Q3 2020 Plexus Corp Earnings Call
Thank you for <unk> once again, thank you for unfolding here can French beginning in one minute. Thank you for your patience.
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My name is my right now beer operator for today's call.
At this time all participants are in a they seem to oneq.
After a brief discussion by management, who will open the conference call for questions.
The conference call is schedule to that's approximately one hour.
Please note that this conference is being recorded.
I would now like to try to called reaching Ms. Heather burst weren't.
Since its senior director of Communications and Investor Relations Heather. Please go ahead.
Good morning, and thank you for joining us today.
Some of the statements made and information provided during our call today well be forward looking statements they will not be limited to historical facts.
The words believe expects intend plan anticipate and similar terms I can identify forward looking statements.
Forward looking statements are not guarantees the third inherent difficulties in predicting future result, an 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 could differ materially from though this guy. Please refer to the companys periodic SEC filings, particularly the risk factors in our form 10-K filing for the fiscal year ended September 22019, I supplemented by our form 10-Q filed with the FCC on May eight 2020.
The safe Harbor in fair disclosure statement in yesterday's press release.
Plexus provides non-GAAP supplemental information such as Aro HBV economic return and free cash flow because those measures are used for internal management goals and decision, making and because they provide additional insight into financial performance.
In addition management uses these and other non-GAAP measures such as adjusted operating income adjusted operating margin adjusted net income and adjusted earnings per share to provide a better understanding of core performance.
For purposes of period to period comparison.
For a full reconciliation of non-GAAP supplemental information please refer to yesterday's press release, and our periodic SEC filings.
We encourage participants on the call. This morning to access the live webcast and supporting materials at like this is website at www Dot plexus dotcom clicking on investor into the top of the page.
In light of the current situation with Cobot 19, we're conducting this quarter call virtually.
Joining me today, our talk healthy President and Chief Executive Officer.
The Frisch Executive Vice President and Chief operating Officer impact Your main executive Vice President and Chief Financial Officer.
Consistent with prior earnings calls Todd will provide summary comments before turning the call over because even path for further details.
Let me now turn the call over to talk healthy Todd.
Thank you Heather and good morning, everyone.
Please begin on slide three where their fiscal third quarter results reported after the close of the market yesterday evening.
I'm incredibly proud of our global plexus team as they manage through the complexities, resulting from Kobin 19, well delivering record quarterly revenue of $857 million.
The result represented 12% sequential growth in southern personally girls.
From the third fiscal quarter of 2019.
Well each of our locations face challenges, resulting from the corporate banking pandemic or sites operated near full capacity for the quarter.
This level of performance as possible for many reasons I.
I will highlight three of the most significant.
First the leadership of our regional insight teams ensured that the robust policies and procedures, we developed to safeguard the wellbeing of our teenage were implemented and sustained.
Second the dedicated frontline associates that are sites each day display their commitment to our customers and helped create the products that build a better world.
Finally, our supply chain team effectively expedited components, allowing us to fulfill upside demand as they continue to de leverage there's strong partnerships with our suppliers and uphold their commitments to our customers.
We delivered GAAP diluted EPS of $1.20 cents, including 22 cents of stock based compensation expense.
Our GAAP operating margin of 5.3% was our best quarterly margin performance in three years.
Well direct told me related costs were substantial within the quarter.
Operating margin was higher than anticipated as we benefited from leverage due to increased revenue.
Reduced United States Health care costs, an exceptional operating performance from our teams.
Please advance to slide four.
Next I will discuss additional accomplishments within our fiscal third quarter 2020, I'll start with items related to our revenue girls.
Our team overcame the challenges of the pandemic to deliver an exceptional manufacturing wins result of $252 million annualized when fully ramped into production.
In addition to traditionally strong wins from our existing customers. Our teams innovative virtual business development efforts resulted in a meaningful number of new target wins, adding three new logos in multiple new divisions.
Our global teams strong reputation for delivering superior execution continues to position us for future growth with both existing and target customers.
Even with the strong winds performance innate ability to travel to customers. Our team expanded the funnel of qualified manufacturing opportunities to $2.5 billion.
Positioning us well for further growth.
Our portfolio continues to differentiate plexus from our peers as we strengthened our leadership in highly complex products and demanding regulatory environments.
Within the fiscal third quarter, 92% of our revenue was generated from the combined healthcare life Sciences, industrial commercial and aerospace and defense market sectors.
Our focus in these complex markets provides advantage in operational efficiency and has led to consistent profitable growth full girls.
Next I will highlight accomplishments related to the balance sheet.
Our cash conversion cycle for the fiscal third quarter of 79 days market 80 improvement over the fiscal second quarter.
And it was well below our guidance range of 82 at 86 days.
The strong cash cycle led to free cash flow of $37 million, our results that exceeded our expectations entering the quarter.
We created meaningful shareholder value and delivered return on invested capital of 12.9%.
This result represents an economic return a 410 basis points above our weighted average cost of capital of 8.8%.
Unfortunately, mitigating the impact of Kobin 19 has become a normal part of managing the business.
