Q4 2020 Plexus Corp Earnings Call
[music].
Good morning, and welcome to the Plexus Corp. conference call regarding its fiscal fourth quarter downtick on to your earnings announcement, My name's, Sarah and I'll be your operator for today's call. At this time, all participants I listen only mode. After a brief discussion by management will open the conference.
Call for a question the conference call is scheduled to last approximately one hour. Please note that this conference is being recorded although I'd like to turn the call over to Miss had there are smart Nexus senior director of Communications and Investor Relations Ms. Heather you may begin.
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 as they will not be limited to historical facts.
The words believe expect intend plan anticipate and similar terms often identify forward looking statements.
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 companys periodic SEC filings.
Usually the risk factors in our form 10-K filing for the fiscal year ended September 28, 2019, as supplemented by our form 10-Q filings and the Safe Harbor and fair disclosure statement in yesterday's press release.
Consistent with prior earnings call Todd will provide summary comments before turning the call over to Stephen path for further details.
Let me now turn the call over to Todd Kelsey task.
Thank you and good morning, everyone.
Please begin on slide three with our fiscal fourth quarter results.
I am extremely proud of our global plexus team as they continued to navigate through the complexities stemming from COVID-19, while delivering exceptional results.
And produced record quarterly revenue of $913 million in the fiscal fourth quarter and outcome that exceeded our guidance range.
The result represented 7% sequential growth and 13% growth from the fiscal fourth quarter of 2019.
All of our sectors perform beyond expectations with our industrial commercial and health care life Sciences sectors delivering outstanding results.
We delivered record gap diluted earnings per share of $1 26, including twenty-three of stock based compensation expense.
Our GAAP operating margin of five 5% was our best quarterly margin performance and more than a decade and March the second consecutive quarter in which we have exceeded 5%.
Please advanced to slide for.
Next I will discuss additional accomplishments within fiscal 2020 I.
I will start with our financial performance in relation to our goals.
Despite the challenge physical second quarter during the early stages of the COVID-19 pandemic, we delivered impressive results for the fiscal year.
Through our commitment to operational excellence in customer service excellence, our team's delivered record revenue for the fiscal year of $3.4 billion representing.
Representing 7% year over year growth.
This result included 28% year over year growth from our industrial commercial sector.
We deliver adjusted operating margin of four 7%. This result included GAAP operating margin of five 4% in the second half of the fiscal year as the team successfully drove long term productivity improvements.
The strong growth coupled with robust operating margin led to record non-GAAP diluted EPS, a $4.08 for the fiscal year, an increase of 19% from the previous fiscal year.
A return on invested capital finished at 14% representing an economic return a 520 basis points above are weighted average cost of capital of eight 8% the.
This economic return exceeds earned during goal a 500 basis points.
Finally, we generated record free cash flow of $160 million, a result that exceeded our net income.
Please advanced to slide five.
Over the longer term our financial results are consistent with our industry, leading and during goals highlighting the success of our strategy focused on highly complex products and demanding regulatory environments.
A three year revenue CAGR of 10% is firmly within our line to 12% target range.
Additionally, our average economic turn is five 3% exceeding our 5% enduring goal and a resulting in the creation of significant shareholder value.
Please events to slide six.
I would now like to highlight some of our non financial accomplishments in fiscal 2020.
2020 has been a complex year.
It has affected each of us as individuals and as impacted our families and our communities.
It is also brought into focus the importance of camaraderie and collaboration.
At Flex us we're accelerating in this new normal by continuing to do what is right.
For each other our families our customers and our communities.
At Flex US we're committed to building a better world a commitment that goes beyond the products that we partner with our customers to bring to market.
At the heart of our efforts is our environmental social and governance program, which has been recognized by the institutional shareholder services.
We care for our employees support our communities and commit ourselves to doing business responsibly, all while finding ways to improve the world.
We do these things because they are corridor values.
Earlier this month through an unsolicited survey flex US was named to Forbes list of the world's best employers of 2020.
I am proud that our efforts are the company have made a positive impact on our team members around the world and are reflected in this esteemed award.
I'm incredibly proud of our global team and the contributions they make.
To all of our plexus employees. Thank you.
The strength and determination you have shown through this unusual landscape is remarkable through your efforts, we've been able to help fulfill our vision of creating the products that build a better world.
Advancing to our guidance for the physical first quarter of 2021 on slide seven.
In alignment with our prior projections, we expect demand to moderate in the fiscal first quarter of 2021, and our guiding revenue in the range of $810 million to $850 million.
As anticipated we are experiencing a reduction in demand for critical care health care products and certain industrial products.
Aerospace demand has stabilized and we expect growth in the aerospace and defense sector from the previous quarter.
As a result of the efforts of our operations team and driving productivity gains were guiding GAAP operating margin in the range of four nine to five 3%.
With this strong operating performance, we anticipate delivering gap diluted earnings per share of $1 <unk> to $1 17 and.
Including 19, a stack based compensation expense.
Our guidance assumes that Covid, 19 will not materially impact and markets or operations beyond what has already occurred.
Please advanced to slide eight.
Our vision to help create the products to build a better world continues to resonate with our customers and essential to the decisions, we make as an organization.
Our vision also lines with the values of our passionate plexus team and provides a commitment to both our current and future talent as we position plexus as an employer of choice.
