Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal third quarter 2023 earnings announcement. My name is Benny 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 an 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?

Thanks, Penny. 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 and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outlook. 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 1, 2022, this supplemented by our Form 10-Q filings and a safe harbor and fair disclosure statement on 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, Pat Germain, Executive Vice President and Chief Financial Officer, and Oliver Mim, 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. I'm pleased with the performance of our global Plexus team in the fiscal third quarter, including their ability to support future growth opportunities and deliver strong results while navigating a volatile demand and supply chain environment. Fiscal third quarter revenue of $1.02 billion met guidance amidst a number of cross-currents within the period. Markets were mixed with certain subsectors seeing demand strengthen, some seeing demand seemingly bottom, and others beginning to show near-term weakness due to a variety of factors. Simultaneously, while we're seeing further modest improvement in component availability, certain lagging-edge semiconductor lead times remain quite elevated and we undershipped demand by more than $100 million once again this quarter. For the quarter, we delivered GAAP operating margin of 2.8% with GAAP EPS of 56 cents per share, including 14 cents per share of stock-based compensation expense and 76 cents per share related to an arbitration decision and non-recurring restructuring charges. Adjusted operating margin of 5.0%, which included 37 basis points of stock-based compensation expense, met the high end of our guidance range. The team's ability to mitigate supply chain challenges, along with improvements in manufacturing efficiency and better-than-anticipated performance from our engineering team, contributed to the strong result. The fiscal third quarter represented our fifth consecutive quarter with operating margin exceeding 5%. Non-GAAP EPS of $1.32 per share, inclusive of 14 cents of stock-based compensation expense, exceeded guidance, benefiting from the team's focus on operational excellence and lower than forecasted taxes. Our go-to-market team once again did an outstanding job in the fiscal third quarter, winning 30 new manufacturing programs worth a record $321 million when fully ramped into production. Several of the program wins represented competitive share takeaways. We have exceeded $300 million in quarterly new program wins twice during the last six quarters, demonstrating the strength of our strategy and customer confidence in our value proposition. At the same time, we maintained a robust funnel of qualified manufacturing opportunities at $4 billion. This funnel again includes a greater than typical number of large opportunities in each of our market sectors, which we believe continues to position us well to maintain strong manufacturing wins momentum. Finally, new engineering program wins and the funnel of qualified engineering opportunities expanded versus the prior quarter, both positive leading indicators of future manufacturing wins. Please advance to slide four. Late in our fiscal third quarter, we released our inaugural sustainability report. which highlighted the responsible and sustainable business practices that have long been ingrained in our culture and are core to our vision to help create the products that build a better world. I encourage everyone joining today's call to review the report found on our sustainability webpage. A few of our team's fiscal 2022 accomplishments highlighted in the report include achieving an 11.9% energy intensity reduction across Plexus manufacturing sites, launching a third employee resource group, donating in excess of $1 million globally through the Plexus Charitable Foundation, completing a third-party materiality assessment to understand stakeholder needs, and enhancing our cyber incident response preparedness. We have many more efforts underway during fiscal 2023, including delivering more than 40 environmentally focused projects, adding two additional employee resource groups, and enhancing our volunteer time off and charitable matching programs. During fiscal 2022, we also formally deployed our differentiated suite of sustainability-oriented product lifecycle solutions, which is driving expanded customer engagement. A core component of these solutions is our lifecycle assessment capabilities. Through a consultative partnership with our customers, we develop a strategic roadmap of emissions reduction opportunities and, in some cases, cost reduction opportunities throughout the lifecycle of a product, including the design, manufacture, use, servicing, and end of life. We add substantial value to the process through our team's deep understanding of our customers' markets supply chains, and products. Further, our team's expertise in product development, product commercialization, supply chain solutions, and sustaining services are unique in helping Plexus partner with our customers to act upon the opportunities identified through the lifecycle assessment, ultimately creating products with improved sustainability. As we strive to build a better world, we realize the significant opportunity that exists to help our customers deliver more responsible, sustainable products to the market. We have completed assessments with five customers to date and are actively pursuing or engaged in 20 additional opportunities across our product lifecycle solutions. Please advance to slide five. We are guiding fiscal fourth quarter revenue of $1 billion to $1.04 billion, gap operating margin of 4.7 to 5.2%, inclusive of approximately 53 basis points of stock-based compensation expense, and GAAP EPS of $1.18 to $1.36. Our GAAP EPS guidance includes approximately 19 cents of stock-based compensation expense. I am proud that given this guidance, we expect to finish fiscal 2023 with revenue growth exceeding 10% for the second consecutive year, an adjusted operating margin exceeding 5%, a meaningful increase from fiscal 2022. Within the fiscal fourth quarter, we expect to continue to benefit from increasingly robust commercial aerospace demand and ongoing new program ramps. These positives are being offset by incremental weakness in semiconductor capital equipment, a market which seems to be finding a bottom, modest softening in some of our industrial markets, and ongoing supply chain challenges, including those of our customers. The flatter demand dynamic is negatively affecting cost absorption at some of our sites. Finally, I'd like to provide a look into early fiscal 2024. We see the current demand and supply chain dynamics holding steady as we enter fiscal 2024. We expect to follow this with accelerating revenue and profitability growth as a result of stabilizing demand in certain markets increasing new program ramp momentum, and lessening supply chain challenges. The latter includes continued technology enhancements our team is bringing to supply chain management and further gradual improvements in lagging edge semiconductor availability, creating the opportunity to reduce the ongoing unfulfilled backlog of customer demand. As a result, we remain confident in achieving our goal of $5 billion in revenue with 5.5% gap operating margin by our fiscal 2025. I also have continued confidence that Plexus is well-positioned to deliver industry-leading revenue growth and profitability over the long term. Our best-in-class capabilities, focus on operational excellence, and unique solutions to address the lifecycle of our customers' products are resonating loudly, as evidenced by our program wins momentum, competitive share gains, and ongoing robust funnel of opportunities. I'll now turn the call over to Steve for additional analysis of the performance of our market sectors and operations.