Q2 2022 Plexus Corp Earnings Call
Good morning, and welcome to the Plexus Corp Conference call regarding its fiscal second quarter 2022 earnings announcement. My name is Abigail and I will be your operator for today's call. At this time all participants are in a listen only mode. After a brief discussion by management, we will open the conference call for questions.
The conference call is scheduled to last approximately one hour. Please note that this conference is being recorded I would now like to turn the call over to Mr. Shawn Harrison Flexes, Vice President of Communications and Investor Relations Shawn.
Thank you Abigail.
Good morning, and thank you everyone for joining us today some of the statements made and information provided during our call today will be forward looking statements, including without limitation those regarding revenue gross margin selling and administrative expense operating margin other income and expense taxes cash cycle capital allocation future business outlook and the impact of <unk>.
COVID-19 on the company's business and the results of operations.
Looking statements are not guarantees since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward looking statements.
For a list of factors that could cause actual results to differ materially from those discussed please refer to the company's periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended October <unk> 2021, supplemented by our Form 10-Q filings and the Safe Harbor and fair disclosure statement in yesterday's press release.
We encourage participants on the call. This morning to access the live webcast and supporting materials at plexus Web site at Www Dot plexus Dot com clicking on investors at the top of that page.
Joining me today are Todd Kelsey, Chief Executive Officer, Steve Frisch, President and Chief Strategy Officer, and Pat Jermain Executive Vice President and Chief Financial Officer, consistent with prior earnings calls Todd will provide summary comments before turning the call over to Steve and Pat further details.
Let me now turn it over let's turn the call over to Todd Kelsey Todd.
Thank you Sean good morning, everyone.
Please advance to slide three.
We achieved fiscal second quarter revenue of $889 million, a result that exceeded our guidance range of $820 million to $860 million.
Our industrial and health care life Sciences sectors exceeded our expectations entering the quarter as our supply chain team was successful in resolving more constrained materials than anticipated.
Our aerospace and defense sector met expectations of strong growth as we benefited from the early recovery of commercial aerospace demand.
Okay.
We delivered GAAP operating margin of 4%, finishing at the high end of our guidance range.
This result was achieved despite higher than anticipated labor inefficiency due to the impact of COVID-19, I'm a crime variant in Malaysia increased variable incentive compensation costs due to the strong revenue result, and the impact from procuring certain components at above market prices.
The combination of strong revenue and operating margin led to GAAP diluted earnings per share of <unk> 95 <unk>.
Exceeding our guidance range of 76% to 92.
The EPS results included 21 of stock based compensation expense.
Our strong execution in markets that feature highly complex products and demanding regulatory environments directly led to another exceptional quarter of new business wins.
Our manufacturing and aftermarket services wins totaled $313 million, which was nearly an all time record in our best quarterly result in a decade.
The wins result included a significant new program representing market share gain within existing semi cap customer and expansion of an aftermarket services engagement with a major health care company.
This exceptional performance propelled our trailing four quarter wins to another record high of more than $1 $1 billion.
In addition to the strong wins, our funnel of qualified manufacturing opportunities expanded to a record level of $3 4 billion.
Lastly, new engineering engagements robust for the second consecutive quarter, which combined with the momentum in manufacturing wins in qualified opportunities supports our 9% to 12% revenue CAGR goal.
Our customers continue to value, our differentiated offering and engineering and aftermarket services supporting the circular economy and their sustainability needs.
The end result is exceptional wins and an expanding funnel.
Yeah.
Please advance to slide four.
As we look to the third quarter of fiscal 2022 customer demand remains strong across all market sectors.
While the supply chain appears to have stabilized it remains constrained and is limiting our ability to meet broad customer demand upside.
Yet we are benefiting from the impact of a small number of significant and rapid new program ramps with pipeline supply.
As a result, we are expecting further sequential revenue growth at the midpoint and are establishing a revenue guidance range of $885 million to $925 million.
This guidance includes our estimate of supply chain impacts due to COVID-19, Lockdowns in Shanghai, China.
With the increased revenue, we anticipate further positive leverage of our operating infrastructure that can currently support over $1 billion and quarterly demand and are anticipating GAAP operating margin in the range of $4 four to four 9%, including approximately 65 basis points of stock based compensation.
<unk>.