As reflected in our mission, we look to leverage our expertise in and focused on highly complex products and demanding regulatory environments to provide advantages and operational efficiency and a globally consistent platform for our customers.
These events to slide nine.
Over the course of the past decade, we've made a conscious effort with great success to align our portfolio around highly complex products and demanding regulatory environments.
During fiscal 2020 over 90% of our revenue was comprised from programs in the health care life Sciences, industrial commercial and aerospace and defense market sectors.
Through this transformation communications has become an opportunistic market in the search for new logos managed by our industrial commercial team.
Given this reality and the fiscal first quarter of 2020, we are creating our industrial market sector. The industrial market sector includes our industrial commercial business and now encompasses communications as a sub sector.
We will continue to provide visibility into the significant subsectors within the industrial market as we move forward.
Please events to slide 10 for a breakdown of our newly branded industrial market sector.
This can be seen from the Pie chart in the lower right. The largest sub sector is semiconductor capital equipment, comprising about a third of the sector revenue.
Communications is the third largest sub sector at 14% of sector revenue.
We remain focused on expanding our business with existing communications customers and we'll take an opportunistic approach when engaging potential customers.
Our subsectors with an industrial are primarily focused on high complexity electromechanical products leveraging our skill set an extensive capabilities.
Please events to slide 11.
Our portfolio continues to differentiate flexes from our peers as we strengthen our leadership and highly complex products and demanding regulatory environments.
We have delivered consistent growth above 10% annually and well beyond Ms market growth rates in each of our three market sectors of health care life Sciences, industrial and aerospace and defense.
As we move forward. These markets support are 9% to 12% revenue growth goal.
Please events to slide 12, I will close with a few thoughts regarding fiscal 2021.
As stated earlier, we are observing a moderation in demand for critical care health care products and certain industrial products as we enter 2021.
However, we anticipate quarterly sequential revenue growth by the second half of fiscal 2021, as we benefit from new program ramps due to a strong fiscal 2020 manufacturing wins performance, which finished at $952 million annualized when fully ramped in production.
We're particularly excited about the ramp and potential a point of care COVID-19, testers, such as the quite El Sophia to a partnership we announced this past quarter.
When considering the overall demand environment and the potential for new program ramps, we expect fiscal 2021 to be a growth here.
We anticipate continued strong operating performance throughout the year, despite the expected impacts related to COVID-19.
Our goal is to consistently deliver operating margin within or above our target range of four 7% to 5% in the fiscal year.
We believe are differentiated portfolio advanced service offering superior execution talented workforce and focused on operational efficiency support this goal.
The combination of revenue growth and robust operating performance should lead to solid EPS expansion and free cash flow generation for fiscal 2021.
I will now turn the call over to Steve for additional analysis of the performance of our market sectors and operations Steve.
Thank you Todd good morning.
I will start a slide 13 with a review of the fiscal fourth quarter and the full fiscal year performance of our market sectors for 2020 as.
As well as our expectations for the sectors for the first fiscal quarter of 2021.
Our health care Lifesciences revenue grew 5% in the fiscal fourth quarter. The result was better than our expectations of a low single digit increase.
For the full year of fiscal 2020, the sector grew 3%.
The growth in Boston for fiscal fourth quarter and full fiscal year was a result of strong demand for products used to diagnose and treat COVID-19.
Which overcame a weaker demand for equipment used an elective procedures.
Where you had the physical first quarter demand for some but not all covid related products is temporary while the forecast for equipment used an elective procedures remained subdued.
As a result, we expect a high single digit decline for our health care like science sector, and the physical first quarter.
Revenue in our industrial commercial sector increased to 7% for the fiscal fourth quarter, which was meaningfully better than our expectations of a low single digit increase.
Stronger demand from several semiconductor capital equipment customers drove the growth.
For the full year of fiscal 2020, the sector had exceptional growth of 28%.
Robust ramps with a few programs in our transportation and energy management some sectors combined.
Combined with overall strength in the semiconductor capital equipment sub sector fueled the growth in fiscal 2020.
Our communications sector increased 25% in the fiscal fourth quarter, a result that exceeded our expectations of a high teens growth.
Similar to the fiscal third quarter eight of the top 10 customers in the sector had double digit increases.
Strong demand for Internet connectivity products drove the robust growth.
As Tara highlighted starting in fiscal 2021, our communications sector will be reported as a sub sector within our new industrial sector.
As we look at the first fiscal quarter of 2021, we see demand moderating in several subsectors, including semiconductor capital equipment and communications.
The result of that we anticipate a lot tend to decrease for industrial sector and the fiscal first quarter.
Revenue in aerospace and defense sector with flat in the fiscal fourth quarter.
The result was better than our expectations of a low single digit decline.
Robust demand from programs in our security sub sector and from our space sub sector yielded a better than anticipated the result.
For the full year fiscal 2020 significant growth with defensive security of space programs overcame depressed commercial aerospace demand to generate 4% growth.
Looking at the fiscal first quarter the sectors healthy diversification is supporting additional growth as we continue C continue to see continued strength with some defense in space programs.
Which offset softness in commercial aerospace.
The net result of that we are anticipating a mid single digit increase for aerospace and defense sector and the physical first quarter.
Please advanced the slide 14 for an overview of a robust winning performance for the fiscal fourth quarter.
