Q4 2022 Plexus Corp Earnings Call
Okay.
Good morning, and welcome to the Plexus Corp Conference call regarding its fiscal fourth quarter 2022 earnings announcement.
My name is Justin and I'll 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 <unk>, Vice President of Communications and Investor Relations Shawn.
Thank you Justin good morning, everyone and thank you for joining us today some of the statements made and information provided during our call today will be forward looking statements, including without limitation those regarding revenue gross margin selling and administrative expense operating margin other income and expense taxes cash cycle capital allocation and future.
Business outlook.
Forward looking statements are not 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, as 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 website at Www Dot, Texas 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, Pat Jermain Executive Vice President and Chief Financial Officer, Oliver Mihm, Executive Vice President and Chief operating Officer.
System with prior earnings calls Todd will provide summary comments before turning the call over as Steve and Pat for further details.
Let me now turn the call over to Todd Kelsey Todd.
Thank you Sean good morning, everyone.
Please advance to slide three.
Oh, I never wavering commitment to operational excellence and quest to provide our customers exceptional service our results improved sequentially throughout fiscal 2022, resulting in accelerating momentum that we expect to continue into fiscal 2023.
We ended our fiscal 2022, and a very strong note by delivering record quarterly revenue and operating profit.
Please advance to slide four for a review of our fiscal fourth quarter results.
Our fiscal fourth quarter revenue of $1.12 billion, representing year over year growth of 33% and GAAP EPS of $1.78 significantly exceeded our guidance.
Our EPS result included <unk> 18 of stock based compensation expense.
While we have not witnessed any meaningful easing in supply chain conditions.
Our supply chain team in conjunction with our partners and our investments in people processes and tools continues to find avenues to clear additional supply.
As a result of the progress made in mitigating constrained supply all three of our market sectors had strong quarter over quarter growth and significantly outperformed our expectations entering the quarter.
The revenue upside created fixed cost leverage resulting in record GAAP operating profit and GAAP operating margin equaling our five 5% goal.
Result, which included 45 basis points of stock based compensation expense.
Yes.
Our funnel of qualified manufacturing opportunities remained at a record $3 4 billion.
We also continue to win meaningful new programs, even though supply chain conditions have slowed the decision making process for some customers that we anticipate intend to partner with plexus.
We won $214 million in new manufacturing programs for our fiscal fourth quarter, bringing our fiscal 2022 total to $1 billion.
Included in the fourth quarter wins is an exciting opportunity with a new customer in vehicle truck and bus electrification.
Building upon our existing presence in this secular growth market.
Fiscal 2022 revenue was $3 eight $1 billion, which represented a 13% increase from fiscal 2021 exceeding our 9% to 12% revenue growth target.
Our revenue growth benefited from improving end market demand new program ramps inclusive of share gains.
Growing success in mitigating challenge component supply and our exposure to secular growth markets.
Our GAAP operating margin finished the year at four 7% inclusive of 61 basis points of stock based compensation expense.
And return on invested capital ended at 13%.
While both results were slightly below our long term targets, we delivered meaningful shareholder value in the measures increased substantially as the fiscal year progressed positioning us well for a strong fiscal 2023.
Please advance to slide six.
As a result of our strong performance in fiscal 2020 to our five year compounded annual revenue growth rate now stands at an industry, leading 9% consistent with our 9% to 12% goal.
Our return on invested capital over that same period is 14, 3% just under our long term target of 15%.
As we look forward, we remain focused on delivering at least 9% to 12% revenue growth.
Five 5% GAAP operating margin.
And 15% return on invested capital. We believe these are achievable goals and represent industry leading performance.
Okay.
Yes.
Please advance to slide seven.
As proud as I am of our efforts to deliver operational excellence during fiscal 2022.
Equally as proud of our environmental social and governance accomplishments.
Last year at this time, we implemented a paid volunteer time off program for our team members globally, which has been heavily utilized and has a strong success.