At these revenue and operating margin levels, we expect to deliver GAAP diluted earnings per share of $1 <unk> to $1 18, including 21 of stock based compensation expense.
Our guidance assumes supply chain constraints, and COVID-19, do not materially impact end markets or our operations beyond current expectations.
Yeah.
In support of the strong growth potential represented by our funnel of opportunities our latest site in Bangkok, Thailand continues to progress according to plan.
The first Assembly line was recently installed we complete qualification builds in the fiscal third quarter and production will commence in the fiscal fourth quarter.
We have multiple existing programs planned to transition into the site from our Penang campus as well as a substantial new piece of business that will launch directly into the site.
We expect the site to be the first of multiple in Thailand, as we further our campus strategy and create a platform to support future growth in our APAC region.
Next a few thoughts regarding our longer term outlook.
I am encouraged by the accelerating momentum demonstrated by our fiscal second quarter results. We now see the potential to deliver quarterly sequential revenue growth through fiscal 2022 and into fiscal 2023, while expanding GAAP operating margin and EPS.
Looking at our end markets, we continued to see strong demand over the next several quarters within health care Life Sciences, We had several major program ramps underway.
With pipeline component supply. These programs should continue to favorably impact the remainder of fiscal 2022 and into 2023.
Our industrial sector demand is very strong led by semi cap in communications.
Well supply is challenged we continue to make progress as reflected in our fiscal second quarter results through a multi quarter effort focused on attacking component availability issues enhanced by leveraging customer partnerships to secure supply.
Finally within aerospace and defense, we see a strengthening of demand in commercial aerospace led by single aisle Jets business jets it aftermarket needs.
These positive market factors when combined with robust new program wins in manufacturing aftermarket services and engineering as well as a record funnel of qualified opportunities supports our optimism in our ability to make progress toward our $5 billion revenue target.
In addition, we remain committed to delivering upon our goals of 9% to 12% revenue CAGR with five 5% GAAP operating margin and 15% return on invested capital over the long term.
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 on slide five with a review of our performance by market sector for the fiscal second quarter as well as our expectations for the market sectors for the third quarter of fiscal 2022.
Starting with our industrial sector fiscal second quarter revenue grew 14%.
The exceptional result was significantly above our expectations of a mid single digit increase as our supply chain team cleared material shortages within the quarter.
Looking at the remainder of fiscal 2022 demand remains robust across our industrial sector.
Although material constraints are still limiting our ability to capture our customers' full demand, we expect to secure supply at or above levels of the fiscal second quarter.
As a result, we expect a flat to low single digit increase in our industrial sector for the fiscal third quarter.
Our health care life Sciences sector had solid results for the fiscal second quarter and.
In addition to higher levels of manufacturing output from the clearing of material shortages.
Our engineering solutions team exceeded revenue projections in the quarter.
Instead of a low single digit decrease the health care life Sciences sector grew revenue 3%.
Looking at the remainder of fiscal 2022 for health care Life Sciences sector, we expect that new program ramps will continue to support sequential growth.
For the fiscal third quarter, we anticipate these new programs will result in a mid single digit increase.
Our aerospace and defense sector delivered to their strong projections of a low double digit double digit increase by achieving growth of 11% in the fiscal second quarter.
Leveraging the efforts of our team and that of our customer supply chain teams, we were able to acquire the materials needed to achieve our productions.
Looking at the second half of fiscal 2022, we continue to see strong forecast for commercial military and private aerospace products.
However material availability continues to be the gate for our production teams and is limiting our ability to capture the demand above our current levels.
The result is that we would expect a flat to low single digit revenue increase in our aerospace and defense sector for the fiscal third quarter.
Please advance to slide six for an overview of our wins performance for the fiscal second quarter.
We won 38, new manufacturing programs that we expect to generate $313 million in annualized revenue when fully ramped into production.
The exceptional wins result was a few million dollars short of an all time record. However, our trailing four quarter wins of more than $1 1 billion was a new record.
As a result, our Wyndham Wyndham, which is defined as a trailing four quarter wins divided by the trailing four quarters of revenue climbed to 33%.
Which is well above our 25% goal and supports our target of 9% to 12% revenue CAGR.
Finally, one of the best measures of customer satisfaction is repeat business.
With 36 of 38 of the wins coming from existing customers. Our teams are being rewarded with expanded market share across our customer base.
