Plexus Corp.

Good morning, and welcome to the Plexus Corp conference call regarding its fiscal first quarter 2023 earnings announcement. My name is Liz, 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. This 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, Texas Vice President of Communications and Investor Relations. Sean?

Thank you, Liz. Good morning, everyone, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements, including without limitation, those regarding revenue, gross margin, selling at administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outlook. Forward-looking statements are not guarantees since they're 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 1, 2022, and the Safe Harbor and Fair Disclosure Statement in yesterday's press release. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website, www.plexus.com, clicking on Investors at the top of that page. Joining me today are Todd Kelsey, Chief Executive Officer, Steve Frisch, President and Chief Strategy Officer, Pat Germain, Executive Vice President and Chief Financial Officer, and Oliver Mint, Executive Vice President and Chief Operating 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. Our fiscal 2023 started strong as we capitalized on the momentum built during fiscal 2022. As I reflect on the market conditions and supply chain dynamics of 12 months ago, I'm quite pleased with our performance in the fiscal first quarter. Amid unexpected demand volatility, we met our guidance and delivered 34% year-over-year revenue growth, generated an industry-leading GAAP operating margin, and nearly doubled our GAAP earnings per share year-over-year. We also advanced our efforts to be an ESG leader, an endeavor that our customers are taking notice. Our fiscal first quarter revenue of $1.09 billion reflected strong demand from many customers, even as we experienced unexpected volatility from others. Semiconductor capital equipment demand was lower than our customers anticipated 90 days ago due to weakness in the memory market paired with the effects from the US export control order. In addition, we experienced new program RAM schedule changes, a dynamic that is expected to be resolved as we move through fiscal 2023. Finally, we continue to undership demand by more than $100 million, given ongoing supply chain challenges associated with lagging-edge semiconductors. I would note that our average semiconductor lead time declined only 4% from last quarter and remains in excess of 300 days. We delivered GAAP operating margin of 5.2%, inclusive of stock-based compensation expense and the costs associated with the ramp of business at our new facility in Bangkok, Thailand. With strong customer interest, we continue to anticipate our operations in Bangkok will be profitable exiting this fiscal year. Finally, we delivered GAAP EPS of $1.49, which included 21 cents of stock-based compensation expense. We won 29 new manufacturing programs during the quarter worth $158 million, including several programs associated with secular growth markets. As we discussed in recent quarters, supply chain conditions continue to slow the decision-making process for some customers that we anticipate will partner with Plexus. However, we see this trend reversing during our fiscal second quarter, driving increased wins for the remainder of the fiscal year. Our funnel of qualified manufacturing opportunities expanded nearly $250 million sequentially to a record $3.6 billion, reflecting the delayed decision-making and significant potential to increase our wins. Please advance to slide four. We continue to demonstrate our commitment to be a leader in environmental, social, and governance through how we innovate and operate. Late last year, we joined the Semiconductor Climate Consortium as a founding member, partnering with many of our Semicap customers and industry-leading technology firms that are focused on accelerating the reduction of greenhouse gas emissions throughout the semiconductor value stream. In addition, we received ASM International's Prison Award for Supply Chain Sustainability Innovation. The award was given as a result of our global internal competition called BEST, which fosters team member innovation and continuous improvement. This competition has highlighted ESG initiatives such as smart metering, water usage reduction, and implementation of alternative energy sources, all of which are helping to reduce our environmental impact. We are proud that our efforts were recognized by an important customer and SemiCap industry leader. Please advance to slide five. We are guiding fiscal second quarter revenue of $1.02 to $1.07 billion. GAP operating margin of 4.5% to 5%, inclusive of approximately 60 basis points of stock-based compensation expense, and GAP EPS of $1.06 to $1.24, inclusive of 21 cents of stock-based compensation expense. Our guidance reflects the continuing impact of the near-term demand dynamics that affected our fiscal first quarter, including weakness in semi-cap demand, a near-term slowdown in certain new program ramps, and well in excess of $100 million of unfulfilled customer demand. Our operating margin guidance reflects reduced fixed and administrative cost leverage, coupled with our typical seasonal cost increases associated with merit-based salary adjustments and U.S. payroll tax reset. We expect to overcome both as we move through fiscal 2023. Finally, our fiscal second quarter EPS guide is impacted by higher interest expense and tax expense compared to our fiscal first quarter. I continue to see the potential for strong performance in fiscal 2023 and beyond. While recognizing macroeconomic and geopolitical uncertainties, we have the opportunity to deliver industry-leading profitability and revenue growth rates significantly in excess of the markets we serve. We expect a return to quarterly sequential revenue growth beginning in our fiscal second half associated with robust healthcare life sciences and aerospace and defense market sector demand, normalizing existing program ramp schedules, additional new program ramps as we benefit from share gains and participation in secular growth markets, and continued backlog conversion given our focus on resolving supply chain challenges. In looking at our end markets for fiscal 2023, our healthcare life sciences market sector is poised to have a tremendous year. The sector is benefiting from a sustained recovery in demand for elective procedures, numerous new program ramps that have yet to reach steady state, and our continued efforts to mitigate supply chain challenges. We see the opportunity for healthy growth from our industrial sector due to our participation in secular growth markets, such as warehouse and factory automation, our continued efforts to clear supply chain challenges, and new program ramps in developing markets, such as electrification. While semi-cap demand is much weaker than 90 days ago, we continue to anticipate we will outperform the market given share gains and new program ramps. Finally, demand from our aerospace and defense market sector continues to recover, particularly in commercial aerospace. Supply has been the gating factor for several quarters now, but our progress in resolving those challenges provides the potential for sequential revenue growth throughout the remainder of fiscal 2023 resulting in robust sector growth for the fiscal year. With the anticipated return of sequential revenue growth for our fiscal second half, we are focused on achieving our 5.5% gap operating margin goal exiting the fiscal year. I will now turn the call over to Steve for additional analysis of the performance of our market sectors and operations.