We've also grown momentum with our employee resource groups focused on diversity and inclusion, adding new chapters of these team member driven groups across all three of our operating regions.
In addition, we made great progress in our global energy reduction initiatives, reducing relative electricity consumption within our manufacturing sites over 10%.
Furthermore, we spent considerable time innovating across our suite of solutions in order to deliver services to accelerate our customers' progress towards their ESG goals.
Innovation is a core pillar of our environmental social and governance program and central to reducing the environmental impact and increasing the sustainability of our customers' products.
We provide innovation through our full suite of engineering solutions supply chain design and management new product introductions.
Manufacturing and what was formerly known as our aftermarket services.
Please advance to slide eight.
At <unk>, we are committed to building a better world by the way, we innovate and operate.
Our rebranded Plex of sustaining services exemplifies this vision.
Our customers want more than a partner that fixes a broken product.
Our customers want help in growing revenue being more profitable extending the lifecycle of their products and reducing waste.
Importantly, flex our sustaining services creates value for our customers through extending the service life of capital equipment that can be in use for 510 or even 20 years.
Through our sustaining services plexus supports our customers and their customers.
By ensuring product is ready for use at a critical time in point of need.
We ensure products that go back into the market are properly decontaminated and performing at or above the standards of newly manufactured products.
To ensure the best customer experience.
We support asset recovery to get raw materials back into the supply chain or into refurbished products.
Our sustaining services are a key part of the circular economy, a rapidly growing piece of our business and our global service offering supporting all of our market sectors.
Please advance to slide nine.
Looking ahead to our fiscal first quarter of 2023, we're getting revenue of $1.08 billion to $1 3 billion.
And GAAP EPS of $1 48, $1 40 to $1 58, including 20.
Of stock based compensation expense.
Our revenue guidance reflects the benefit from continuing new program ramps.
Significant unfulfilled backlog robust customer demand and our participation in numerous secular growth markets, including warehouse and factory automation.
Vehicle electrification commercial space and robotic assisted surgery.
We also anticipate an impact to GAAP EPS in the fiscal first quarter due to the absence of foreign exchange gains and greater interest and income tax expense relative to the prior quarter.
Yes.
Finally in regards to our fiscal 2023.
Each year I provided an annual update with other plexus leaders to our team members globally typically visiting each site.
This year represents the first time since prior to Covid that we have the opportunity to visit the vast majority of our team members in person and see the successes achieved and the opportunities for future growth.
A key component of my message of this fiscal year is to consider what is beyond our current goal of $5 billion in revenue at five 5% GAAP operating margin.
And how we need to evolve to achieve that next big goal.
The momentum built during the second half of our fiscal 2022.
Combined with the previously mentioned demand <unk> creates the opportunity for robust year over year revenue growth, even when considering the uncertain macro environment.
When coupled with our focus on operational excellence to drive manufacturing efficiencies and the significant investments made in our operations, we anticipate generating healthy operating leverage and strong EPS growth in fiscal 2023.
I will now turn the call over to Steve for.
For additional analysis of the performance of our market sectors and operations Steve.
Thank you Todd good morning.
I'll start on slide 10, with a review of the fiscal fourth quarter and the full fiscal year performance of our market sectors for 2022.
As well as our expectations for the sectors for the fiscal first quarter of 2023.
Throughout fiscal 2022 customer demand across all three of our market sectors was exceptionally strong.
As we highlighted during the year supply chain constraints, we're limiting our ability to capture the full demand of our customers.
In the fiscal fourth quarter, our supply chain team significantly outperformed our expectations and secured supply of constrained components.
Because we have made the investments in our operations to execute at a quarterly run rate well over $1 billion. Our team was able to fulfill additional demand for our customers.
The result, with shipments of $124 million or 12% above the midpoint of our fiscal fourth quarter guidance.
All sector results benefited from this exceptional performance.
Starting with the industrial outcome the sector grew revenue by 14% in the fiscal fourth quarter.