We 144, new manufacturing programs that we expect to generate $286 million, an annualized revenue when fully ramped into production.
The mix of Wills between existing and new customers was well balanced in the quarter with 32 of the winds coming from current customers and 12 as a result of new relationships.
The teams have been successful balancing in person meetings with virtual sessions to effectively present are differentiated solution to customers.
As a result, the teams produced $952 million and wins in fiscal 2020.
This for quarter wins total yo with a very healthy 28% wins momentum.
Which continues to support our growth strategy as we start fiscal 2021.
We can advance to slide 15 to review the manufacturing wins by region for the fiscal fourth quarter.
The Americans region had another quarter of substantial wins at $136 million.
Included in their fiscal fourth quarter result is another diagnostic test or that can be used to detect COVID-19.
Our engineering team has been aggressively working with the customer on the final design of this device.
Which we anticipate to start ramping in the physical second quarter.
The APEC region had their largest manufacturing wins, a fiscal 2020 at $105 million and the fiscal fourth quarter.
The highlights include a single use device used for respiratory care that we are actively ramping in Penang, Malaysia as well as several healthcare imaging assemblies that will be produced by our team in China.
The mayor even solid manufacturing wins, a $45 million included too meaningful life science programs for a rottie of Romania facility.
What other devices as a complex electromechanical assembly that automate repetitive laboratory processes that is being co designed by our engineering team in Darmstadt, Germany.
We expect to start ramping the product within fiscal 2021.
Please advanced the slide 16 for further insight into the manufacturing wins performance by market sector.
Our health care life Sciences team had very healthy wins of $119 million and the fiscal fourth quarter.
The winds include further expansion in several modalities, including COVID-19, testers diabetes monitoring and imaging products.
Our operations teams ability to find creative solutions and deliver product in the midst of a pandemic eight of the sector and winning a total of $453 million in fiscal 2020.
The industrial commercial sector consistently increased our quarterly manufacturing wins throughout fiscal 2020.
With a strong finish of $93 million of wins in the fiscal fourth quarter. The team's total for fiscal 2020 closed at $277 million.
The fiscal fourth quarter Women's included the addition of a customer who specialize in air purification products as well as further market share gains with some of our semiconductor capital equipment customers.
The aerospace and defense sector captured $59 million, a new manufacturing wins and the fiscal fourth quarter.
A significant opportunity with a new defense customer and additional growth with a space customer of the highlights for the quarter.
The winds pushed the sectors fiscal 2020 wins total to $156 million.
The resilient wins performance in the midst of the commercial aerospace market turmoil is a testament to the wall diversified portfolio. The team is built.
We can proceed dislike slide 17 for highlights of our final a qualified manufacturing opportunities.
Our sector teams expanded the final by $230 million during the fiscal fourth quarter.
At $2.7 billion, a funnel is the strongest it has been in three years.
The sector teams under the leadership of our senior Vice President of global customer solutions, Andy Hyatt.
<unk> outstanding results in fiscal 2020.
Even with qualified manufacturing winds in excess of $950 million during the fiscal year. The final finished $150 million higher than it was at the start of the fiscal year.
The health care life Sciences funnel jumped over $300 million in the fiscal fourth quarter to finish exceptionally strong at $1.6 billion.
Four significant opportunities, including a single use surgical device or add it to the final within the quarter.
Industrial commercial and communication opportunities.
Are going to be part of the new industrial sector funnel.
Starting in the fiscal first quarter, the final will be $472 million.
The internal team has been aligned under this new structure throughout fiscal 2020.
The change in how we report the sector marks the end of the transition not the beginning.
As such the industrial sector team as well positioned to expand the funnel as we start fiscal 2021.
Our aerospace and defense sector increase their followed by $50 million in the fiscal fourth quarter to finish at $626 million.
A sizeable new program within our defense sub sector with the main contributor to the growth of the final.
Next I would like to turn to operating performance on slide 18.
As Todd highlighted we achieved record quarterly revenue of $913 million and the fiscal fourth quarter and a record three $4 billion for fiscal 2020.
The teams dedication to deliver products for our customers in the midst of a pandemic highlights the focus they have on customer service excellence.
The team's ability to also deliver five 5% operating margin in the fiscal fourth quarter demonstrates their passion for operational excellence.
As we looked at the fiscal 2021 sustained operational efficiency remains of focus for the organization as demonstrated by our operating margin guidance and the range of four nine to five 3% for the fiscal fourth quarter first quarter.
Please have answers slide 19 for an overview of a new strategic investment.
To support our long term growth projections in southeast Asia that are supported by interest from our customers.
We are finalizing the plans for a new manufacturing facility that will be built on the land, we already own outside of Bangkok, Thailand.
Based upon current market demand, we anticipate the start construction of the approximately 400000 square foot facility at the end of the fiscal second quarter of this year.
Our expectation is at the facility would be operational in the fiscal third quarter of fiscal 2022.
A few final comments.
Fiscal 2020 with a comprehensive exam, we're all facets of the business were tested by the problems COVID-19 created.
If you measure success by revenue in EPS growth the team past how're.
However is the team's ability to remain focused on our differentiate strategy and to drive continuous improvement while being tested that puts them at the top of the class for me.
There is also what makes investments like time impossible.
I want to thank each flexes employee for the dedication and commitment as as your efforts that enabled the continued success of flexes.
