call. At this time, all participants are in a 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 now like to turn the call over to Mr. Sean Harrison, Plexus Vice President of Communications and Investor Relations. Sean?

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 October 3, 2020, as supplemented by our Form 10-Q filings in the Safe Harbor and Fair Disclosure Statement and 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.com, clicking on Investors at the top of that page. 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, Sean. Good morning, everyone. Please advance to slide three for a discussion of our fiscal third quarter results. We delivered fiscal third quarter revenue of $814 million, GAAP operating margin of 4.5 percent, and GAAP EPS of 95 cents. Revenue met the high end of our revised expectation provided at the June 8th Stifel Conference. This result was primarily due to the resilience and outstanding efforts of our team members in Penang, Malaysia amidst the challenging conditions created by government-mandated workforce reductions in response to the COVID-19 pandemic. Our team worked tirelessly to meet the needs of our customers while navigating the required workforce restrictions. Gap operating margin in EPS significantly exceeded our updated outlook as a result of the better-than-anticipated revenue performance of our Penang operations, an outstanding contribution from our engineering solutions team, and lower-than-anticipated U.S. healthcare costs. Our engineering solutions workload is very strong, and the team delivered record operating margin in the quarter. The GAAP EPS result included $0.04 due to a modest restructuring in our Americas region and $0.21 of stock-based compensation expense. I'm extremely proud of our GlobalPlexus team as they navigated a very challenging fiscal third quarter to deliver results that exceeded expectations. Next, I will highlight fiscal third quarter business development accomplishments that we expect will enable accelerated future revenue growth. Our team produced another exceptional quarter of wins, delivering approximately $275 million of manufacturing revenue when fully ramped into production. bringing our trailing four-quarter wins to a record $1.1 billion. The quarterly wins included five new logos, another very strong result that enables further growth as these relationships expand. Our teams have added 17 new logos this fiscal year, highlighting our increasing differentiation in markets featuring highly complex products and demanding regulatory requirements. Within the wins were several aftermarket services opportunities, including an expansion of the notable new relationship highlighted last quarter. One of these AMS opportunities ramps very rapidly and should contribute to fiscal 2022 first quarter results. Given the pace of the ramp, we'll be making sizable near-term investments. Our engineering solutions team had another outstanding wins quarter, exceeding last quarter's excellent results. Engineering is not only accretive to our operating performance, strong engineering wins are generally a leading indicator of accelerating manufacturing growth. The efforts of our go-to-market team in leveraging our reputation for delivering customer service excellence is positioning Plexus for strong growth across all of our service offerings. The wins performance is not only noteworthy because of its magnitude, but also due to the alignment of the new business to our strategy. Please advance to slide four. Our team members in Penang demonstrated extraordinary resilience and tenacity as the Malaysian government implemented numerous actions and restrictions to combat a sharp rise in COVID-19 infections that began midway through our fiscal third quarter. We were able to continue our operations, given our status as an essential manufacturer, But for the final six weeks of the quarter, we were limited to approximately 60% of workforce capacity, while also managing through strict protocols focused on ensuring social distancing for our team members at our sites. Despite the challenging situation, our APAC leadership team found opportunities to support our customers by operating more efficiently than initially anticipated upon the announcement of the workforce reductions, driving revenue toward the high end of the expectations we provided during our June 8th update. Our team also proactively engaged the Malaysian government and Ministry of Health with the goal of creating a vaccination center for our team members, customers, suppliers, and other local manufacturers. Plexus, along with two other manufacturers in Penang, received approval during late June to create an on-site vaccination clinic. In conjunction with a local healthcare provider and the Malaysian government, which supplied the vaccines, our team began their COVID-19 vaccination clinic on July 14th, administering approximately 1,500 doses daily. Our clinic, which received outstanding positive feedback from the Malaysian Ministry of Health, is scheduled to provide nearly 17,000 first doses by this upcoming Sunday. Second doses are anticipated by late August, aligning with the Malaysian government's goal of broad vaccination availability by the end of summer. We anticipate over 85% of our Penang team members will be vaccinated. While vaccination is an important step in supporting our team members and our local community in Penang, COVID-19 infections remain elevated in the near term in Malaysia. As a result, we expect restrictions on the community and manufacturers to sustain throughout our fiscal fourth quarter. During the first two weeks of our fiscal fourth quarter, the prior reductions continued to limit Plexus to approximately 60% of workforce capacity. In mid-July, the government subsequently eased the reductions applicable to Plexus, allowing our team to operate at 80% of workforce capacity. This workforce level, when combined with operational efficiencies, should allow our operations to function at near normal output capacity within the fiscal fourth quarter. We anticipate vaccination efforts throughout the country, inclusive of our clinic, will support an eventual easing of restrictions, allowing Plexus to return to typical workforce capacity levels and to better support the ongoing strong growth outlooks of our customers. Please advance to slide five. As we look to the fiscal fourth quarter, demand remains very robust, particularly within our healthcare life sciences and industrial market sectors. When coupled with the improved output of our Penang operations, we are guiding a sizable sequential improvement in revenue and are establishing a range of $875 to $915 million. While we are practical in our revenue guidance given the current dynamics, should we overcome the workforce limitations at our Penang operations and the ongoing constrained supply chain, the demand environment supports upside to this range. We're guiding GAAP operating margin in the range of 4.8 to 5.2 percent, including 70 basis points of stock-based compensation expense. At these revenue and operating margin levels, we anticipate delivering GAAP-diluted earnings per share of $1.13 to $1.29, including 22 cents of stock-based compensation expense. Our guidance assumes that supply chain constraints and COVID-19 do not materially impact end markets or our operations beyond what is already anticipated. Next, a few thoughts regarding our longer-term outlook. Looking at our end markets, we see broad-based strengthening of healthcare life sciences demand over the next several quarters, led by a recovery for equipment related to elective procedures. Likewise, our industrial sector is showing significant broad-based demand increases, Semiconductor capital equipment and communications forecasts are both robust, while we're anticipating meaningful contributions from program ramps with industrial and warehouse automation customers. We believe our aerospace and defense sector revenue is beginning to inflect higher, driven by improvement in commercial aerospace and healthy demand from defense and commercial space customers. In summary, we remain optimistic in our outlook. In addition to strong in-market demand, We are major participants in secular growth markets such as robotic assisted surgery, warehouse and factory automation, and commercial space. We continue to win significant amounts of new business aided by our capabilities, expertise, and commitment to our customers through exceptional quality and superior execution. Furthermore, we benefit from the differentiation provided by our engineering and aftermarket services. Looking into fiscal 2022, We are confident these demand catalysts support double-digit revenue growth as we continue to drive industry-leading operating performance with GAAP operating margin consistently above 5%. I'd again like to thank our incredible Plexus team for their unwavering support and dedication. It is through their efforts and talents that we're able to further our vision of creating the products that build a better world while delivering for all of our stakeholders. I will now turn the call over to Steve for additional analysis of the performance of our market sectors and operations.