Our operations team leverage the improved supply to deliver above our commitments for 20 of our top 25 customers.
Our strong fiscal fourth quarter finish contributed to the industrial sector superior fiscal 2022 revenue growth of 13%.
For the fiscal first quarter, our backlog in our industrial subsectors, including semi cap remains robust.
Although our semi cap customers are signaling limited impact in the short term from a new U S Department of Commerce expert export control order.
We are taking a conservative approach in forecasting a mid single digit decline for the industrial sector for the fiscal first quarter.
Our health care life science sector achieved exceptional growth of 17% in the fiscal fourth quarter.
The results significantly exceeds our expectation of a mid single digit increase.
Strong execution with new program ramps and the improved material supply contributed to the outstanding result.
The sector grew sequentially throughout fiscal 2022 and finished the year with outstanding revenue growth of 18%.
As we start the fiscal first quarter the momentum with some of the sizable program ramps is increasing.
We expect this contribution from these programs and the continued strong demand across our health care life science customers.
Yield of mid single digit increase for the fiscal first quarter.
Was meaningfully above our expectations of a low single digit decrease.
Improved supply and inventory sales on to end of life programs contributed to the higher than forecasted revenue.
As we look to the fiscal first quarter supply chain constraints are still limiting our ability to capture our customers' full demand.
As such we anticipate a low single digit decline in the aerospace and defense sector for the fiscal first quarter.
Although supply chain constraints limited the healthcare the aerospace and defense sector's growth in the fiscal 2022, we expect meaningful growth in fiscal 2023.
Please advance to slide 11 for an overview of our wins performance.
132, new manufacturing programs during the fiscal fourth quarter that we expect to generate $214 million in annualized revenue when fully ramped into production.
With $1 billion in wins and revenue growth of 13% in fiscal 2022, our wins momentum, which is defined as a trailing four quarter wins divided by the trailing four quarters of revenue finished at 26%.
With the wins momentum that remains above our 25% goal, we expect new program ramps will continue to support our 9% to 12% revenue growth goal.
Next we can review a few sector and region highlights of the manufacturing wins for fiscal fourth quarter on slide 12.
The industrial and healthcare life Sciences sector, each had a solid quarter manufacturing wins at $90 million and $101 million respectively.
Included in the wins are two new logos for the industrial sector and one new logo for the health care life Sciences sector.
We expect all three of these new customers to generate meaningful revenue in fiscal 2023.
These opportunities are targeted for our Americas, and EMEA regions, which resulted in our robust regional wins of $121 million and $73 million respectively.
Please advance to slide 13 for highlights of our fiscal fourth quarter wins.
I will start with two new meaningful wins from our industrial sector.
We expect to have this program from a new logo largely ramped into our Iranian Romania facility by the end of this fiscal year.
The second industrial sector win highlight is the addition of a family of advanced motion controllers used in industrial automation.
The products for this new logo will be manufactured by our team in Guadalajara, Mexico.
Our health care life Sciences team won a nucleic acid detection product with a new logo that can be used in a wide variety of laboratory applications.
The program will be reduced and our Chicago, Illinois facility.
The health care Life Sciences team also won a thrombectomy system used in the removal of blood clots.
This FDA class III medical device will be produced in our health care Center of excellence facility in Guadalajara, Mexico.
Finally, our aerospace and defense wins include the mobile communications controller that integrates multiple mission critical sources into a single secured channel.
This program will be added to the platform of products, we build for this customer and a variety of Romania.
We can proceed to slide 14 for highlights of our funnel of qualified manufacturing opportunities.
As we exited the fiscal fourth quarter. The final maintained a record level of $3 $4 billion.
Some of the new additions to the funnel are a result of an increasing number of customers reevaluating their internal manufacturing strategies.
Our teams are partnering with our customers and the make versus buy analysis and we believe this trend has the potential to yield meaningful wins in fiscal 2023.
Next I'd like to turn to operating performance on slide 15.