I will now turn the call to Pat further in depth review of our financial performance Pat.
Thank you season, good morning, everyone. Our fiscal fourth quarter results are summarized on slide 20.
Fourth quarter revenue of $913 million was about the top end of our guidance and sequentially higher by $56 million.
Gross margin nine 8% was also above our guidance range and sequentially improved 10 basis points.
For the physical fourthquarter, we continue to experience fixed costs leverage as revenue increased 7%.
While fixed manufacturing expenses increased at a lower percentage compared to the fiscal third quarter.
Selling and administrative expense of 38 $8 million was slightly above our expectations, primarily due to higher variable incentive compensation expense linked to the exceptional performance.
As a percentage of revenue SG&A was four 3%, which was consistent with expectations and the physical third quarter.
Our gap operating margin five 5% was 20 basis points higher than the physical third quarter and the second consecutive quarter above 5%.
Including in this quarter's operating margin was approximately 75 basis points us talk based compensation expense.
Non operating expenses of $5 million were consistent with expectations.
Record diluted EPS of $1 26 was above the top end of our guidance range, primarily due to the strong revenue results and operational performance.
Turning now to our cash flow and balance sheet on slide 21.
For the fiscal fourth quarter, we were extremely pleased with our free cash flow results, we delivered $118 million in cash from operations and spent $9 million on capital expenditures, resulting in free cash flow of $109 million.
For the fiscal year, we delivered $210 million in cash from operations and spent $50 million on capital expenditures generating record free cash flow of $160 million, a result significantly above our fiscal 2020 net income.
During the fiscal fourth quarter, we resumed our share repurchase activity by purchasing approximately 295000 shares of our stock for $21.9 million at an average price of $74 34 per share.
At the end of the fiscal year, we had approximately $5 million remaining under the authorization.
Once this program is completed we will commence purchasing shares under the $50 million program authorized during the fiscal fourth quarter.
We ended the year with a strong balance sheet cash totaled $388 million sequentially higher by $88 million due in part to strong cash flow generation.
Total balance sheet that was $335 million and our gross debt to EBITDA ratio was a conservative one five times.
At the end of the fiscal fourth quarter, we had no outstanding borrowings under a revolving credit facility, therefore, allowing us the full capacity of the $350 million committed facility.
For the fiscal year, we delivered a return on invested capital of 14%.
This generated an economic return a 520 basis points above are weighted average cost of capital, creating solid shareholder value.
A confirmation of exceptional operating performance and lower working capital led to 110 basis point improvement over fiscal 2019, and a return above are 500 basis point target.
Each year, we recalculate are weighted average cost of capital by using a consistent methodology.
With less relative volatility in our stock price over the past few years and a more attractive capital structure, our cost of capital for fiscal 2021 will be reduced from eight 8% to eight 1%.
Cash cycle at the end of the fourth quarter was 69 days the sequential improvement of 10 days and the best result in the past 10 quarters.
Please turn to slide 22 for details on our cash cycle.
Sequentially inventory days improved 12 days, primarily due to increased fiscal fourth quarter shipments and continued efforts around inventory management.
We were pleased to see our team's commitment to drive a $56 million sequential reduction in inventory.
Sequentially days in receivables improved seven days due to the timing of shipments in payments along with increased activity under our receivables factoring program.
Are payable days were sequentially lower by eight days.
This was primarily a result of our procurement activity moderating in the fiscal fourth quarter as we appropriately adjusted to the fiscal first quarter revenue outlook.
Customer deposits were down $13 million or two days as we returned certain deposits linked to inventories shipped during the quarter.
As Todd is already provide the revenue in EPS guidance for the fiscal first quarter he'll review some additional details which are summarized on slide 23.
Fiscal first quarter gross margin is expected to be in the range of 9129, 5% at the midpoint of this guidance gross margin would be approximately 50 basis points lower than the fiscal fourth quarter.
While we expect six manufacturing expenses to remain consistent with the prior quarter to forecasted revenue reduction for the fiscal first quarter will lower our fixed costs leverage and absorption.
For the fiscal first quarter, we expect SG&A expense in the range of 34% to $35 million.
At the midpoint of our revenue guidance anticipated SG&A, we'd be sequentially lower by four $3 million.
This reduction is mainly driven by lower variable incentive compensation expense.
As a percentage of revenue SG&A would be four 2% of 10 basis point improvement from the fiscal fourth quarter.
Fiscal first quarter operating margin is expected to be in the range of four nine to five 3%. This guidance include 65 basis points, a stack based compensation expense.
A few other notes for the fiscal first quarter depreciation and amortization expense is expected to be approximately $14 million, which is consistent with the fiscal fourth quarter.
Non operating expenses are expected to be in the range of four five to four $9 million.
At the midpoint of this guidance these expenses it would be slightly lower than last quarter.
We are estimating and effective tax rate of 13% to 15% and diluted shares outstanding of approximately 29 7 million shares.
Our expectation for the balance sheet is for working capital investments to increase.
While receivables and inventory balances are anticipated to stay consistent with the fiscal fourth quarter, we expect reductions and accounts payables and customer deposits.
Based on our revenue forecast, we expect this level of Oregon capital will result in cash cycle days of 80 to 84 days.
