Plexus Corp.

Good morning and welcome to the Plexus Corp conference call regarding its fiscal third quarter 2024 earnings announcement. My name is Beria 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 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?

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 September 30, 2023, as supplemented by our Form 10-Q filings 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 Todd Kelsey, President and Chief Executive Officer, Steve Frisch, 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 call, Todd will provide summary comments before turning the call over to Oliver and Pat for further details. BEFORE I TURN THE CALL OVER TO TODD, PLEASE NOTE THAT DURING OUR FISCAL FOURTH QUARTER, PLEXUS WILL PARTICIPATE IN NEEDHAM'S VIRTUAL INDUSTRIAL TECH, ROBOTICS, AND CLEAN TECH CONFERENCE ON AUGUST 20TH, AND THE BENCHMARK COMPANY'S 2024 TMT CONFERENCE IN NEW YORK CITY ON SEPTEMBER 4TH. WITH THAT, LET ME NOW TURN THE CALL OVER TO TODD KELSEY. TODD?

THANK YOU, SEAN. GOOD MORNING, EVERYONE. BEFORE I BEGIN MY PREPARED REMARKS, I WOULD LIKE TO ACKNOWLEDGE THAT TODAY'S CALL WILL BE STEVE FRISH'S LAST EARNINGS CALL ahead of his retirement at the end of our fiscal 2024. I would like to thank Steve for his numerous contributions to Plexus's growth and success over the past 34 years. Steve, congratulations on your pending retirement and thank you for your service to Plexus. Please advance to slide three. During our fiscal second quarter earnings call, I highlighted my expectation of a strong finish to fiscal 2024 that would position Plexus for further momentum in fiscal 2025. This view was formed as a result of early signs of demand inflecting higher aided by share gains and new program ramps, efforts to increase efficiency and reduce cost, and progress on our working capital initiatives. Our fiscal third quarter results and fiscal fourth quarter guidance reinforce this outlook of sustained momentum creating the potential for 9% to 12% revenue growth for fiscal 2025 with 5.5% gap and greater than 6% non-gap operating margin exiting fiscal 2025, as well as continued solid free cash flow generation. Please advance to slide four. We delivered outstanding fiscal third quarter financial results. Revenue of $961 million was within our guidance range. While we experienced stable to improved revenue outlooks from most customers during the quarter, design changes and product launch delays from an industrial customer and a slower than anticipated transition of a competitive market share gain with an aerospace and defense customer resulted in those market sectors performing below our expectations entering the quarter. This demand is largely non-perishable and will be realized in future quarters. During last quarter's earnings call, we forecast our non-GAAP operating margin would exit our fiscal 2024 60 to 100 basis points higher than our fiscal second quarter result. As an outcome of strengthening demand from our engineering solutions and sustaining services, improved efficiencies in manufacturing, and solid cost management, we achieved these expectations earlier than anticipated. Our fiscal third quarter non-GAAP operating margin of 5.8% exceeded our guidance range of 5.2% to 5.6% and represented a nearly 90 basis point sequential increase. Non-GAAP EPS of $1.45 also exceeded our guidance range given the robust operating margin performance and lower interest expense. a benefit from deploying the outstanding free cash flow generated this quarter. For the fiscal third quarter, we generated $114 million of free cash flow, the second highest quarterly performance in company history. We have now generated $147 million of free cash flow fiscal year to date. Please advance to slide five. Our go-to-market organization also had an outstanding quarter represented by solid wins and substantial customer recognition. During the quarter, we were honored to receive awards recognizing delivery performance and supplier excellence from two of our top customers, Honeywell Aerospace and Medtronic. This positive sentiment was also borne out in the strong engagement and the results of our recently completed annual customer satisfaction survey. Our team's passion for delivering zero defects with perfect delivery and commitment to customer service excellence creates an ongoing dividend that is reflected in our new program win strength and industry leading revenue growth. For the fiscal third quarter, we won 35 manufacturing programs worth $279 million in revenue annually when fully ramped into production. Included in this result is a record contribution within healthcare life sciences. In addition, our engineering solutions organization is seeing increased market sector diversification and demand for its services, resulting in the team achieving the highest level of new business wins in the past four quarters, a positive leading indicator of our overall business health. Please advance to slide six. Our sustainability journey is central to realizing our vision to help create the products that build a better world. In June, we published our fiscal 2023 sustainability report, capturing the demonstrated progress we made in fiscal 2023 to advance our sustainable and responsible business practices. Highlights from the report, which is available on Plexus' sustainability webpage, include expanding our technical capabilities to design, manufacture, and service products which are more environmentally sustainable and responsibly produced, joining the UN Global Compact to drive action by aligning to the UN's sustainability goals, achieving an 8.4% energy intensity reduction across Plexus's global manufacturing sites, launching two new employee resource groups, supporting nearly 20,000 paid volunteer hours through our volunteer time off program, and donating in excess of $1 million globally through the Plexus Community Foundation. We are continuing to build on these achievements during fiscal 2024 and remain committed to environmental impact reductions aided by initiatives such as the installation of 1,600 solar panels at our Kelso Scotland facility, which is shown on this slide. We also continue to give back to our communities. We are partnering with the Greater Fox Cities Habitat for Humanity on our second complete home build. Plexus provides financial support for the build, while our team members support the homes construction, leveraging our volunteer time off program. I'm proud to share that Plexus was chosen as one of America's greatest workplaces for mental well-being by Newsweek magazine. In addition, our team in Guadalajara, Mexico was awarded the Jalisco Responsible Badge. These awards recognize the importance we place on our team members' safety and total well-being since our people are at the heart of our strategy. Please advance to slide seven. As the fiscal third quarter progressed, an increasing amount of customer input supported our view that demand is inflecting higher in many of our end markets, creating momentum into our fiscal 2025. In particular, in addition to the tailwinds from market share gains and new program ramps, we continue to experience robust underlying commercial aerospace and defense demand, increasing healthcare life sciences customer forecasts, and improved semiconductor capital equipment and broadband communications demand. As a result of these market factors, we are getting revenue in the range of $990 million to $1.03 billion, representing solid sequential growth. We're also forecasting non-GAAP operating margin of 5.6% to 6% and non-GAAP EPS of $1.50 to $1.65. I anticipate that Plexus will sustain our momentum into fiscal 2025. We are positioned to see revenue benefits from share gains and new program wins and healthy growth across each of our market sectors, leading to continued quarterly sequential revenue growth. In addition, we have optimized our business, creating substantial efficiencies while introducing working capital initiatives to drive more consistent and meaningful free cash flow generation. The combination of these factors create the potential to generate 9% to 12% revenue growth for fiscal 2025 with 5.5% gap and greater than 6% non-gap operating margin exiting the fiscal year. In addition, we expect continued solid free cash flow generation, which will be deployed to create additional shareholder value and drive EPS leverage. I will now turn the call over to Oliver for additional analysis of the performance of our market sectors.