Next we can review a few sector and regional highlights of the manufacturing wins for the fiscal second quarter on slide seven.
The industrial sector had an exceptional quarter of manufacturing wins of $221 million.
Almost 70% of industrial wins are targeted for the APAC region.
<unk> for our new facility in Bangkok, Thailand.
In addition to the strong industrial wins, the $222 million of wind for the APAC region also benefited from robust wins from the health care life Sciences, and aerospace and defense sectors.
Going forward, we are seeing the return of customer visits the southeast Asia.
With our enhanced footprint in APAC regional teams ability to continue to deliver for our customers in spite of the many challenges these past few years.
We are optimistic about the ability to accelerate growth in the region.
Please advance to slide eight for highlights of our fiscal second quarter wins.
The industrial wins includes a high performance platform using the production of semiconductor wafers, we expect this.
Program to ramp into our new facility in Thailand in early fiscal 2023.
The industrial team also added a cable access product that serves networks that use a distributed architecture.
The product will be manufactured at our facility in Guadalajara, Mexico.
Our health care life Sciences team when the manufacturing of family of devices used in contrast, those management for advanced imaging applications.
The products from this new logo will be manufacturing in our Penang Malaysia campus.
The team also completed a large aftermarket services agreement with an existing customer.
The program will start in the Americas region, where we expect to establish servicing.
Fair capabilities in all three regions.
Finally, the health care life Sciences team won a significant ultrasound system from an existing customer.
The award of this program represents a meaningful market share gain.
For the team.
Included in the Aerospace defense wins is the expansion of our relationship with an aerospace customer.
We want the production of an advanced cockpit life support system that we plan to manufacturer in Penang Malaysia.
We can proceed to slide nine for highlights of our funnel of qualified manufacturing opportunities.
Market sector teams grew the funnel to a record $3 $4 billion in the fiscal second quarter.
The expansion was led by our health care life Sciences team, whose funnel alone is approaching $2 billion.
One example of the team's success is the addition of a meaningful life sciences opportunity for the full manufacturing of an automated biochemistry analyzer for use in Medicare medical laboratories.
I would like to finish with an overview of one of our ESG initiatives on slide 10.
This initiative is part of our executive incentive compensation program for the environmental pillar of ESG.
This focus on the reduction of our electricity consumption across the globe.
At the start of fiscal 2022, we set a goal for each manufacturing location to reduce their electricity usage by at least 5% in fiscal 2022 as compared to fiscal 2020.
One of the challenges with electricity reduction efforts can be establishing the true baseline of consumption.
In the first half of fiscal 2022, we completed a project to install sub metering technology and all of our large manufacturing facilities.
With this technology each facility can monitor electricity consumption for specific functions like heating and cooling or for a subset of manufacturing equipment.
Each site is implementing specific plans to achieve this goal within the fiscal year and all locations are on track to meet or exceed the objective of or at least a 5% reduction.
The exciting part is that our efforts in fiscal 2022 are only the beginning.
With this technology and the sharing of best practices across the enterprise our efforts to reduce our electricity consumption and our impact on the environment will continue for many years to come.
I will now turn the call to Pat for an in depth review of our financial performance.
Thank you, Steve and good morning, everyone. Our fiscal second quarter results are summarized on slide 11.
Gross margin of eight 6% was at the high end of our guidance due to improved fixed cost leverage from the stronger revenue performance.
Gross margin was consistent with the fiscal first quarter, despite headwinds from seasonal compensation cost increases and the reset of payroll taxes for U S employees.
Selling and administrative expense of $47 million was both guidance, primarily due to additional variable incentive compensation expense linked to the higher revenue for the quarter.
As a percentage of revenue SG&A was four 6%, which was consistent with expectations in the fiscal first quarter.
The result was a GAAP operating margin of 4%, which was at the top end of our guidance inclusive of approximately 70 basis points of stock based compensation expense.
Nonoperating expenses were slightly above expectations, primarily due to higher factory in expenses.
GAAP diluted EPS of <unk> 95.
Was above our guidance due to the stronger revenue performance.
Turning to our cash flow and balance sheet on slide 12.
For the fiscal second quarter, we were extremely pleased with our free cash flow performance, we delivered $84 million in cash from operations and spent $31 million on capital expenditures generating free cash flow of $53 million.