As we move through fiscal 2021, we expect sequential improvements each quarter to our cash cycle.
For the fiscal first quarter free cash flow is expected to be slightly negative given the working capital investments.
We anticipate generating free cash flow as we move through subsequent quarters and expect to deliver free cash flow of approximately $100 million for fiscal 2021.
Finally, our capital spending estimate for fiscal 2021 is expected to be in the range of $70 million to $90 million, which includes approximately $30 million related to our expansion in Thailand.
With that Sarah what's now open the call for questions.
Thank you ladies and gentlemen, if you have a question at this time.
Fastest attendant number one key on your touch down Chapfallen. If your question has been answered yoichi.
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Again, the Disenchant online if you have questions at this time, a pastime and then and number one key on your touch downtown.
First question comes from dying of Smith, and Mike Sekos Phantom and company Gantline Yourself Bang.
First thing I wanted to touch on was the revenues. So if I'm thinking about it sounds like every sector or my main vertical delivered outside for you guys. During Q core, especially that health and life Sciences in the industrial Communications curious what.
<unk> right view this quarter and then I know, we're talking about some moderation physical Q1, but can you discuss some of the puts and takes there as well please.
Yes. So some might this is Todd all I'll start on this and then Steve can provide a little bit more details, but if we look at at queue for really everything came together during the course of the quarter and we finished strong in three of the four sectors from a girl's standpoint healthcare industrial was.
Well as communications and aerospace and defense well, while it was flat on the quarter actually improved over the course of the quarter as we as we saw stronger demand, particularly around the space area, but as we look ahead to Q1 some of the differences that we're seeing right now is within healthcare where C.
Being critical care product demand start to reduce so while electives demand had been soft critical care is also going soft too now Covid test is still quite strong. So that's the one area healthcare that strong and then industrial we had.
I would call it may be a little bit of unusual circumstances, we had one of our customers had a major order that pulled in.
To this current quarter, which.
And it essentially came out of Q1, so that makes the comparable a little bit tough on industrial and then I would call. It just a modest downtick with some with some of our semiconductor customers, but semi capstone, it's pretty strong some of the studio and to provide a little bit more detail.
Yes. It will just give you two examples that maybe help illustrate where Todd talked about so like on critical care products for example might be an infusion pump.
There is a steady state production that would expect to see throughout the course, whether it's covid related or not however, covid cause a significant spike in those types of products and what we're seeing those things coming back down to kind of more of a nor more normal level. However is Todd highlighted covid testers are continuing to ramp so that's kind of a little bit of color in that sector.
<unk> very similarly and communications.
As the Msos needed to increase capacity I think they looked at their architectures and just invested in whatever was the shortest path to increasing capacity and now that they've done that we're starting to see them get it a little bit more strategic with their buying back to looking at what is the long term strategy for themselves. So hopefully I'll just give you a little bit visibility.
That's great Yeah, and then just a follow up on that so when we're talking about that I.
I guess more unique circumstances.
Circumstance with that industrial customer pulling forward some orders from Q1 to cute four can you guys give us some ice for for what that pulling actually was and then the follow up that I had was.
Recording the the Q1 or I guess, the commentary that will expect sequential growth to come back in the second half of fiscal 21, so the expectation than physical queue to as can be relatively flat too.
Down from fiscal Q1 levels that we should be taken away.
Yes, so Mike I'm Gonna start with the discussion of our fiscal 21, and I'm going to pass it off to Steve of what the Q1 impact looks like.
So if we look at 21, and maybe I'll talk about our quarterly expectations and then get to what the full year might look like but if I were to project out today based off of what we see.
Q to look similar to Q1, we could see some modest growth that could be flat.
And in general So that's that's why we hedged a little bit around why don't we would see growth in queue to now as we get into keeps ran queue for we expect more substantial grass driven primarily at this point by New program Rams now I do think there is some opportunity should market's rebound, particularly.
Around healthcare when electives procedures in particular, and then also around aerospace and defense definitely stronger aerospace demand there is some opportunity to.
To move up from that point.
But then if we looked at at 21 as a whole were expecting it to be a growth year, although a bit more modest of a growth here and below our 9% to 12% range that we talk about.
And then one other thing I would like to highlight though on top of that as as we do expect continued strong operating performance we've talked in the past about those four 7% to 5% target range.
We're we're seeing a path to be able to continue to have quarters, while we expand beyond that the way we did in in Q3 and Q4 on the way we're projecting in in the first corner of a physical 21.
Ballpark to be at or above the top end of a target range. So you combine the two together revenue girls strong operating performance. It should result in subtle good cash generation is Pat highlighted as well as some strong EPS expansion within the fiscal year.
And then just a little bit of color on the opportunity of Todd talked about.
Was a strong quarter for the customer even without those but they pulled in between nine and $10 million upside for us in the quarter.
Okay. Thank you guys. Thanks for the insurgency before.
Thanks question comes from the line of Shine Harrington from that pop into your line is now.
Good morning, everybody might congrats on a really strong finished to the year.
Dig into the capacity expansion, it's been a little been a little while since since one has been in place I know you've telegraph this expansion, but if you could just talk about the total capital outlay.
For this.
And then also just kind of maybe the initial dilution and how this facility would rant, because if I remember correctly.
The last big expansion was kind of a patient to where you already had existing sites and maybe it's smooth the transition of customers into that site and some of the dilution issue rapid.