I want to thank our leadership.
And all of our team members globally for their commitment to make or plexus facilities. The safest place a team members can be went away from their homes.
In response to cold in 19, our policies and procedures continued to evolve throughout the fiscal third quarter.
In addition to mandatory personal protective equipment and social distancing, we enhanced our facility decontamination and contact tracing procedures.
As a result, our sites remained near full capacity throughout the quarter, enabling us to meet the needs of our customers in communities.
Please advance to slide five.
Last quarter I highlighted how our work in the healthcare life Sciences sector was making a positive impact in the fight against Kobin 19.
This quarter I will highlight how the products within our industrial business are helping our communities in customers reached a new normal in light of the pandemic.
Our warehouse automation products helped the largest retailers in the world keep product slowing to consumers that their homes, allowing them to avoid the need to go out to shop.
Work from home and streaming entertainment has driven a large surgeon data center capacity needs. This hardwares enabled through devices, we produced for semiconductor capital equipment customers.
Within communications, we're shipping equipment that provides additional bandwidth so people can work safely from home.
Our instrumentation products are used by engineers globally is developed the next generation medical devices necessary to fight the pandemic.
Finally, with the surgeon the need for personal protective equipment, there a myriad of threed printing applications that ensure frontline workers have what they need to safely fight that battle against Kobin 19.
In addition, we're ramping or recent healthcare life sciences wins associated with Covance testing and are seeing upside from multiple customers for existing programs that support critical care applications, our team's ability to quickly adapt and persevere highlights our organizations talent strengthen focus we have a team that is truly committed to creating the price.
Our next to build a better world.
Advancing to our guidance for the fiscal fourth quarter of 2020 on slide six.
As we look forward to our fiscal fourth quarter, we expect to deliver revenue in the range of 850 $890 million.
While markets remain highly volatile in aggregate our demand continues to be strong.
The midpoint of our revenue guidance range suggests approximately 6% annual growth in fiscal 2012.
We expect our operating performance to continue to be strong as our teams leverage the productivity gains achieved through the cobot pandemic.
Such we are guiding GAAP operating margin in the range of 4.8% to 5.2%.
We anticipate revenue and operating margin at these levels will lead to GAAP EPS in the range of one dollar and five cents to $1.20 cents, including 21 cents of stock based compensation expense.
In providing this guidance we have taken into consideration constraints on the global supply chain in workforce challenges that could occur due to kobin 19.
However, our guidance assumes no large scale closures of our facilities are those of our suppliers are customers due to covert 19, nor does it assume that the coven 19 outbreak will materially impact end markets beyond what has already occurred.
As we move into the early part of fiscal 2021, we anticipate certain colgan related demand to moderate specifically related to critical health care products.
[noise] communications infrastructure products in certain industrial products.
This is in advance of the anticipated benefit of growth from New program ramps later in the year.
We anticipate continued strength in operating performance throughout the year. Despite the expected impacts related to Colgate 19.
Our goal is to consistently deliver operating margin edible at or above our target range of 4.7% to 5% in the fiscal year.
We believe our differentiated portfolio advanced service offering superior execution talented workforce and focus on operational efficiency support this goal.
As we move forward our team members remain our top priority, we continue to enhance our policies and procedures to operate in the safest manner possible.
Applaud our team members, particularly those in our manufacturing sites, who everyday are demonstrating their unwavering support of our customers in communities I'm proud of their efforts.
I'll now turn the call over to Steve for additional analysis of the performance of our market sectors of operations Steve.
Thank you Todd good morning.
I will start on slide seven with an update on how the plexus team is leading through the covert 19 pandemic.
We have not wavered on our commitment to our employees to make plexus, the safest environment outside of their homes.
With the Mitigations, we've put in place. We believe we are delivering on this pledge and the likelihood of the coven 19 virus being tremont transmitted within our facilities is low.
We were happy to see the settlement reflected back to acquire employees in the satisfaction survey, we conducted conducted during the fiscal third quarter.
The largest issue we face the increasing number of employees, who can track the virus outside of flexes.
To mitigate this risk we're continuing our work from home policy where possible.
Inner facility for employees need to be at work every one of the required to wear masks and practice social distancing.
We check and poised for corporate 19 symptoms everyday individuals who have symptoms are proactively quarantined at home whether being tested.
And we perform contact tracing even before test results are received.
Although we cannot stop employee from bringing Cooper 19 to work, we have been able to effectively manage the risk of it's spreading of plexus, thus far.
In addition to mitigating the health risk for employees slide eight highlights our team successes and mitigating the business risk for customers.
Although some disruptions are still occurring in the supply base due to covert 19 impacts the main challenge for our supply chain organization in the fiscal third quarter was expediting materials to meet demand increases.
As reflected in our strong result, the team was able to procure additional materials and our operations teams efficiently converted them into finished product for our customers.
This was possible because our manufacturing facilities were able to operate at or near full production rates as we finished the fiscal third quarter.