This result was double our net income and exceeded expectations.
During the quarter, we were aggressive with our share repurchase program, we repurchased approximately 306000 shares of our stock or 1% of our shares outstanding for $25 million.
At the end of the fiscal second quarter, we had approximately $12 million remaining under our current authorization.
Later this fiscal year, we will review with our board of directors the opportunity for new authorization.
Our quarter end balance sheet included cash of $309 million sequentially higher by $90 million due in part to the strong cash flow generation.
Total balance sheet debt was $408 million, while net debt was approximately $100 million.
We had $138 million available to borrow under our $350 million revolving credit facility.
Cash cycle at the end of the fiscal second quarter was 98 days favorable to our expectations and sequentially lower by five days.
We benefited from increased revenue and the continued progress on working capital initiatives.
Please turn to slide 13 for details on our cash cycle.
Sequentially inventory days increased by nine the steady increase in days over the past several quarters reflects the well understood supply chain challenges along with the need to support new program ramps, which are anticipated to drive higher revenue in the second half of the fiscal year.
Substantially offsetting the increase in inventory days was an increase in customer deposit days customer deposits increased almost $100 million.
Days improved by eight as we partnered with customers to share and inventory investments.
We have over 25% of our inventory covered with deposits. This compares to less than 15% three years ago.
Days and receivables sequentially improved by seven days, primarily due to the timing of payments and increased activity under our receivables factoring program.
As Todd has already provided the revenue and EPS guidance for the fiscal third quarter I'll review, some additional details which are summarized on slide 14.
Fiscal third quarter gross margin is expected to be in the range of eight 9% to nine 3%.
At the midpoint gross margin would be approximately 50 basis points higher than the fiscal second quarter.
Improved productivity across all of our regions and better leverage of fixed costs are contributing to the anticipated improvement.
We expect some continued near term pressure on gross margin as we maintain the infrastructure necessary to support anticipated demand not yet matched by available supply.
We expect selling and administrative expenses in the range of $40 million to $41 million fairly consistent with fiscal second quarter.
Our expectation for the balance sheet is that working capital investments will increase compared to the fiscal second quarter.
Based on our revenue forecast, we expect this level of working capital will result in cash cycle days 100 to 104 days.
Sequentially, an increase of four days, primarily due to additional inventory investments.
While we anticipate a use of cash to support working capital investments during the fiscal third quarter, we expect to generate offsetting positive free cash flow during the fiscal fourth quarter.
Finally capital spending for fiscal 2022 is expected to be in the range of $110 million to $130 million.
Which includes approximately $45 million for our new Thailand facility.
With that Abigail, let's now open the call for questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
And our first question comes from the line of Jim Ricchiuti with Needham Your line is open.
Thank you good morning.
I wanted to focus a little bit on the industrial market first.
What are you seeing in the semi cap market in terms of the.
Yes, the visibility extending beyond what you were seeing say six six months or so ago and.
I'm wondering if the supply chain challenges in that market, perhaps are contributing to the the moderating growth for the industrial vertical.
The quarter or is this just a tie.
Timing issue in the broader industrial category.
Yes. This is Steve for us customer demand remains strong and I would say that if anything the duration of the strength continues to stretch out. So I think lots of people were talking about what does it look like in the back half of 'twenty two.
For us and our customers, we see this strength continuing through 2002 and into 'twenty three.
I think it's being muted a bit the ability to deliver by supply chain constraints, but those customers buy by far are probably the ones being most aggressive on continuing to drive inventory as the projections and the belief is that the strength is going to continue for quite some time here.
Got it.
I think you alluded to some.
New product ramps.
Debt.
Essentially are ramping faster and I'm wondering if you could provide some color on that is this is this catch up or are you seeing any kind of changes in customer behavior or actually there is none of the above and just some one off isolated cases.
These are Jim This is Todd these are planned to new.
There are new product ramps.
And there is a small number of very substantial ones that are.
That all kind of lining up together and they've been planned for some time. So we're in a situation where the materials have been pipeline for a year plus on these programs. So we're in really good shape from a material standpoint, theyre getting to the very they've gotten to the end of the design phase and are in the production ramp phase and they're they're major.
So theyre ramping and having a meaningful impact on revenue and we kind of think of them as having about.
A combined impact of about anywhere from $25 million to $50 million per quarter of incremental revenue. So so there is substantial.