Yes, it's Sean this Pat I'll start with the investment peace and then handed off to Steve.
From a from a cost perspective, we're thinking it'll be about $35 million to $40 million to build the building and then we will see it with equipment after that.
And so for my guide for capital spending for 21, I've included 30 million, which is pretty much back end loaded.
And some will fall into 2022.
To complete it and then we will start seeding it with equipment after that.
And then Steve Yep sure little visibility on our philosophy of our footprint in Asia in general So we really into Geography's today, one is in China and one is in Malaysia.
Given the situation in China, we believe that we need to have another footprint. Another dot on the map so to speak in southeast Asia to continue to support our growth and to manage our concentration.
In Malaysia in Malaysia, we have five facilities, roughly 1.5 million square feet.
Utilization in the facilities is roughly 61%, but it's very misleading and that if you look at those facilities. One is completely full one's about 90% four and one's about 80% full.
The remaining two wanted up 40% in the last 130 with the last one I talk about the new facility, you mentioned, which we called Riverside East.
Which is our healthcare our science facility and as you've seen the funnel, we expect that to continue to fill quite nicely.
So we believe it's prudent in time is right to add another facility in the Southeast Asia, Thailand, we happen to Orlando, we have a roughly 13 acres, we're going to start with a facility. That's roughly 4000 square feet, but we have the ability to expand that facility on that property. So we really see strategy here of building a campus in that.
In that location.
As you look at kind of a demand for customers. There is a demand for from customers asking us about Thailand or geography's outside of Malaysia.
And so our strategy here is that why we're building the building, we're actually going to be ramping products in with a team of people producing them in Malaysia, and our strategy is to transfer that.
With working with the customer to transfer that tolerance to pyran with some people once the facilities open to really give it a quick start.
So again.
Really think it's the overall from a strategy standpoint at the right time to go ahead and do it.
That's really helpful.
Then the other part I wanted to look at and maybe.
The one thing that stood out to me a little bit was just the size of industrial and kind of the broader funnels seems like it's shrunk a little bit over time and I don't know if that's a function of just timing issues or maybe having to expand the lens within the funnel for industrial because really big numbers and aerospace defense really big numbers and health care.
But industrial.
Well, it's a big segment of revenues right now the portion of the funnel stones seems down a little bit and if you could speak to Canada just that dynamic.
Yeah I agree with your assessment, that's the one final that we'd probably look at the most right now in terms of the growth of it I'd say internally. The team has been realigned and really kind of in my script I wanted to highlight the fact that the alignment is done and.
And so that team as often running some quite optimistic in terms of what they're going to be able to do in physical 21. We've also added a couple of resources to the team from a business development standpoint.
So again, it's not a significant concern for us but it is in terms of the funnel that is the one that does need a little bit more focus for growth for us.
Great Thanksgiving.
Your next question comes from canine if Adam cannot from mainland Jean.
Question.
Okay. Thanks, and congrats on a strong finished the fiscal 20.
Taught I just wanted to start on the discussion on the shape of fiscal 21 got just a question on the near term for the first half and then I'll do a follow up on on the back half.
So for the first half you talked about returning to sequential revenue growth by back half of fiscal 21, and the application is that you'd be revenue would be down sequentially in queue to trying to understand the magnitude of that I think earlier, you said Q2 would be similar to Q1 do you mean that it's going to be down high single digit sequentially like Q1.
And what that means for operating margin as you had sort of that decline 19 sequentially flat to Q1 is what we're projecting.
We're just it's just too tied to call. It a growth coordinate it may end up being a sequential growth from Q1.
Okay. Okay got that that's helpful clarification, and so so we were going to do.
Do today would look pretty similar to Q1 guidance.
Okay from a revenue and Margaret simplest where to put it not necessarily margin teachers, a little more challenge.
Okay.
No costs.
Got it Okay, and then I guess, maybe importantly on the on the back half.
Return to sequential revenue growth by the back half Helen steep are you thinking on that recovery from a revenue an operating margin standpoint, and just the key drivers and I know, it's hard to go that far out in this business. So what gives you the confidence to talk about that well, yeah, I can't I'm not going to go into too many specifics shows a lot.
Can change I mean, we're seeing.
A resurgence of Covid, we have an election here and heard next week, but.
At least rumor has it but.
It's enough to say to feel that we should be in a growth mode. So and then.
That's probably where I would end it so.
Do the math, our expectations are we're going to see growth and fiscal 21 over fiscal 20.
Okay understood, maybe just one or not.
From a margin standpoint, as we said, we're going to try and stay within that range of 407% to 5% with the opportunity of maybe even getting above that but that would be the goal 421.
Understood that I wanted to ask you maybe one that follow up on SG&A I think.
To look at the Q1 guidance that implies kind of I think lowest percent of revenue in many years.
Maybe just the drivers on what's going on.
You're operating so efficiently you are there aspects of may be temporary benefits from TNT or something like that.
And how to think about that line as the year progresses. Thanks.
Sure.
Well the big driver is sequentially from Q4 to Q1, it's the incentive compensation. We ended the year very strong and so the incentive compensation was much higher in.
In Q4 compared to the physical first quarter and you may recall, one is a big drivers behind our incentive plan is around revenue growth. So.
And in the year last year at 7% growth.