We will continue to monitor potential impact to covert 19, as a pandemic evolves, but as of today, we expect to be able to produce at or near full production levels in the fiscal fourth quarter and all of our manufacturing facilities.
Finally over 19 is creating challenges, but is also creating opportunities better sector teams are actively pursuing.
The virtual meetings and tours plexus commitment to zero defect and especially on time delivery. During this pandemic is resonating with existing and potential new customers.
Please advance to slide nine for review of our performance by market sector.
Our healthcare life Sciences sector had an exceptional sequential growth of 22% in the fiscal third quarter result was in line with our expectation that the sectors growth would exceed 20%.
We experienced double digit growth with 13 of our top 20 healthcare life science customers during the quarter.
Strong demand for products, using a diagnosing and treating of Coburn 19 drove the growth.
As we start the fiscal fourth quarter the demand for products used to fight over 19 remains robust.
As a result, we expect a low single digit increase in our healthcare life sciences sector for the fiscal fourth quarter.
Our industrial commercial sector experienced substantial growth of 11% in the fiscal third quarter. The result easily surpassed our expectations of a high single digit decline.
Several climate semiconductor capital equipment customers increased forecast within the quarter in our supply chain and operations teams did an outstanding job fulfilling the additional demand.
As we look at the fiscal fourth quarter, the semiconductor capital equipment sub sector demand remains healthy.
We're also expecting modest strength with two of our larger customers in our connectivity sub sector. One of these customers has increased demand for an industrial control product that they provide to healthcare companies.
In total we anticipate a low single digit increase for industrial commercial sector in the fiscal fourth quarter.
Our aerospace and defense sector was down 10% in the fiscal third quarter.
The result was slightly lower than our expectations of a high single digit decline.
Soft demand for commercial aerospace products across several customers was the main reason for the lower revenue.
Looking at the fiscal fourth quarter, we anticipate but continued softness in the commercial aerospace.
Sub sector can be partly offset by increased demand with some security in satellite programs.
The net result is that we're expecting a low single digit decline for aerospace and defense sector in the fiscal fourth quarter.
Our communication sector increased 33% in the fiscal third quarter.
Result that topped our expectations of almost 30% growth.
Eight of the top 10 customers in the sector had double digit increases from the fiscal second quarter.
Robust demand for Internet connectivity products that support to stay at home environment, We're the largest contributors to the growth.
As we look towards the fiscal fourth quarter, we see continued strong demand from some internet content it connectivity products.
As a result, we're expecting a high teens increase intercommunication sector for the fiscal fourth quarter.
Please advance to slide 10 for an overview of the wins performance of the fiscal third quarter.
We won 35, new manufacturing programs that we expect to generate $252 million, an annualized revenue when fully ramped into production.
Most of the wins were associated with customers or new divisions are customers. However, we won manufacturing opportunities with three new companies.
Although covert 19 has caused changes in our business development approach. The sales cycle was following a typical process for most opportunities.
The strong winds performance had a positive impact on our trailing four quarter wins metric as an increased by $24 million to close at $868 million in the fiscal third quarter.
This results in a wins momentum above our goal at 26%.
Please advance to slide 11 for further insight into the ones result by region.
The American regions wins were substantial at $137 million.
Included in their result is a new cobot 19 point of care rapid tester that we will produce in Wisconsin.
In addition, our facility in Guadalajara, Mexico won a large healthcare life Sciences program that we expect to aggressively ramp in early fiscal 2021.
The APAC region had robust manufacturing wins of $92 million in the fiscal third quarter.
Included in the wins are for significant opportunities for our China operations.
Each of our three facilities in China will benefit from the program wins wins, which we expect to start ramping early in fiscal 2021.
Majority the end market for these products are outside of United States.
The EMEA regions manufacturing wins of $23 million include a new customer and aerospace defense sector, who specializes in recognize control systems.
We expect to start ramping the first program with them during the fiscal fourth quarter.
Please advance to slide 12 for further insight into the manufacturing performance by market sector.
Our healthcare life Sciences team had an exceptionally strong winds result of $147 million in the fiscal third quarter.
Including the wins or a few cobot 19 products, including the new point of care rapid tester. However, most of the wins our traditional products, including a finished medical device that are engineering solutions team has been developing with our customer.
Industrial commercial sector produced a healthy $80 million or manufacturing wins in the fiscal third quarter.
In addition to further market share gains with some of our semiconductor capital equipment customers.
The sector at of the large program that is used in the control system of power grids.
The aerospace and defense sector generated $20 million, a new wins in the fiscal third quarter.
The wins total includes a meaningful new security product that is used to safeguard financial data transactions.
Please advance the flight 13.
Our sector 10 teams increase the funnel qualified manufacturing opportunities by more than $90 million during the fiscal third quarter.
A $2.5 billion the funnel sized supports continued strong winds performance.
Even with the robust wins in the fiscal third quarter. The healthcare life Sciences formal remained very healthy at $1.3 billion.
A significant new opportunity to manufacture device used in the diagnosis of Copel 19 was added the funnel during the quarter. We expect the when this program within the fiscal fourth quarter.