As they line up.
Any any.
Color Todd on the type of.
Products or programs, where you might be talking about.
While the impact all three of our sectors I would say it's dominated within the health care sector. So youll see a meaningful jump in our healthcare revenue as we move through <unk>.
Several quarters and that will be directly reflective of these major program ramps.
Got it I'll jump back in the queue. Thank you.
Thank you. Our next question comes from the line of Steven Fox with Fox Advisors. Your line is open.
Hi can you hear me.
Yes, hi.
Good morning to.
Two questions from me if I could first on the inventory balances I mean these are.
Year over year. These are big numbers, even if I subtract out the deposit things, which as you pointed out have doubled.
How much.
Cash are you would you say, you're tying up sort of abnormally for holding all these inventories I understand its purpose.
But it.
It is a substantial amount and then how do you how do you envision sort of getting these inventories being a year from now even likely still going to be holding these types of levels and then I had a follow up.
Yeah.
Pat I can help you out there.
From a standpoint of tying up cash when I look at Steve where we were last year with our revolver, which was.
No utilization of it now we're around 200 million a lot of that is related to inventory needs.
And fortunate for us.
We've got a lot of available liquidity.
And cash to support our customers so.
That's what we're doing in the near term and as you referenced our deposits are offsetting 25% of that gross inventory from a standpoint of where I see the balance going I do think we're at a high point.
I don't see it coming down significantly over the next couple of quarters I see it staying pretty similar to where we are in forecasting it to be for the fiscal third quarter I think with the added revenue that we expect in the back half of the year and going into 'twenty three.
We will start to see the balances coming down and especially from our inventory days perspective, we will see our days improving over the next three to four quarters.
One thing that I'd add on this Steve is that there is active initiatives in place to work with our customers around <unk>.
Forecasting and planning in light of the current supply environment. So it's not like order.
We're back here guessing or hoping that the inventory goes down there is activity thats underway that is already well in place. So you see it takes a little bit of time for these to start to roll the inventory over and get to the right levels and we view this as a bit of a high watermark for days the current quarter that we're in and you'll start to see those come down through these efforts.
Great. That's helpful. And then just thinking about the comment that.
You guys can can grow consistently quarter after quarter into next fiscal year.
There's a lot of subpar economic news out of like the U S. This morning in Germany et cetera.
How much.
Economic sensitivity do you see in some of these new programs a lot of.
The earnings calls this week when it comes to sort of Capex intensive programs, our business seem to be sort of business as usual despite everything thats going on in the World I was wondering how you would sort of.
Sort of gauge the risk reward on what that statement. Thanks.
Yes.
New programs are relatively insensitive I believe to changes in the economic environment right. Now there are areas, where there is significant pent up demand for these new products. So the market is very strong at this point and it's just a matter of.
Secondly, ramping at this point with these programs in particular, but now certainly there is a lot of economic news coming out and we keep a close eye on that as well too as we consider are our thoughts on our comments.
I appreciate that thank you.
Thank you. Our next question comes from Matt Sheerin with Stifel. Your line is open.
Yes, thanks, and good morning, everyone.
Just another question on the supply environment.
Certainly.
Had nice upside after two quarters of missing due to supply constraints.
You did build inventory ahead of that but.
Are there any other reasons are you seeing supply.
Loosening at all it doesn't sound like that's happening based on what peers are saying.
Is it execution.
And how much have you still left on the table in terms of revenue missed revenue opportunity either in the March quarter or the June quarter.
Yes, so Matt this is Steve ill take a crack at this one so in terms of the supply itself I would say, we would see it being more stable, but still very constrained and so by that it's been more predictable for us.
We know where the shortage of Lars we work them.
I'd say one thing we've gotten better at is cooperation with our customers and our customer supply chain teams, especially like in aerospace.
With regular weekly calls and splitting up kind of a shortage list.
Dividing and conquering we're much more efficient at driving the shortages and so that's been working better in terms of what are we leaving on the table and we do believe.
In the neighborhood of $100 million of additional demand would sit out there for us if we could procure the materials for it. So I mean that kind of goes back to kind of the.
Kind of the economic discussion.
Even if even if things soften up a little bit on the demand and where school.
Far from being able to deliver everything that's available to us and so that's what gives us a little bit of optimism as we look to the back half.