With it being a little more moderated and 21.
That's impacting that expense, but to your other point, yes, we are seeing a benefit.
In the near term around.
Travel expenses are pretty nonexistent, we do expect some of that returning in the back half of fiscal 21, and then healthcare costs, we've talked about in the past.
We are seeing some return of our claims and costs related to healthcare.
I think those will increase as we go through the year again is.
People get more comfortable with elective procedures.
So so to answer your original question. We are at a very low 0.4, SG&A as a percentage of revenue in this fiscal first quarter I think going out in future quarters, we could see that getting closer to 4344, maybe in in four or five as a percentage of revenue.
New so returning more too.
Consistent percentage level as we've seen in the past, but still pretty low.
Makes sense. Thank you.
Your next question comes from the line of Pakistan antidote.
You May ask you a question.
Hi, I Wanna and congratulations on diagram quota and again and thank you for taking my question can you just give us a little bit.
Color on what you see in the aerospace and when you anticipate that to come back.
See anything at all [laughter].
Sure Aerospace I think it's a pretty complex market right now as we look at whether it's the MRO or the new aircraft, we don't foresee new aircraft coming back anytime soon and if you listen to while the other announcements out there.
Really kind of don't anticipate C. A big rebound there one thing we are seeing that on the freight side with freight flights.
Flights, increasing significantly the MRO on that side has picked up a bit.
So the other dynamic that we're looking at is how many aircraft are going to get retired here as a result of what's happening and when new aircraft orders turn back on.
What will we see there so.
The short term answers and we expect it to be relatively muted here for quite some time.
With a few pockets of pick up.
Again like things associated with freight MRO.
But long term.
We're positioned well I think it's a solid start to for us and it is going to return, it's just a matter of when.
So I'd like to add just a bit on this anya I mean, one of those things. So we talk we tend to assure that the aerospace allowed but our sectors aerospace and defense and that includes space as well too so while aerospace's down considerably the games were making in defense in space.
Should more than over comment and we're expecting F 21 to be a growth year for the sector for the aerospace and defense sector.
Okay. Thank you.
And then.
Yeah, Yeah added thousand year lava C a manufacturing wins.
Not necessarily all new logos that could be new divisions of existing customers, but yeah. So that was the number I gave you.
Okay I just wanted to.
Alright existing customers.
What sort of.
But that allows us to add at what sort of potential that and can you give a little bit of color on.
Yeah, I don't have great specifics for you on each of the 12 logo I would tell you that the logos are brand name logos and their <unk> as we call it which was potential available market for us is meaningful to continue to grow and specifically. One example that I gave you is.
We were talking about one of the testers we'd won.
Last quarter.
We want another test or from them this quarter different it's really kind of search for a different market and so.
It's difficult to give you an exact number in terms of what the long term potential is but we do see growth.
With with all of these customer they're not start ups.
Okay. Thank you that will have for me.
Your next question comes from to I enough Maths Sharon from stiffer. He may ask a question.
Yes, thanks, and good morning.
Steve I was hoping that you can.
Elaborate on your comments about their semiconductor capital equipment market counting like it's it's the beginning of the week and a bit here and I know you've had several strong quarters of growth and so have your peers. So is that.
That things are peaking cyclically or anything else going on there that you could sure. Thanks.
Yes. This is a little bit more of my belief necessarily then absolute data is you look at the semi kept market for us I would say it is flattened a little bit.
Quarter over quarter, obviously see a little bit of Ah.
Ah downtick here, but.
For us the customer's expectations as we go through fiscal 21, we're still talking to customers about.
<unk>.
Growth with an from markets and in some areas and so we have brought in inventories to support potential drop ins in upside for them.
So I think the messages I think the semicon term market for us we expect to see growth.
In the coming quarters. The question is is that one to three quarters or is it going to be a little further out given the covid situation I wouldn't say, it's a significant decline that we're expecting again, it's more of a.
Little bit of a fluctuation here is where we're at.
This is this is Todd I think I might have made that comment too and I didn't intend to suggest.
The semi cap was going into any significant decline and then what we're seeing as we saw a little bit of a peak in Q3, Q form and we talked a bit about that and we'll come in off peak just to hear Bud 21 looks like a solid year for semi gap.
Okay, Great. That's that's helpful. And then just a question on the inventory your inventory days were down I think the lowest level and a few quarters.
How much of that is related to the guide and just the expectation for lower revenue in the December quarter versus maybe the supply chain being more efficient lead times coming in availability that sort of thing.
We we definitely benefited in the quarter from the higher revenue. So we burned through a bit more inventory in the quarter I would say our team's though are getting much better at.
Managing through the the expectation with customers an inventory levels.
Where we have customers that are driving excess inventory, specifically like and some of them are semiconductor capital our customer areas, where they want us to procure additional inventory to beyond the forecast we are working with them on deposit. So you'll also see deposits coming up.
So from from that standpoint, it's more related to us managing it then it is necessarily any kind of and market conditions. The only thing that we're really kind of thing.
And the supply chain, it's a little constraint is tantalum capacitors are still.
Got a little bit of an issue associated with some of the covid shutdowns, but the rest of them. The rest of the commodities are doing fine for us.
Okay. Thanks, a lot.
Thanks, Matt.
Your next question comes from canine, Paul Costa SMTP Marken your line something.