The industrial commercial sector increase or funnel again to finish at $479 million in the fiscal third quarter.
New opportunities and warehouse automation and further opportunities for market share gains with semiconductor capital equipment customers are driving the growth of the sectors funnel.
Our aerospace and defense sector increased their final by $76 million to close at $575 million at the end of the fiscal third quarter.
The 15% increase was mainly driven by new opportunities and our defense sub sector.
A few final comments somewhere you wonder how we achieved record revenues and strong operational performance in the midst of a pandemic.
I believe our focus market sector approach has created a well diversified portfolio of great customers.
Our commitment to superior execution, including operational excellence and customer service excellence.
Provides a strong foundation for overcoming new challenges and most importantly, the commitment and dedication of flexes employees is unwavering.
When you are focused you execute and your dedicated successes not only possible it as probable.
I want to thank all of the plexus employees, who made today success possible in who make future successes more probable.
I will now turn the call the Pat front end up to review our financial performance Pat.
Thank you Stephen Good morning, everyone. Our fiscal third quarter results are summarized on slide 14.
Revenue of $857 million with sequentially higher by $90 million, while gross margin is 9.7% improved 170 basis points.
For the fiscal third quarter, we experienced significant fixed cost leverage and its revenue increased 12%, while fixed manufacturing expenses remain consistent with the fiscal second quarter.
Healthcare costs and travel expenses were two areas, where we experienced lower spending compared to last quarter.
Improvement in our business mix also contributed to better gross margin.
Selling and administrative expense of $37 million was slightly above our expectations, primarily due to higher variable incentive compensation expense. However, as a percentage of revenue SGN, a was 4.3% which was better than expected and sequentially lower by 65 basis points.
Again reduced healthcare costs and travel expenditures provided improvement in this area.
Our GAAP operating margin of 5.3%, including approximately 75 basis points stock based compensation expense.
This represented a 230 basis point improvement from the fiscal second quarter, non-GAAP result, and an operating margin nicely above our target range at 4.7% to 5%.
Non operating expenses of $4.2 million were better than expectations, primarily due to lower interest and other expenses.
GAAP diluted EPS of $1.20 was positively impacted by the improvement in operations lower non operating expenses and lower than expected tax expense.
Turning now to our cash flow and balance sheet on slide 15.
For the fiscal third quarter, we delivered $47 million and cash from operations and spent $10 million on capital expenditures generating free cash flow of $37 million. A result in excess of our net income.
Through the first nine months of fiscal 2020, we generated free cash flow $51 million.
There is no share repurchase activity during the fiscal third quarter as I mentioned last quarter, we decided to suspend the repurchase program given the current environment.
We also want to Wade into health and tell our free cash flow generation improved.
Given the fiscal third quarter positive cash flow results and our expectations for the fiscal fourth quarter, we plan to resume repurchasing shares this quarter.
We currently have approximately $27 million remaining under the authorization.
Next month, we will review with our board of directors that potential for new authorization for fiscal 2021.
We believe plexus is well positioned with a strong balance sheet cash of approximately $300 million was sequentially higher by $73 million, while our short term debt increased $38 million.
In May we executed a 364 day term loan with several of our credit facility banks.
We secured $138 million through this offering.
With the proceeds we repaid existing borrowing under our revolving credit facility.
At the end of the fiscal third quarter. There was no outstanding borrowing under this facility, therefore, allowing us to full use of the 350 million dollar facility.
Our gross debt to EBITDA leverage ratio is at an attractive level of approximately 1.6 times compared to the covenant limit a 3.5 times.
For the fiscal third quarter, we delivered a return on invested capital of 12.9%.
This generated an economic return at 410 basis points above our weighted average cost of capital, creating solid shareholder value.
The combination of exceptional operating performance and improve working capital led to a sequential improvement of 150 basis points and a return slightly less than our 500 basis point target.
Cash cycle at the end of the third quarter was 79 days a sequential improvement eight days.
Please turn to slide 16 for details on our cash cycle.
The increase in fiscal third quarter revenue and our continued improvements in inventory management led to a sequential reduction of two days in inventory.
Contract asset days sequentially improved by one day, while days in receivables were consistent with last quarter.
With elevated purchasing activity to support our revenue demand payable days sequentially increased by three days.
Finally, we were successful in securing $36 million, an additional customer deposits, which led to the two day sequential improvement.
As Todd has already provided the revenue and EPS guidance for the fiscal fourth quarter I'll review, some additional details which are summarized on slide 17.
Fiscal fourth quarter gross margin is expected to be in the range of 9.1% to 9.5%.
At the midpoint of this guidance gross margin would be approximately 40 basis points lower than the fiscal third quarter.
This reduction is primarily due to higher variable incentive compensation expense travel expenses and health care costs.
For the fiscal fourth quarter, we expect SGN expense in the range of $37 million to $38 million.
At the midpoint of our revenue guidance anticipated SGN, a would be 4.3% of revenue consistent with the fiscal third quarter.