In the fiscal fourth quarter, our supply chain team secured raw materials largely through the secondary market.
With infrastructure investments already in place operations team was able to convert the components into finished goods.
In addition to the record revenue the team delivered exceptional GAAP operating margin performance of five 5%.
As we look to the fiscal first quarter, our supply chain efforts in fiscal 2022 are enabling us to fulfill a robust customer demand yet we still have orders in excess of $100 million that we do not anticipate being able to satisfy within the fiscal first quarter.
Supply chain constraints and lagging edge semiconductors continues to be the main limiter and we expect this situation to continue well into fiscal 2023.
Similar to the fiscal fourth quarter, our supply chain teams will continue to search for creative solutions in order to support demand beyond our commitments.
I will now turn the call to Pat for an in depth review of our financial performance Pat. Thank.
Thank you, Steve and good morning, everyone. Our fiscal fourth quarter results are summarized on slide 16.
Gross margin of nine 5% was above the top end of our guidance and consistent with the fiscal third quarter.
For the fiscal fourth quarter, we experienced significant fixed cost leverage as revenue increased 15% sequentially, while fixed manufacturing expenses only increased slightly compared to the third quarter.
This leverage benefit offset inflationary pressures and greater than forecasted incentive compensation expense.
Selling and administrative expense of $45 million was above guidance, primarily due to additional incentive compensation expense linked to improved revenue and operating performance.
As a percentage of revenue SG&A was 4%, which was favorable to expectations and sequentially lower by 50 basis points.
Inclusive of approximately 45 basis points of stock based compensation expense, we delivered our targeted GAAP operating margin of five 5%, which exceeded the top end of our guidance.
Nonoperating expenses were favorable to expectations as a result of foreign exchange gains recognized in several countries due to the strong U S dollar.
GAAP diluted EPS of $1 78 was above our guidance due to our strong operational performance combined with lower non operating expenses and a favorable tax rate.
Turning to our cash flow and balance sheet on slide 17.
As anticipated for the fiscal fourth quarter, we made investments in working capital to align with our customers' strong demand with.
With customer support for these investments we managed to have minimal cash outflow from operations.
As a percentage of revenue full year capital expenditures were below 3%.
We restarted our share repurchase activity in mid August after our board of directors approved a new $50 million share repurchase authorization.
During the fiscal fourth quarter, we purchased approximately 38000 shares of our stock for $3 $5 million at an average price of $90 63 per share.
We now have $46 $5 million available under the current authorization and expect to execute repurchases on a consistent basis throughout fiscal 2023, while taking market conditions into consideration.
Our goal remains to return all excess cash to our shareholders.
Okay.
We ended the year with a strong balance sheet cash totaled $275 million, while total debt was $462 million.
We also had $237 million available to borrow under our amended credit facility.
I was pleased with our ability to steadily improve operating performance and manage working capital, which drove the sequential improvement in our return on invested capital as we move through fiscal 2022.
As a result, we ended the year with a return on invested capital of 13%.
Our fiscal fourth quarter cash cycle of 100 days was consistent with expectations and sequentially improved by two days.
For more details on our cash cycle, please turn to slide 18.
Sequentially inventory days improved by 16.
While still driving inventory purchases to support new program ramps further success in clearing constrained components allowed for robust growth in fiscal fourth quarter shipments.
While revenue grew 15% sequentially, our inventory value only increased 3%.
In addition, we now have 30% of our inventory covered with customer deposits.
Essentially offsetting the reduction in inventory days was a 15 day reduction in payable days related to the to earlier procurement and payment of inventory.
As Todd has already provided the revenue and EPS guidance for the fiscal first quarter I'll review some additional details which are summarized on slide 19.
Fiscal first quarter gross margin is expected to be in the range of nine 1% to nine 5%.
At the midpoint gross margin would be approximately 20 basis points lower than the fiscal fourth quarter.
We expect a near term impact on margins due to investments in fixed costs, including our new Thailand facility in order to support our strong growth outlook.