Yeah. Thanks for taking my question good morning.
Just a little bit of color. Please regarding a strategy on the combs business it looks to me but.
Intentionally coloring some business being very selective moving forward what are the criteria.
Uh-huh.
So activity.
Yeah, So I would see where we're absolutely not culling business Paul.
Very committed to our customers within that space and are looking to grow those customers and we think we have a good customer base.
R. R model well, we're just reacting to the reality that.
<unk> is is a pretty volatile market and when you get to some of the.
Certain customers the pricing model that that people are willing to do the business for is not what we believe is an effective pricing models. So we're we're taken it a bit more opportunistically when we look at new logos, but we are absolutely committed to our customers in that space and growing that business and and this is a past we've really.
Been down for about.
18 to 24 months now of of really merging that into a single sector team and merging our business here. So Steve mentioned this is our external reporting is really the end not the beginning so there's not like a restructuring year or anything like that where we've done all the the actions and all the activities there, but we're very can.
<unk> to the business there will continue to look at it as it comes in but our customers.
We're very committed to them.
Animal.
Well, if I can just add a little bit for if you look at the industrial sector. Some interesting dynamics I've been happening, which is that sector has been getting.
A bit of overlap with communication type products and so when you start looking at energy meters that are connected to your Wi Fi and you start looking at smart business controls and industry four point on stuff.
We found our industrial sector really in our communications sectors, debating and discussing which product.
Does that belong in which sector does it belong industrial commercial belongs in communications and so it's kind of been almost a natural evolution for us a little bit on a technology standpoint, where it's gone and we think it's going to continue to go that way. So as the teams continue to work more and more closely together on opportunities.
I actually became more of a natural fit for us as well.
Oh sure I will.
Needs mowing follow up question, which is if you look at this big funnel.
It's pretty robust still.
Are there any sort of macro claims you can call out from there.
Activity whether it's.
Inc. Vms customers you so.
Contract manufacturers.
Manufacturing service companies or in terms of technology.
<unk>.
I don't know that I could call out a specific technology.
Or a trend I think from a outsourcing standpoint, I think there is a continued push for customers looking for ways to cover.
Convert things from fixed the variable cost for themselves.
That's been a trend that's going on for a while I don't think it's ending.
To be honest with you my my personal opinion is I really give credits to the operations teams inside of flexes.
What our teams have been able to do on quality levels and delivery performance over the last few years the improvements they've made.
Is really quite frankly, I think attracting and winning more business for us and bringing more opportunities to the final so.
To give a lot of critically just as our team's ability to execute.
In other words sort of winning trusts from those customers customers and therefore.
Increasing their outsourcing.
Yes, I think it should go through economic cycles, and you look at things that sometimes you customers are focused on cost and sometimes they're focused on delivery and quality and I think going back here in my opinion in the last three to four or five years.
There's been an industry shift really focused.
Before it was all about cost and now there is significant cynics durations about what the cost of quality and what the cost of poor delivery performance those for you.
And again I think our teams are exceptional living through the commitments. We continue to push it's Y I think you hear Todd and I talk a lot about customer service excellence and operational excellence. We do believe these are differentiators.
And I think the flexes teams are doing a really good job with them.
Okay. Thanks very much.
Yeah last question can spend in line of my Sekos from Needham and company. Let me ask you a question.
Thanks for getting me back on just wanted to ask a follow appeared.
Recording he's enduring targets that you guys have the 90, 12% year on year revenue growth 2475.
Operating margin targets.
I guess, if we're looking at physical 21. This is going to be the second year now where we're falling short of that revenue target, but obviously, if we look at the latest two quarters you guys are outperforming.
Morgan bogey that you have out there should we be thinking.
Or is there any reason to think that those targets may be shifting.
As you guys are obviously improving your profitability.
And then what would helps you guys.
In your view.
Continue to think that that 90, 12% bogey on the revenue.
Is.
Is a worthy targets have out there.
We look at the nine to 12 as as being a Kangaroo and let me look at the three year CAGR. We're at 10, So we do fall within the range and.
The question was around Julie.
Do we are we looking to reduce.
Target I would say at this point no because our sector leaders and as we look at our long range plans, we believe the realistic yet.
Now as we look at.
We don't necessarily call. The 475 operating margin enduring goal, we're more focused around a return on invested capital and having that 500 basis points spread above or lack and typically has been the four seven to five that has driven that that spread but we do think we can.
We can continue to expand margins right now so we.
We're trying to talk less about the 475, because we think the potential to be.
Five plus is there right now and we've done at the last few corners. So.
So that's the way we're looking at the goals right now we think nine to 12 realistic.
We think we can expand margins from where we're at and continue to drive strong return on invested capital.
Thank you for that I appreciate the good luck to you guys. Thank.
Thank you thanks.
I am showing a further question at this time I would like to try and conference back as CEO, Todd casting accounting remarks, yes. Thank you Sarah I'd certainly like to thank everybody, who joined our call today that there are a lot of great questions. Today, we certainly appreciate your support and interest in Fluxons.
And again I'd like to thank our plexus team globally, because it's all their efforts that that drive. This these results and make it all possible. So thank you very much.
Ladies and gentlemen, Thanks concludes today's conference call. Thank you for participating and.
And have a wonderful day give me at disconnect.
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Uh-huh.
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