Fiscal fourth quarter operating margin is expected to be in the range of 4.8% to 5.2%. This guidance includes 75 basis points of stock based compensation expense.
A few other notes for the fiscal fourth quarter depreciation and amortization expense is expected to be approximately $14 million, which is consistent with the fiscal third quarter.
Non operating expenses are expected to be in the range of $4.8 million to $5.2 million at the midpoint of this guidance. These expenses would be sequentially higher primarily due to a full quarter of interest expense under the new term loan.
For the fiscal fourth quarter, we estimate an effective tax rate of 13% to 15%, while we expect a non-GAAP effective tax rate of 12% to 14% for the full year.
In addition, we are estimating diluted shares outstanding of approximately 30 million shares for the fiscal fourth quarter.
Our expectation for the balance sheet is for working capital dollars to slightly increase due to the anticipated sequential growth in revenue.
Based on our revenue forecast, we expect this level working capital will result in cash cycle days of 77 to 81 days at the midpoint of this guidance cash cycle days would be consistent with the fiscal third quarter.
For the fiscal fourth quarter, we expect free cash flow of up to $25 million for the full year. This would put us at $50 million to $75 million of free cash flow.
Finally, our capital spending estimate for fiscal 2020 continues to be in the range of $50 million to $60 million.
With that Myra, let's now open the call for questions.
Thank you Sir.
We'll now begin to question and answer session.
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We have a first question from Adam Tindle from Raymond James.
Is online with a question.
Please go ahead.
Thanks, and good morning, and congrats on the strong results in this difficult operating environment Todd I wanted to ask you talked about in early fiscal 21, how coven related demand was going to moderate in advance of new ramps.
So it does sound like there was maybe a little bit of an air pocket coming in I just had two questions on that first if you could just help us understand the magnitude to revenue.
Should we kind of expect down low single digits year over year kind of like we saw last quarter or would it be worse, because there's more segments impacted and secondly.
What you're doing on the operational side to plan for this I'm sure. It's a little bit of the catch 22 with ramps coming in the back half of the year. So you probably don't want to make major opex adjustments, just how big a dip in operating margin, we should expect and how it comes out the other side. Thanks.
Oh, yes sure Adam.
I guess one of the things that became obvious with the question here is perhaps.
We concerned people a bit too much or a bit more than whats reality here.
So if we look at the situation, we think about where we're at today with with the fiscal fourth quarter guidance at the midpoint, we'd be up about $100 million sequentially over the next over the past two quarters. What we didn't want people doing is thinking that we would continue to grow at that rate that we were going to take.
A bit of a pause as some of these demand increases leveled off and new program ramps hadn't quite caught up to it yet so what we really expect I would call it a modest dip.
In Q1 in Q2 from what we expect the end that in Q4, and then we would expect to be in sequential growth again in Q3 in Q4. So there really isn't any structural changes we need to make operationally, we expect strong operating performance through out.
Throughout fiscal 2001, which with strong margins.
And we expect as we look at fiscal 21, we expected to be in today's environment that there's a lot of caveats here based off of the broader economy and the broader things that are going on in the world, but with today's environment, we'd expect some some growth in fiscal 2001.
Okay. That's helpful. Thanks, and maybe just as a quick follow up.
Comparing the last recession, where you had a string of quarters of revenue down around 20% operating profit down two to three times. This.
Here in this recession, we had one quarter of a blip, but now were at record revenues and margins what are the the major differences you're seeing this time around and just thoughts on big takeaways for the industry as we think about coming out of this thanks.
So I think what we saw in the last recession was a very broad based demand reduction I think what we're seeing right. Now is it's very targeted across specific markets and with the way that we've been able to diversify our portfolio we're not seeing.
As significant have an impact is other people. So as we go through our sectors and I talked about it in aggregate our demand being strong about 70% of our business is solid to up right now with only about 30% of it being what I would call weaker impacted by the recession I think a lot of it has to do it the diversification.
The portfolio and the markets that we're playing and so I think I think thats whats deferred and I think what we're going to see.
Across the various industries in across the various sectors of the market as there is going to be some areas that do quite well in some areas that that do poorly in.
Thats, what I think is a lot different where it was very broad based last time that it's very targeted this time.
Thanks, and congrats again, hey, Adam from a margin standpoint to maybe I can add a few things to that so I mentioned that we were up 170 basis points sequentially. So.
Just to give you a few numbers around that I'd say about 35 basis points of that sequential improvement related to lower healthcare costs and travel expenditures. So thats something thats, probably more temporary we expect to see a return to those levels.
Later this year.
Coveted related expenses.
Were about $4 million this quarter last quarter, they were $5 million, so a little lower this.
Fiscal third quarter compared to the second quarter, So benefit there I think where the real delta was around productivity our ability to manage.
With smaller workforce and leveraging that higher revenue essentially keeping our fixed manufacturing expenses consistent from the from the second quarter. So I think some of that will continue and will change going forward.
And stay with us from a margin standpoint, hence todd's comment about.
Expecting to see strong margins continuing.
