Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal first quarter 2024 earnings announcement. My name is Livia and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. After a brief discussion by management, we will open the conference call for your questions. The conference call is scheduled to approximately one hour. Please note that this conference call is being recorded. I would now like to turn the call over to Mr. Sean Harrison,

Thank you, Olivia. 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 and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outcomes. Forward-looking statements are not guaranteed 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 September 30, 2023 in the Safe Harbor and Fair Disclosure Statement in our 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 Ty 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. With today's earnings call, Todd will provide summary comments before turning the call over to Oliver 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. There were many positives during our fiscal first quarter. These included strong quarterly wins across our market sectors, totaling $261 million, including the addition of two new exciting healthcare life sciences logos. Robust expansion of our funnel of qualified manufacturing opportunities, which now exceeds $4 billion. When combined with a total available market exceeding $240 billion, this supports our expectation of continued industry-leading revenue growth with a targeted CAGR of 9% to 12%. Ongoing advancement of our sustainable and responsible business practices. along with numerous efforts by our team members to help create a better world and positively impact our communities. Yet the quarter had its challenges, primarily associated with further demand softening in the healthcare life sciences sector and certain subsectors of the industrial market. The resulting revenue decline has created inefficiencies across our organization, which we are addressing, as we remain focused on delivering 5.5% gap operating margin in fiscal 2025. These actions will be discussed in more detail later in the call. Please advance to slide four for a review of our fiscal first quarter results. We delivered fiscal first quarter revenue of $983 million, GAAP operating margin of 4.6%, including 54 basis points of stock-based compensation expense, and GAAP EPS of $1.04, including 19 cents of stock-based compensation expense. These results met the updated guidance provided on January 16, 2024, and reflected the impact of significant negative operating leverage as demand weakened late during the fiscal first quarter, limiting our ability to appropriately adjust expenses. Please advance to slide five. Our go-to-market organization is leveraging the current environment to create significant opportunity for future growth. We won 30 new manufacturing programs worth $261 million annually when fully ramped into production, led by continued strength from our healthcare life sciences market sector, as well as strong performance from our industrial market sector. Concurrently, we expanded our funnel of qualified manufacturing opportunities by more than $300 million versus the prior quarter to greater than $4 billion. The funnel increase was highlighted by a large expansion in opportunities in our aerospace and defense and healthcare life sciences market sectors. Our aerospace and defense funnel is at an all-time high, positioning us for continued strong growth in the sector. Please advance to slide six. I'm proud of how our Plexus team continues to innovate and operate to advance our sustainable and responsible business practices. During the quarter, Plexus joined the UN Global Compact, a voluntary leadership platform for the development, implementation, and disclosure of socially responsible business practices. Further, we set fiscal 2024 sustainability goals, including an additional 5% energy intensity reduction globally, as well as 5% waste intensity reduction. I'd also like to highlight some well-deserved recognition for our team members as they create a better Plexus and a better world, positively impacting our communities. The Malaysia chapter of HR Asia selected Plexus as one of the best companies to work for in Asia for a remarkable third time. In addition, they presented Plexus the HR Asia Diversity, Equity, and Inclusion Award. Flexus was selected by the Fox City's Chamber of Commerce in Wisconsin as the 2023 Large Company of the Year. Our NENA operations site hosted more than 80 high schoolers in support of a Smart Girls Rock event that connected mentors from a variety of STEM-related careers, inspiring these students to pursue a career in STEM. And finally, Insight Magazine named Pat Germain Wisconsin Public Company CFO of the Year for 2023. Pat, congratulations and thank you for your leadership and commitment to fostering the growth and development of our company and our team. Please advance to slide seven. For the fiscal second quarter, we continue to see healthy commercial aerospace orders, inclusive of unfulfilled customer demand, slowly rebounding semiconductor capital equipment demand aided by share gains, and an ongoing tailwind from new industrial program ramps. However, the near-term demand weakness and inventory corrections from the healthcare life sciences market sector and certain subsectors of the industrial market are greater than previously anticipated, creating numerous inefficiencies across our business. While the move to outsourcing continues, as highlighted by our robust funnel of qualified manufacturing opportunities, we are seeing some slowness in customer decision-making on new product development projects particularly in the healthcare life sciences market sector, which is creating challenges for our engineering team. As a result, we are guiding fiscal second quarter revenue of $930 million to $970 million, non-GAAP operating margin of 4.0 to 4.4%, inclusive of approximately 72 basis points of stock-based compensation expense, and non-GAAP EPS of 80 cents to 95 cents, inclusive of 25 cents of stock-based compensation expense. Our GAAP EPS guidance of 48 cents to 63 cents also includes approximately 10 million dollars or 32 cents of restructuring charges. We expect to complete the associated restructuring actions by our fiscal third quarter and believe they will result in approximately 20 million dollars of annualized cost savings. While we anticipate some cost leverage and margin benefit from these actions during the fiscal second quarter, typical seasonal cost headwinds and other investments, which Pat will discuss later in the call, coupled with our lower revenue forecast, will more than offset the immediate benefit. While I continue to challenge our team to deliver $5 billion in annual revenue with 5.5% gap operating margin by our fiscal 2025, the path to $5 billion in that timeframe has become more challenging given current market dynamics. As a result, we are implementing several strategic actions leading to the restructuring charge to enable better scalability, create greater efficiency, and align our cost structure to position Plexus for future investments and long-term growth. We are right-sizing in areas where we have excess capacity, which includes personnel reductions. While these actions are necessary to position Plexus for future success, They are incredibly difficult for all of us, given the personal effect to our valued Plexus team members. In addition, we are actively managing discretionary spending, including implementing a temporary salary reduction for our executive leadership team. We understand that we cannot control the demand environment, but we can ensure that we continue to evolve in order to deliver great operational efficiency, supporting the industry-leading returns that our shareholders value and expect. We anticipate the second quarter of fiscal 2024 will represent a revenue trough and are expecting sequential revenue growth with our operating margin expansion of 30 to 50 basis points during each of the fiscal third and fourth quarters. We expect to deliver operating improvements resulting from the restructuring actions, increased manufacturing revenue, and improved utilization within engineering, and remain committed to delivering 5.5% gap operating margin in fiscal 2025. Please advance to slide eight. Finally, as we look forward, I remain confident that Plexus will deliver then exceed $5 billion in annual revenue while also achieving superior returns for our shareholders. We see tremendous runway for continued organic growth in excess of the industry without any substantial shifts to our target market sectors or strategy. Even with some of our markets still recovering post COVID, We grew revenue at an approximately 8% CAGR during the last five fiscal years ended September 2023. This performance is 25 basis points in excess of the industry, and in many cases, more than two or three times the growth rate of our competitors. As detailed on this slide, our market sector leaders estimate there's a greater than $420 billion total addressable market that is directly aligned to the customers and products that fit our strategy and our mission to be the leader in markets featuring highly complex products and demanding regulatory environments. This addressable market is approximately 40% outsourced today, creating a $240 billion opportunity in future outsourcing for Plexus, supporting our 9% to 12% revenue CAGR goal. As an organization, we continue to evolve in order to sustain our success. We are focused on driving efficiencies and creating scale while accelerating the pace of change. Our talented Plexus team is at the heart of our strategy, creating trust with our customers while delivering customer service excellence and exceptional results. We continue to advance our operations to ensure our organic revenue growth remains well in excess of our peers, in line with our 9% to 12% goal, and that we push to deliver at least 5.5% gap operating margin, more consistent and greater free cash generation, and the industry-leading returns that our shareholders value and expect. I'll now turn the call over to Oliver for additional analysis of the performance of our market sectors.