Here yet.
Okay. Thanks for that and then just a question regarding the inflationary pressures that youre seeing and obviously, we've seen a component prices across the board co op logistics costs.
Margins are going up so it sounds like that's a pass through to your customers, but at some point, that's kind of put pressure on their margins right and.
So.
Question is is that a concern are you working with customers on that.
And then how much of that ASP increase is reflected in your revenue growth in other words.
<unk> versus versus the pass through of components.
Yes, I can start with that Matt.
There is an impact that we've seen I wouldn't say, it's been that significant for our margins, but there is a certain amount that we're paying above previous.
<unk> pricing that does not necessarily have margin linked to it and that could be a few percentage, 2% to 3% of our revenue that does not have that margin at this point.
And we are working with our customers. It is a pass through for us, but we're working with our customers to manage that that pricing.
Okay and in terms of the.
How thats impacted your own sales and inventory because inventory is up on the higher pricing and not just on units right.
Can you help us quantify that.
Yeah, I mean, it's probably again, 3% to 4% of our inventory value would be inflated because of.
Higher prices that we've seen recently.
Okay. Okay. Thanks, a lot.
Sure.
Thank you our next with Magellan.
Our next question comes from the line of Melissa Fairbanks with Raymond James Your line is open.
Hi, guys, thanks, very much great quarter and guide.
Last quarter or maybe it was only met with you in March you had suggested that with some improved sourcing you could drive between 25 and $50 million in incremental revenue each quarter. This year. It looks like you've outperformed that pretty significantly in <unk>, but the <unk> outlet is maybe a little short of that is that just due to timing of the shipments maybe a little bit.
Pull forward into the March quarter, or how should we be thinking of that going forward yes.
Yes, I think there's a couple of things one is its just a more difficult comparison, because Q2 was so strong I mean, if we had delivered more towards the high end of the guidance. Even then the number we'd be talking about what would be on the high end of this $25 million to $50 million. The other thing Thats factored into our guide, though too I mean I think.
We could have and could maybe still hit.
Hit those levels is around the Shanghai Lockdowns that are there. So we have about on the order of $15 million to $20 million factored in of impact in that supply chain because of course, we don't have a site that is impacted at all but its supply chain impact.
Flowing through to the APAC region, due to Lockdowns and Shanghai right now.
Okay perfect. Thanks, so much that's all for me for now.
Thanks Melissa.
Thank you. Our next question comes from the line of Paul Chung with Jpmorgan. Your line is open.
Hi, Thanks for taking my question so.
Just to expand on the record wins this quarter.
You mentioned, you know existing customers kind of driving most of the wins.
Is this more structural move from in house manufacturing or is this kind of incremental business or market share wins from competitors.
And then.
If you could talk about how the firm navigated the surge in positive cases in Malaysia, So well you know our kind of potential customers kind of taking notice here are.
Are you, having more discussions with with new logos as a result.
And a follow up.
Sure in terms of the wins I think it's pretty well balanced between new program ramps market share gains and then customers basically looking at outsourcing their internal manufacturing and so.
For me, we're benefiting from all three areas.
I would say looking at the funnel.
The secular markets that we're going after in terms of warehouse automation and surgical robots in those areas. The program sizes are increasing and that's due to really kind of a size of what they are asking us to do they're asking us to do a whole systems and so.
For us we feel pretty pretty good about the strategy that we have in the way the Windsor flowing through and I think you saw it this quarter with a couple of larger opportunities.
As I look to the future I would see that continuing.
Terms of that mix of opportunities. We still are interested in new logos, we put a pretty significant effort on it last year in 'twenty one to go add some new customers and we were able to achieve that.
This year were.
Still entered nine new logos, but maybe not as aggressively as what we did previous years. So.
I think the teams are executing our strategies quite effectively.
Ed address Paul the question about Malaysia, and how we've handled the COVID-19 surge in Malaysia, and that has had an impact in wins and share gain and then I'd like to maybe just give a little more color around that I mean during at various points in the quarter with the omicron surge that we had as much as 15%.
Of our workforce out at any given time and our team in Malaysia was able to manage through that and beat their quarterly commitments. So it was really just I would say tremendous performance and it was there was an impact nearly the whole quarter long from absences due to COVID-19 .
Great.