I just wanted to add one more comment too before we left on your first question Adam because I didn't have the numbers at my fingertips about year over year performance, because we tend to think more about sequential performance.
But year over year, the Comparables are good.
One last year of fiscal 2000 was a pretty solid quarter, we'd expect to be on par with that certainly and Q2 with being a depressed quarter, we'd expect to have we'd expect to be up substantially from that quarter in fiscal 2001.
Got it thank you.
Shawn Harrison is online with your question. Please go ahead.
Good morning, everybody in my congratulations to you in partying as well.
Outstanding results and guidance.
Wanted to dig in on two areas the first just being.
The robust program win rate this quarter.
In light of an inability to visit a potential.
Partners, how does that potentially accelerate coming out of code, if you're actually able to meet people.
First in it and they get to walk through the Texas facilities is there an opportunity to do you see them.
More programs come the plexus over the next 12.4 months hopefully once we get open under control.
Yes. This is Steve I think there is a potential opportunity one of the things that we are seeing is companies drilling through co bid and quite frankly, the tariffs situations in the in the recent past really starting to look at and evaluate different supply chain strategies. So we are I would say getting more.
Request in discussions associated with what should a forward looking supply chain strategy be from potentially new customers and I do believe.
Although we are being successful.
Dressing those virtually I don't believe there's anything better than getting on the street and being able to talk to people directly about those and so we have made a few investments here in the last couple of quarters in our business development team both in the May as well as the us.
And it really kind of our expectation is would be able to try and accelerate business development wins as we go into fiscal 2001.
Because the reality is is the keep our wins metric, where we needed to be in wanted to be we need to increase increase that number through 21 and in the 22 to keep the growth going.
That's helpful and then add im going to put you on the spot.
Did that 5.3% EBIT margin this past quarter the midpoint. Its five you still have koby cost overhead.
But it sounds like you've learned some manufacturing efficiency list here during the pandemic why wouldn't you be able to hold above 5% EBIT margin in fiscal 2001, if you're going to see.
Some top line growth, we've got koby costs going away and lessons from visa.
During the pandemic on efficiency.
Helping as well.
Yes, I think the opportunity is definitely there Sean I think it's just a little earlier, we're right in the process of preparing our annual operating plan for the board will present that to them next month I.
I think the opportunity is there I think we've proven to ourself, we can be more productive efficient with the workforce and I expect that to carry through so.
To your point I think covert expenses will come down a bit, especially the labor side.
I think we'll continue to have personal protective equipment needs that will carry through.
Fiscal 21, but I think the opportunities there, it's just probably just a little early to own.
To guide guide that.
Thanks.
We have Jim Ricchiuti from Needham and company.
On line with your question. Please go ahead.
Hi, Good morning, I may have missed it.
But could you give a.
So David related expense level that you're anticipating for for Q4.
Okay.
Jim This Pat I don't think.
I think will be around $2 million for okay.
So thats coming off 4 million in Q3.
Got it and.
But I just wanted to come back that comments, you made about the business, 70% of the business being.
Solids.
Which is impressive given the environment. We're in the economic environment I'm wondering as you look at that business that portion of the business.
Do you have a senses to how much of that might have been you know this covance 19 tailwind that you've experienced.
Yes, we do in certainly general terms and that's part of what we're seeing where we talk about a bit of a moderation early in the fiscal year. So I mean, it might be on the order of.
30 million a quarter, so that im just going ballpark off the top of my head here of of impact that's I'd call. It more surgery related from cold it, but I think a lot of it is just.
Demand Thats Noncovered related that's just in in solid in the right markets. So.
The other thing we have going for us to that were.
You think will help as we as we move into fiscal 21, we not only have the program ramps, but if you look at our health care business, where you could say a fair amount of that or at least some of that is kobin related I think some of its more sustainable like the point of care testers are going to be around for a long time, but.
I think if you look at that business you have the elective business that we anticipate to come back more strongly than has its there are signs of improvement, but I would say, it's still quite weak right. Now. So we have that to look forward to I think as we get into fiscal 21.
Got it and then.
Real nice growth and wins in North America, and I think you touched on some of it that I'm just wondering if theres any other color you can provide on on where that growth is being generated.
Yes. This is Steve.
Obviously.
Strong winds in the Americas, we've seen in the recent pass along with strong winds and APAC and I guess the message that would give you that we do see customers really focusing on probably a little bit more disciplined approach on continuity of supply and long term partnerships.
So as some of these issues have been happening across the globe.
And there is little bit more due diligence being applied to suppliers as opposed to just chasing the lowest cost.
And I think that resonates really well for plexus, when we deliver our message and people can see and we controlled examples of what we've been able to do.
Resonates really well with them and so I think our our ability to win is in my opinion ability to just to demonstrate what we've done for other customers and incorporate the just the stability of the company both from a financial and an execution standpoint, it's a it's a pretty easy message to tell people in and they like it.
Got it and last question for me you talked about.
Getting to full capacity.
Facilities, just given the way this pandemics been moving around Wonder if you could just provide any any update just says to as to where you are I mean, we've talked in the past about.
