Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal second quarter 2023 earnings fiscal second quarter. My name is Liwe 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. And 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?

Thank you. 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, including without limitation those regarding revenue, gross margin, selling administrative expense, restructuring and other charges, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outlook. Forward-looking statements are not guaranteed since there are inherent difficulties 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, supplemented by our Form 10-Q filings and the safe harvest 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 at 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, and Pat Germain, Executive Vice President and Chief Financial Officer. Oliver Mim, our Executive Vice President, Chief Operating Officer, is not participating in our call today due to a death in the family. Our thoughts are with Oliver and his family. 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 team executed extremely well during our fiscal second quarter amidst ongoing end market volatility and supply chain challenges. We delivered better than projected revenue, profitability, and free cash flow. We also achieved strong wins performance while significantly expanding the funnel of qualified opportunities, positioning us to sustain robust revenue growth. Finally, through our ESG leadership, focused on how we innovate and operate, we furthered our goal of being seen as an employer and partner of choice. Our fiscal second quarter revenue of $1.071 billion represented a 21% increase from the fiscal second quarter of 2022 and exceeded the top end of our guidance range. The strong revenue result was driven by increased end of quarter shipments as an outcome of our ability to mitigate supply constraints in our Americas and EMEA regions and better than anticipated performance by our engineering and sustaining services teams. Gap operating margin of 5.3%, inclusive of 55 basis points of stock-based compensation expense, also exceeded guidance and approached our 5.5% target level. We benefited from profitability upside in all regions from a combination of either volume leverage, the performance of our engineering and sustaining services teams, and our ongoing focus on improving manufacturing efficiency supported by our efforts to deliver zero defects. Our GAAP EPS of $1.45, inclusive of 21 cents of stock-based compensation expense, also exceeded guidance. Finally, we generated $80 million of free cash flow for the quarter, representing substantial upside to our expectations as our team continues to implement tools and processes to better forecast and manage customer inventory requirements in light of the ongoing dynamic demand and supply chain environment as anticipated our wins performance accelerated during our fiscal second quarter our go-to-market team did an outstanding job as it won 31 new manufacturing programs worth 275 million dollars when fully ramped into production including continued traction and winning business within secular growth markets Concurrently, the team expanded an already record funnel of qualified manufacturing opportunities to $4.2 billion, an increase of nearly $600 million from our fiscal first quarter. Included in this funnel are a greater than typical number of large opportunities in each of our market sectors and regions, which we believe positions us to sustain strong wins performance and industry-leading revenue growth. Please advance to slide four. I continue to be proud of how the Plexus team supports each other, our customers and partners, and the communities in which we reside. Our passion for and commitment to environmental, social, and governance principles allows us to bring innovation to our customers to help them create more sustainable products and further their ESG goals while we deliver on our vision to help create the products that build a better world. A unique set of solutions across the product's lifecycle positions Plexus to be the partner of choice in helping our customers create value by designing, manufacturing, and servicing their products with a focus on sustainability. As an example, we are continuing to enhance our sustainable product design capabilities by engaging with customers to identify significant opportunities to lessen their product's carbon footprint and environmental impact. There are several recent activities I'd like to share that are aligned with our social efforts. During our fiscal second quarter, team members in Malaysia supported local schools and a children's home through a fundraising campaign. Next, our engineering team in Darmstadt, Germany made notable donations to support a local food bank and hospice center. Here in Wisconsin, our Women in Network Employee Resource Group, which is focused on empowering women professionally and personally and Habitat for Humanity are partnering to support a local family through funding and building a home near our global headquarters. We anticipate this partnership alone will support more than 900 hours of volunteerism by our Plexus team members. These actions display the passion of our global team and our shared values and highlight our ability to accomplish more together. Finally, the following example represents the powerful collective impact that is possible through partnering with our customers on sustainable solutions. As part of an Earth Day celebration this week, our team in Wisconsin hosted the leadership of BEVI, a provider of smart water dispensers that offer filtered, flavored, and sparkling water on demand. Thousands of BEVI machines, which are manufactured in our Appleton, Wisconsin facility, are already in use across North America at leading global corporations including at Plexus' US sites. Since installing the machines at our facilities last quarter, Plexus has already saved the equivalent of more than 33,000 plastic water bottles and counting that otherwise would have gone into a landfill. As we move forward, we will share more examples of how we partner with customers around our shared values, advancing common sustainability goals, while building a better world. Please advance to slide five. We are guiding fiscal third quarter revenue of $1.0 billion to $1.05 billion, non-GAAP operating margin of 4.5 to 5%, inclusive of approximately 60 basis points of stock-based compensation expense, and non-GAAP EPS of $1.05 to $1.23. Our non-GAAP EPS guidance includes approximately 19 cents of stock-based compensation expense but excludes an estimated $9 million or 29 cents per share of restructuring and other charges. Our guidance is being impacted by our strong late second quarter shipments, supply chain challenges associated with both semiconductor supplier scheduling changes and decommits, and a shortage of key assemblies required by our customers to complete the final integration of their products. incremental semiconductor capital equipment market weakness, and unfulfilled backlog that remains in excess of $100 million. As mentioned, we will incur an estimated $9 million of restructuring and other charges. As part of this charge, $4.8 million is related to personnel reductions, particularly operating expenses, which are expected to result in an annual savings of $9.5 million. The remaining $4.2 million of other charges associated with a lease write-down will result in a $1.5 million annual savings. While it's regrettable to part with teammates, and we thank them for the contributions, these actions position Plexus to best realize future success. In order to capitalize on our significant pipeline of future growth opportunities while delivering appropriate returns to our shareholders, we refocused our spending around creating a more efficient and scalable platform. While our third quarter guidance differs from our expectations 90 days ago, Plexus remains positioned to deliver robust revenue growth for fiscal 2023. Our outlook includes sequential revenue growth for our fiscal fourth quarter, barring any unforeseen macroeconomic weakness. We expect to benefit from new program ramps, and increased demand across a number of our customers, particularly in our aerospace and defense sector, enabling margin expansion. Finally, I'd like to spend a few moments looking beyond fiscal 2023. We are nearing the conclusion of our annual strategic planning process, and I'm excited that our innovative solutions and continued focus on quality and on-time delivery are creating opportunities to drive robust revenue growth and strong profitability. including achieving our target of $5 billion in revenue with 5.5% operating margin by our fiscal 2025. As we project beyond this goal, I have continued confidence in sustaining our industry-leading revenue growth and profitability as our team leverages our best-in-class capabilities and solutions to help our customers create the products that build a better world. I will now turn the call over to Steve. for additional analysis of the performance of our market sectors and operations.