Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal second quarter 2024 earnings announcement. My name is Brittany Morgan 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 a conference call for questions. The conference call is scheduled to last 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, Plexus Vice President of Investor Relations. Sean?

Thank you, Brittany. 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 outlook. 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 30th, 2023, is supplemented by our Form 10-Q filings and 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 Todd Kelsey, Chief Executive Officer, Pat Germain, Executive Vice President and Chief Financial Officer, and Oliver Mim, Executive Vice President, Chief Operating Officer. Steve Frisch, our President and Chief Strategy Officer, will unfortunately not be participating in today's call due to a death in the family. Our thoughts are with Steve and his family. 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. I was pleased with the performance of our team during our fiscal second quarter, positioning Plexus to deliver ongoing industry-leading revenue growth, along with sustained higher levels of profitability and increased free cash flow generation. Our go-to-market team delivered $255 million in new program wins, consistent with our fiscal first quarter, reflecting both market share gains and new outsourcing opportunities. Our ongoing wins momentum when combined with a $240 billion available market that is directly aligned to our strategy, supports our expectations of delivering our 9% to 12% revenue CAGR goal. Our target remains a 5.5% GAAP operating margin exiting fiscal 2025, which equates to a greater than 6% non-GAAP operating margin, excluding stock-based compensation expense. We continue to align our operations to achieve this return and expect sequential operating margin expansion in both our fiscal third and fourth quarters. We generated $65 million of free cash flow for the fiscal second quarter, a particularly strong result aided by continued progress on our working capital initiatives. I anticipate we will sustain our free cash flow momentum during our fiscal second half. Later in our prepared remarks, Pat will provide more details regarding our increased fiscal 2024 free cash flow forecast of approximately $100 million, as well as our plans for deploying excess cash to create additional shareholder value. Please advance to slide four for a review of our fiscal second quarter results. We delivered fiscal second quarter results at the top end of our guidance. with revenue of $967 million and non-GAAP EPS of 94 cents, including 25 cents of stock-based compensation expense. Our non-GAAP operating margin of 4.2%, including approximately 70 basis points of stock-based compensation expense, met our expectation entering the quarter. Please advance to slide five. For the fiscal second quarter, we won 32 new manufacturing programs worth $255 million annually when fully ramped into production, supported by solid contributions from each of our market sectors, including our semi-cap subsector. In capitalizing upon the value created by our differentiated service offering and superior execution, as well as our focus on being the leader in highly complex products and demanding regulatory environments, our go-to-market organization is winning significant new outsourcing opportunities and gaining market share in support of sustaining Plexus's industry-leading revenue growth. Please advance to slide six. We continue to integrate sustainable and responsible business practices into our operations and partner across our value chain to maximize our collective impact. A few highlights from the fiscal second quarter are as follows. We expanded our engagement with the UN Global Compact by joining the Climate Ambition Accelerator, a program that will help Plexus advance our energy transition strategy and accelerate progress towards setting science-based emissions reductions targets. We delivered on our fiscal 2024 initiative to assess our top 100 suppliers based on environmental and social impact criteria. These efforts build the foundation for a more transparent supply chain, aiding our goal to deliver a more sustainable, responsible, and resilient sourcing strategy. We strengthened the value-added capabilities we offered our customers to design, manufacture, and service products while reducing their environmental impact. We were recognized by Glasgow Scotland's Center for Engineering Education and Development as a finalist for their Net Zero Hero Award based on the capabilities we developed to assess the global warming potential of the products we helped create. Pictures on the slide are members of our team in Scotland who delivered this work. We also partnered with Purdue University on a custom curriculum to deepen our mutual understanding of eco-design principles in order to strengthen our sustainable product development solutions. Finally, We are excited that later in the fiscal third quarter, we'll release our annual sustainability report, which captures the demonstrated progress made in fiscal 2023 to advance our sustainable and responsible business practices as we realize our vision to help create the products that build a better world. Please advance to slide seven. We believe our revenue growth is in the early stages of inflecting higher And for the fiscal third quarter, we are guiding revenue of $960 million to $1 billion. Robust demand from our aerospace and defense market sector, an ongoing gradual recovery in demand for semiconductor capital equipment that is aided by our market share gains over the past two years, and continued new program ramps are more than mitigating the inventory correction headwinds from our healthcare life sciences and industrial market sectors. We're also forecasting non-GAAP operating margin of 5.2% to 5.6%, which excludes approximately 70 basis points of restructuring charges associated with realigning our manufacturing capabilities to best support long-term customer needs, and approximately 60 basis points of stock-based compensation expense. Following these actions, we do not expect any further restructuring activity this fiscal year. As mentioned with our fiscal first quarter update, while we continue to measure our performance against GAAP metrics beginning with this fiscal third quarter, we are excluding stock-based compensation expense from our operating margin and EPS guidance for easier comparability to peers. Therefore, on a directly comparable basis, the midpoint of our fiscal third quarter non-GAAP operating margin guidance is 50 basis points higher than our fiscal second quarter results. or at the high end of our previously provided outlook of 30 to 50 basis points of sequential operating margin expansion. Finally, we are guiding fiscal third quarter non-GAAP EPS of $1.22 to $1.37, which excludes 21 cents of stock-based compensation expense and 21 cents of restructuring charges. We continue to anticipate a strong finish to fiscal 2024 positioning Plexus for further momentum into fiscal 2025. For the fiscal fourth quarter, we anticipate modest sequential revenue expansion, reflecting a continuation of the trends we expect for the fiscal third quarter. We are also anticipating an additional 30 to 50 basis point expansion in non-GAAP operating margin for the fiscal fourth quarter, benefiting from volume leverage and operating improvements from our restructuring actions. At the midpoint, our non-GAAP operating margin exiting fiscal 2024 would be improved by 90 basis points when compared to our fiscal second quarter trough. In summary, I'm pleased with how our team continues to execute for our shareholders despite a challenging macro environment. We remain focused on delivering our 9 to 12 percent organic revenue CAGR goal over the long term. generating at least 5.5% gap operating margin and excess of 6% non-gap operating margin exiting fiscal 2025 and producing more consistent and greater free cash flow. I will now turn the call over to Oliver for additional analysis of the performance of our market sectors.