We expect selling and administrative expenses in the range of $45 million to $46 million slightly higher than the fiscal fourth quarter also related to incremental investments to support our projected growth.
Nonoperating expenses are expected to be in the range of nine to $9 $5 million sequentially higher primarily due to the anticipated absence of foreign exchange gains recognized in the fiscal fourth quarter, along with rising interest rates impacting our variable rate debt.
Our tax rate for both the fiscal first quarter and fiscal year is expected to be in the range of 14% to 16%.
Our expectation for the balance sheet is that working capital investments will modestly increase compared to the fiscal fourth quarter.
Based on our revenue forecast, we expect this level of working capital will result in cash cycle days of 98 to 102 days sequentially flat at the midpoint.
With modest working capital investment coupled with capital expenditures to support anticipated fiscal 2000, 2023 revenue growth, we expect a usage of cash for the fiscal first quarter.
A few comments on the full year, we expect capital spending to be in the range of $110 million to $130 million, which does not include any site additions.
Given our inventory position exiting fiscal 2022, we are projecting lower fiscal 2023, working capital investments compared to the prior year. Despite the robust growth expectations for this year.
Last with lower working capital investments, we expect free cash flow to improve as we move through fiscal 2023% ending the year with more than $50 million.
With that Justin let's now open the call for questions.
And thank you.
As a reminder to ask a question you will need to press star one on your telephone.
I'm, sorry Star one one on your telephone we please ask that you limit yourself to one question and one follow up and then queue back up if you have any further questions.
One moment for our first question.
Okay.
And our first question comes from Jim Ricchiuti from Needham <unk> Company. Your line is now open.
Alright, Thank you good morning.
Couple of questions if I may.
There's been a lot of focus.
The semiconductor capital equipment business. So I'm wondering if you could remind us what this represents in terms of revenues percentage of revenues for you and what are you hearing.
From those customers just relative to some of the industry data is suggesting.
The Wi Fi market could be down 20% or more in 'twenty three.
Yes. So Jim this is Tod I'll start and then I think Steve will probably want to comment as well too and our semiconductor business is about 20% ballpark of company revenue.
When we look at the.
The call it the semi conductor band that's out there and how that's impacting our customers.
There's a few things I would want to point out in the first is we see no impact that we have done a very thorough analysis of this no impact to non semiconductor capital equipment customers. So.
Nothing there.
Our semi cap customers are anticipating minimal impact in the near term.
And they are evaluating I would say the longer term now the ones that have completed their evaluation, depending on the products that we build for them or that the markets that theyre in the customers that they have in the backlog have come back reasonably optimistic with.
Essentially that they can be anywhere if they have a strong backlog potentially showing growth for next year two to down modestly now we've heard other things in the market from certain customers being down about or certain companies being down about 20%. So when we factor that all together and we think that maybe it could have a turn.
10% impact to at worst case to our business, our semiconductor business, which would be a couple of percent aggregate plexus, but what thats not counting as thats not counting the share gains that we have right now so we're winning a number of new programs and we also we don't do any build a semiconductor equipment in China and we have certain.
<unk> that are talking about taking product that they are building in China, now and moving it to <unk>. So we think theres potential to really gain from from even from that scenario and potentially be up next year.
Got it thanks for that Todd.
The other question I have is just and I'll jump back in the queue. Just in terms of the unfilled demand I'm wondering if you could provide any color as to how that might breakdown in terms of market verticals, just given that a couple of the verticals I think youre guiding down sequentially in Q1, I don't know if that seasonality or perhaps a change in scheduling on the part of customers.
Yes, so if you look across the market sectors. So we are guiding up in health care life Sciences, and new program ramps from all of the wins that we've had the previous couple of years are really starting to hit stride. So we're pretty bullish there in terms of where that sector is going to go.
With industrials, we are a bit conservative in our guidance given the semi cap, but I can tell you looking across fiscal 'twenty three most of our subsectors in that space are forecasting growth through fiscal 'twenty three so.