Great job there and then Pat just on operating margins, you know nice rebound here sequentially and into the next quarter.
With the Thailand facility ramping.
Do you expect some pressures on margins the next couple of quarters.
What's your expectation for when we can kind of rebound back to your long term targets of five and a half and then on on free cash flow you mentioned positive for for second half.
Some offset in <unk> usage or are we still kind of a breakeven for the year.
Yeah, Okay, I can start with Thailand.
Paul I don't think the impact shouldn't be that significant for a few reasons.
We're ramping business in there pretty quickly.
So I think we'll get to corporate profitability over a few quarter period.
We're also using the campus environment, we've used in other areas, where we're utilizing the <unk> quite a bit to start up that facility. So not really that significant of an impact on operating margins.
I think over the next two.
Two to three quarters as were ramping there.
And generating revenue we will see.
Start to approach corporate averages.
From a cash flow perspective, I do think I mentioned in Q3 will be an investment we will offset that in Q4.
For the full year, I think anywhere to breakeven to an investment if.
If you look at where we were for the first six months, we were at about a usage of cash of $60 million to $70 million. So I think we will see some investments still for the full year, but.
It may be a bit lower than the first six months number yes. The one the one thing I'd add to your question. There Paul you asked about the ramp back to <unk>.
5% operating margin and that's really revenue dependent and so we've got this structure in place to service the demand that's north of $1 billion right now and as we hit those levels, which is over the next next couple of quarters few quarters.
That's the ramp that we should see it back into the fives.
And we've factored in Thailand.
Up into that margin goal.
Okay, Great and lastly on kind of the Capex forecast for next year.
Kind of the bulk of the spend Don and then we kind of revert back to maybe 20 2021 levels and.
Maybe you get.
Working cap some harvests there and.
After heavy investments this year and last year so.
We see free cash flow kind of normalize a bit here in 'twenty three is that the right way to think about it. Thank you.
It is Paul.
Now, whether we get back to F. 'twenty, one levels of Capex that was a pretty low year for us.
Probably in between the 'twenty, one and 'twenty two levels, but I do see improvement in quite a bit of improvement in our free cash flow for 2003.
Great. Thank you.
Thank you. Our next question comes from the line of Jim Ricchiuti with Needham Your line is open.
Yes, I wanted to go back to the comment you made earlier about the roughly $100 million of additional demand.
You've left out there.
As a result of some of the supply chain challenges I.
I Wonder if you could remind me what did that number look like for the.
For the December quarter, and how do you see that changing.
Looking out to the June quarter, just with some of the supply chain initiatives, you have underway, including the obviously the investment in inventories.
It was pretty similar in the December quarter, Jim right around $100 million.
Right now it still appears that over the next few quarters, we're going to continue to roll large amounts of demand forward on a quarter over quarter basis.
Got it and last question from me is.
The.
Slide that you show manufacturing wins, you characterize the industrial wins is exceptional.
Certainly it looks like a large number and I'm wondering if there's if you might be able to provide some color on that either in terms of applications.
It sounds like there's a fair amount with existing customers, but do these have the potential to move the revenue needle.
As they begin to scale over the next.
A year or so.
Yes, I think similar to the dialog that Todd had about the ramps that are in health care life Sciences. If you go back to fiscal 'twenty, one and you look at some of the healthcare wins those ramps are really the.
The benefits of those wins in 'twenty, one so as I look at the strong industrial wins in 'twenty two.
It is our expectation that as we go into 'twenty. Three these will these will ramp and add meaningful revenue to the corporation and so.
That I believe is a fair assessment and kind of the way that we look at it in terms of.
The mix it theres, a nice healthy wins across across the sector. Obviously semi cap has been strong for us we've talked about in the past.
Historically warehouse management has been has been good for us as well so I.
I think we're benefiting quite.
Quite well from <unk>.
Good efforts across all of the Subsectors within that industry.
Real sector.
Yeah.
Yes.
Got it. Thank you congrats on the quarter by the way.
Thanks, Jim.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your Touchtone telephone answer your question has been answered or you'd like to remove yourself from the queue. Please press the pound key.
I'm showing no further questions at this time I would now like to turn the conference back to Todd Kelsey.
Alright, Thank you Abigail and I'd like to thank everybody, who joined our call today. We certainly appreciate your support and your interest in plexus and have a very nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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