Yes potential headwinds you faced and Malaysia, but just in general is has there been any are there any things we need to to be paying attention to.
Yes from a capacity standpoint, I guess the comment I made that ability to run at full capacity in a full capacity doesn't mean, we don't have the ability to expand and drive more revenue with new programs in the most facilities and so where we sit today.
Is roughly from a capacity standpoint, roughly about 50% of.
Available capacity as tool.
We're in the 70% range, but we have seen.
Uptick more in the APAC region. So apacs on the higher end of that more getting closer to 80% as tool.
So for us, we're pretty comfortable with our footprint. The additions that we made in fiscal 19, I think where the rate additions.
But as I look to the growth.
It really kind of APAC outside of China.
Is probably an area for us to be looking at in the future.
Now one of the things that add to it is that we we certainly went through a period or continue to go through a period, where which everybody is where you're dealing with cold bid and thats, it's like an everyday occurrence across the business or.
Every week or are those orders. So it's something that we've learned a manager round and we believe given the business that we're in the locations were at we don't foresee.
Any issues at this point and and being able to operate we think we'll be able to stay at this at or near our call. It our tooled capacity, our revenue capacity, which is as where we want to be we'll book as Steve mentioned, we have plenty of room to be able to add new business as we go forward.
Got it thanks, very much and congrats on a quarter.
Thanks, Thanks, Jim Thanks.
We have Steven Fox Fox Advisors online with a question. Please go ahead.
Thanks. Good morning, two questions from me. Please first just following up on that last comment so when you're talking about your tools capacity versus new programs coming on are we looking then at next year, having sort of an a typical type of capital spending year or would it be unusually high et cetera can you just give us some direction, there and I have a follow up.
Yes.
This is Pat.
I think at some point as Steve said, we're going to have to add capacity and I don't see that maybe until later in fiscal 21 or in the 22.
It will probably toggle those two years. So I think we are looking at that Steve.
Two.
Satisfy the demand we expect over the next several years. So I think we will be looking at some expansion.
And then later and 21 into 22.
Okay, what I'd add some of the some of the rationale around that Steve is we viewed China as the second growth engine for Asia. When we as we are bringing those facilities online and I think it's a it's our teams proving it can be a growth market for us, but it's not going to be a strong growth engine like Malaysia and given our.
Our footprint in Malaysia, and the substantial size, we just believe we're going to need another geography in Asia, that's going to be a strong growth engine.
Got it that makes sense and then just another sort of co bid related question.
On on the point of care testing.
Can you sort of explain you know as much as you can what you're providing into that supply chain and whether you're ramp is consistent with some of the.
Announcements out of the U.S. government, giving the funding for.
Availability later this year and then secondly, along similar lines I know you mentioned, you're supplying into for warehouse efficiencies given how the supply chain is has changed in retail what about other processing equipment, where you also are seeing supply chain issues around.
Food manufacturing other.
Yes.
Consumer essentially thank you.
Yes, one regards to the I'll take the second one first in terms of the other markets outside of health care that are focused on serving other industries, we have heard and seen from some of our industrial commercial customers that they're segment of healthcare life Sciences. So they have segmentations into different markets.
And obviously they are seeing strength in those areas. So whether it's some of the ruggedized industrial controls and those types of things that are going maybe into pharmaceutical laboratories and those types of things. They have seen an uptick it's a little difficult to quantify.
Exactly how much of that business isn't but again, it's a tom's point, we've seen some upticks in some of the other sectors attribute some of that to that.
And then in terms of like the point of care products and the things that we do there for the most part we're building the entire device. It's a finished device.
That will be shipping to the customer even the end customer.
And.
So from a supply chain standpoint, and we are working closely with our customers onto basically develop in some cases.
A supply chain, a robust supply chain that can deliver that product because todd's comment earlier, our customers do believe that.
You know these products, although they are being developed in used for coal bed 19 testing.
Their capabilities go well beyond just call that they can be used as for testing for other viruses and other things into the future and.
From a really don't comment directly about the products that were doing but some of the things that we're engaged in our some of the things that are being discussed on the public in terms of what some of these companies are trying to do and so we are engaged in.
Hoping some of these companies that are.
We've been recognized for their efforts to help them get their testers out into the market.
Great. That's very helpful. Thank you.
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We have met chain from Stifel on line with your question. Please go ahead.
Yes, Thank you and good morning.
It is question regarding the strength that you're seeing in the semi act capital equipment market.
This is probably three quarters in a row that you've seen a growth there and when you talk kind about the moderation expected in Q1 Q2 within industrial is semicap part of that or do you have visibility that you're going to continue to see strength.
Next year, because we are seeing signs of some kind of semi cap reductions in terms of Capex next year.
Yes, so in industrial some of the products are the ones that I mentioned as being covered related surges, Matt those are non semi cap I think the semi cap demand, we're seeing is not necessarily kobin related.
But we do we do see a little bit of a moderation as we go into fiscal 21 in semi cap demand.
In the are you seeing that from across your customer base or maybe some specific areas like memory.