For us we do expect growth in that in that sector as well aerospace and defense is the one that's probably the most dynamic at the moment they are wagging and recovering from the supply chain.
A lot of the conversations with our customers are still about how do we accelerate meeting commitments and drop in demand.
So for us the demand is there.
It's more.
Somebody is lagging in semiconductors and getting them in the right pipeline to achieve the demand. That's there. So we do expect growth in all of the sub sector or all of the sectors as we go through fiscal 'twenty three.
More of a short term impact and then for aerospace and defense, it's really just related to supply chain constraints, yes. The one thing I would add on that Jim too just to point out as part of the reason and we certainly are modest guiding Q1 modestly down but part of the reason is a modestly down guidance because Q4 finished so strong so.
Okay.
Got it thank you.
And thank you.
And one moment our next question.
And our next question comes from David Williams from Benchmark Company. Your line is now open Hey.
Good morning, gentlemen, and congrats on the $1 billion in quarterly revenue milestone, that's really great execution and it feels like youre hitting on all cylinders here.
Thanks, David I appreciate it yes, it really great performance.
And then just kind of wanted to ask here and you've covered this a bit in your last your last answer but on the industrial side, we heard from one of the major semi suppliers. This week that pointed the slowing trends kind of broadly across the industrial segment. I guess, what are you seeing anything similar in your order book and have you adjusted your orders maybe from component suppliers or do you.
This is maybe just kind of what your place in the supply chain and maybe inventory coming back into balance maybe for there.
Supply chain, just anything or I guess around the industrial segment would be helpful.
Sure.
From a customer standpoint.
There, obviously are still trying to figure out the impact of China, but with that said the backlog is so strong.
What we expect is basically just a reallocation of the demand.
The China demand declines and so Todd talked about the fact that there could be a bit of a decline in our business over over the year to the rate of maybe a couple of percent but.
At this point no dramatic declines expected.
I think one of the things that referring to there's a few people have come out and talked about the fact that industrials and maybe some of these lagging semiconductors.
A little bit of softness that is not what we're seeing in terms of what.
The historical challenges that we've had through fiscal 'twenty to continue from.
From the same relative suppliers and so there's a little bit of optimism that maybe there is some freeing up thats going to happen as we go through 'twenty three here, but for us.
The supply chain constraints and the lagging node, which are typically within the products that we build.
Still very challenging to get to secure supply for yeah. What I'd say is overall too in our broader industrial space, we're not seeing a degradation of demand on aggregate.
Okay, and Thats a great color. Thanks, so much.
And then maybe just kind of thinking from a cyclical perspective.
Understanding your markets are less sensitive to the macro changes.
Yes, it would.
Probably be.
Modestly.
Later, but the one component that's definitely earlier for US is our engineering.
Because typically if there's a pullback in spend we'd see that first and there is no evidence of that right now.
Okay, great. Thanks, so much guys certainly appreciate it and best of luck on the quarter.
Yes.
Thank you Anne.
And one moment for our next question.
Thank you and our next question comes from Steve Fox from Fox Advisors LLC.
Hi, Good morning couple of questions from me first off I was wondering if you can provide a little bit more color on the electrification program you mentioned in the beginning of the prepared remarks.
And how it fits into the bigger picture Youre right to play in those types of markets et cetera, and then.
Secondly, if we just step back and think about.
The industry as a whole your guidance.
Obviously delivered tremendous upside we've seen it.
Across the board from companies you compete against.
What would you say is the biggest overarching dynamic thats driving sort of.
The better industry performance, including your performance over the last 12 months to 18 months. Thanks.
Sure. This is Steve I'll hit on the electrification part and so from US I think as you all know we're not in the automotive space and so electrical vehicles for US is not something we have a desire to pursue however, as you look across where electrification is going and it's going into industrial equipment.
