Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal fourth quarter 2021 earnings announcement. My name is Gail and I will 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. Shawn Harrison, Plexus Vice President of Communications and Investor Relations. Shawn?

Shawn Harrison Good morning, and thank you for joining us today. Some of the statements made and the 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 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.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. I'm proud of the resilience and unyielding focus on operational excellence of our more than 19,000 Plexus team members. Their actions during fiscal 2021 were foundational to advancing our vision to help create the products that build a better world. Through their efforts, Plexus delivered exceptional results in fiscal 2021, which I will now highlight. We delivered GAAP EPS of $4.76, representing 21% year-over-year earnings growth on essentially flat revenue of $3.4 billion. Revenue was below our robust demand levels due to worsening supply chain conditions and the uncertainty created by the COVID-19 pandemic. Our gap operating margin of 5.2% well exceeded our previous target range of 4.7 to 5%. We believe this level of performance is sustainable, and we are establishing a new industry-leading gap operating margin target of 5.5%. In addition, our fiscal 2021 gap operating margin of 5.2% was our best performance since fiscal 2008. We delivered return on invested capital of 15.4 percent with an economic return of 730 basis points above our weighted average cost of capital of 8.1 percent. This outcome far exceeds our previous economic return goal of 500 basis points. As a result, we are establishing a new enduring return on invested capital goal of 15 percent. Our team delivered free cash flow of $85 million despite the challenges created by the ongoing supply chain constraints and investments to support future growth, including the initial build-out of our new facility in Bangkok, Thailand. Next, I will highlight fiscal 2021 business development successes that position us for sustained growth as we differentiate in markets aligned with our mission of leading in highly complex products and demanding regulatory environments. In fiscal 2021, our team delivered over $1 billion of new manufacturing revenue when fully ramped into production, an increase of 8% over the previous year. In addition, our team engaged with a greater than typical 22 new customers during fiscal 2021. These engagements create a significant opportunity to drive incremental new program wins and, in turn, revenue growth in future quarters. Finally, we ended the year with a qualified funnel of manufacturing and aftermarket services opportunities at a record $3.3 billion, as well as an increasing funnel of engineering opportunities. Please advance to slide four. I'm also proud of the continued progress of our environmental, social, and governance program. I'll provide highlights of fiscal 2021 activities within our social pillar Within this pillar, we advanced our efforts to support our local communities as well as the development, inclusivity, and engagement of our team members who create our best Plexus. We created a positive impact on our communities through our charitable giving of nearly $1 million, our promotion of STEM education, and our encouragement of volunteerism through establishing a paid time off program available to all Plexus team members globally. These efforts support a virtual cycle of well-being in our lives. In addition, we expanded our team member-driven employee resource groups, including Plexus Young Professionals, which fosters team member development, Unus Plexus, which celebrates Plexus's diversity in different cultures, and Women in Network, which champions the advancement of women professionally and personally. These groups aid in facilitating our goal that all Plexus team members reach their full potential. Please advance to slide five for a discussion of our fiscal fourth quarter results. We delivered fiscal fourth quarter gap EPS of $1.16 and gap operating margin of 5%. These results were comfortably in our guidance range despite revenue falling below our expectations, which finished at $843 million. Worsening supply chain constraints and labor reductions in Malaysia as a result of the COVID-19 pandemic negatively impacted revenue. Our GAAP EPS, which included 23 cents of stock-based compensation expense, benefited from a focus on cost control, a strong start of a new aftermarket services program, and continued robust demand for our engineering solutions globally. The fiscal fourth quarter labor availability challenges in Malaysia were a result of confirmed COVID-19 infections and mandated close contact quarantines, which includes vaccinated individuals in Malaysia. Amazingly, our Malaysia team is now nearly 100% vaccinated. In addition, as of today, the infection rates in Malaysia have reduced significantly and our operations located there are running near normal. Given these facts, we do not expect the COVID-19 pandemic to impact our fiscal first quarter workforce availability in Malaysia. Please advance to slide six. As we look to the first quarter of fiscal 2022, the demand environment remains robust, particularly within our healthcare life sciences and industrial market sectors. However, constraints in the component market continue, limiting our ability to grow revenue in the near term. As a result, we are establishing a revenue guidance range of $825 to $865 million. Our demand exceeds this guidance range by well over $100 million. We expect continued strong operating performance and our guiding gap operating margin in the range of 4.6 to 5%, including 70 basis points of stock-based compensation expense. At these revenue and operating margin levels, we anticipate delivering gap diluted earnings per share of $1.01 to $1.17, including 21 cents of stock-based compensation expense. Our guidance assumes supply chain constraints and COVID-19, including potential vaccination and testing mandates, do not further materially impact end markets or our operations. Next, a few thoughts regarding our longer-term outlook. Looking at our end markets, we see strong demand within healthcare life sciences over the next several quarters, led by a recovery for equipment related to elective procedures. Likewise, our industrial sector is showing significant strength, led by semiconductor capital equipment and communications customers. We believe our aerospace and defense sector revenue will begin to move higher, driven by improvement in the commercial aerospace market. 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. Furthermore, we benefit from the differentiation provided by our engineering and aftermarket service offerings that allow Plexus to support the full product lifecycle. In summary, we remain optimistic in our outlook. As we look to fiscal 2022, customer demand remains robust as a result of improved end markets, new program wins, and our participation in secular growth markets, and far exceeds our 9% to 12% revenue growth goal. However, supply chain constraints will limit our ability to fulfill all demand. We continue to believe that we will achieve quarterly sequential revenue growth and expansion of our industry-leading gap operating margin as the fiscal year progresses. In closing, I'd like to thank our Plexus team for their outstanding efforts in fiscal 2021. It is through their talents and dedication that we're able to further our vision of helping to create the products that build a better world while delivering for all of our stakeholders. I'll now turn the call over to Steve for additional analysis of the performance of our market sectors and operations. Steve.