Yes, I mean, if Steve take this this piece of that so end of that maybe the answer to add a little bit the Todd first response, and then I'll ask your second part.
One of the things that you've seen us do is outperforming industrial commercial space, especially in the semiconductor market part of the reason, but able to do that is that our inventory levels with these customers are higher than they would normally be and as youre looking at our customer deposits days, you'll see those up as well and so.
There are our semiconductor capital of customer capital equipment customers are having us carry extra inventory because they believe there is upside demand coming.
But a lot of them are struggling us, especially through the covert period here as to whether that's going to be in 21 or in the 22, but they're all pretty bullish.
At some point here or there is going to be stronger demand and so we carry extra inventory and then when that demand comes we're able to fulfill it and so as we look into fiscal 2001.
We see modest.
Numbers from our industrial commercial sector, because I think.
The same issue kind of exists that.
Anticipation of when might there be upside demand that they want to be there.
Specifically as it relates to products.
Memory for us continues to be strong some.
Higher in semi components looks like that might be a little bit softer, which you may be hearing in the marketplace a little bit so weve as we look across our semiconductor customers. We are quite diversified in both the front end in the back end process, but also as well as whether that's internal demand external demand and then finally as to what markets are actually going after memory verse.
It is.
In summary.
And for US memory strong hiring some I, we see a little bit of softness in it.
Across the board, we see everybody kind of being modest into fiscal 2001.
But everybody since everybody most customers are bullish that there is upside demand at some point in the future.
Theres just difficulty in predicting when.
Okay, Steve that was very helpful.
My follow up actually ties into your comments on inventory.
Inventory position is a little bit elevated, but you talked about really not having any supply constrained said that kept you from meeting customer demand in this environment obviously.
Very strong.
Result, so as you look forward are you seeing.
Supply open up a little Baiters, it's continued to be day to day battle in that you're expecting to remain sort of at somewhat elevated levels here.
Probably the best way can quantify that as we have a process. We called flexible date, which is basically a list of critical components, we need within the quarter within the coming quarter.
And typically that list. So we throw corporate resources to help solve those problems typically that lift will run 902000 things on that list in any given month.
In the month of April it spiked up close to 2500.
It's come back down for roughly 13, 1400, so things are definitely improving from where they were.
Earlier in.
Fiscal third quarter.
Going forward, we do expect it to continue to come back down as we look specifically what we're battling.
Related to Corbett, there's still a few ccs custom engineered components.
Better spot issues as a smaller supplier has a problem.
On the electronics side at a higher level.
Tantalum capacitors are a little site right now.
And you can map that directly back to some shutdowns that those suppliers had.
And then the last one for US is logic in discrete semiconductors more in the transistors and diodes area again related to.
Capacity constraints and issues that a few suppliers are having.
But from everything we see those are more short term issues that should work themselves out in the coming quarters.
And then we're actively watching and looking at is automotive comes back online as people have been talking about whether I am lccs continue to be or return to being an issue.
Supply chain team is actively watching those but but right now it's there's a lot of work.
Thats been done I don't want to under emphasize that but it's more related to short term issues, we believe than long term trends.
Okay that was helpful. Thanks, so much.
We have Paul Coster from JPM online with a question. Please go ahead.
Thanks for taking my question. So it sounds like you've got about Sumit another quarter of Ah.
I've covered related expense six taking this year and then next is should we assume that that sort of.
Somebody scenarios, it's almost the stupid question, but.
So if this is the new normal is that the new normal drag on earnings about 20 cents a share or.
Do you think you can pass on the expense too.
Your customers.
Go away.
Yes, Paul this path.
First question I think it will be a little lower than what we're expecting for the fiscal fourth quarter, our forecast would say probably a million dollars a quarter next year again, mainly equipment related.
We don't anticipate dissipate passing that along to our customers.
End of a new norm and we've learned how to become more productive as well because of this situation. So I think you know that more than offsets the cost we're going to have to absorb.
All right.
And I mean, I mean, just just to be clear Paul we believe we've overcome.
The costs related to Colgate through productivity gains so.
The margins, while we may not hit the margin level that we did in Q3 every quarter. We believe that we're going to deliver strong margins as we go forward with coal but.
This impressive stuff told.
As one little picky question.
You mentioned three D printing.
Someone another.
In risk in regards to PPG mean that youre using three D printing full PPG products or that you all producing three d. printers pool.
The end markets, which of those please.
Yes, actually both interestingly enough, we have threed printer business that we're putting out into the marketplace. So I'm actually helping our customers get their products out into the markets are there other people can use them, but we also have threed printers within our facilities that we use more for.
Tooling and fixtures and things like that and we have used those to create PB for local medical facilities.
Got it thank you.
And you have no further questions at this time things continue.
Okay. Thank you my rough so in closing it again I'd like to thank our our plexus team globally.
You all performed incredibly well this past quarter, while serving each other our customers in our communities and again I want to thank everybody who joined our call today. We appreciate your support we appreciate your interest in plexus have a good day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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