The trucks in that area as well as in the infrastructure to support electrical vehicles that is a really nice sweet spot for what <unk> has to bring and so we've been very successful working with those types of companies, bringing our solution to them. In this case of this one that we announced today discussed.
Yes.
Sorry to interrupt just before you can move on Steve can you just give us a sense of exactly like what you do in that customer name, but like what capabilities are you, bringing to the table I'm still not clear on how you're servicing a customer. Thanks.
Yes. These are these are more on the high availability high reliability Chargers. They go everything from.
You go to industrial equipment to things that are used in construction.
Trucks and buses, but they also go into more of the.
The market basically supporting electrical vehicles as well. So this customer for example, those everything across the board from electrical vehicles trucks buses heavy construction equipment.
And they have a family of products that we do for them. So.
It's pretty much across all electrical charging applications.
The one thing I'd add to Steve is the program that we referenced in the press release is beginning as a manufacturing program, but we have other customers in that space that are using our full suite of services. So it's more than more than one customer and more than one service offering is pretty broad based.
That's helpful and then just a bigger picture question.
Yes, so I mean, I'm not going to speak to the industry as a whole, but I'll just speak to us and what's driving or are better than projected performance and what you have is we have some really strong demand across all of our end markets.
And the fact that the market hasn't gotten worse, if you can call that good news that stability of their enables these.
Something that we continue to pursue.
Primary thought process relative to our footprint expansion.
One thing I'd also add on the Bangkok facility Melissa is that.
We have multiple customers ramping within that facility at a pretty reasonable rate and we believe we will achieve profitability in the facility during the current fiscal year.
Great. Thanks.
On the supply.
Maybe just one quick follow up with a number of the new programs ramping I was just wondering if we should be thinking about any type of seasonal patterns in the revenue going forward or will the quarterly results just be driven by specific delivery timelines for these programs.
Yeah. This is Steve we're not anticipating any significant seasonality associated with the programs.
So I would expect it to basically just continue down the path a bit.
The demand remains strong across the all of the Subsectors.
We're expecting that to continue throughout the year.
Yes, Melissa as you know from a cost standpoint, our March quarter always is impacted by.
Merit increases and reset of U S payroll taxes, so from that standpoint, we do see.
A bit of pressure on our margins in that quarter.
Okay, great. Thanks, that's all from me.
Thank you Melissa.
Thank you.
And one moment our next question.
And our next question comes from Matt Sheerin with Stifel. Your line is now open.
Some detailed commentary about.
The outlook for the various sectors for fiscal 'twenty, three but we haven't seen an exact sort of target range.
Based on your December guide Youre going to be up.
Call, it 35% or so year over year.
Q1, so as we think about the full year.
Is it reasonable to assume that you should be able to grow 15% to 20%.
Yes.
Matt This is Todd I'll take this one.
One of the things we've been intentionally a little bit vague, but just because of the <unk>.
Macro and geopolitical uncertainties that are out there as well as supply chain constraints. So.
So we don't want to turn into Prognosticators at the wrong time here, but I can give us some idea at least is how we see things currently and then you can make your own judgments as to where to go from there, but when we look at our sectors, we see strong double digit growth from all of our market sectors.
Probably even more exceptional growth out of health care with all the program ramps that are going on there now our Q1 guide is essentially flat, but we would expect that we'd start to see quarterly growth then again after that the way things shape up right now. So if you if you take Q4 new flat.
Line it out there I mean, it puts us above our 9% to 12% revenue growth and a bit into the area that you had just mentioned there. So so certainly that's an achievable goal we believe at this point.
Okay. Thanks for that and then.
Just in terms of the outsourcing the wins that you've talked about the pipeline and the funnel all up Steve you did talk about an acceleration I think of wins in North America.
EMEA and is there any of that related to your customers moving more business or.
Production out of out of Asia.
We're ensuring does your geographic exposure gives you an edge in terms of some of these deals.
Sure, maybe even going back to melissa's comment about where do we see our expansion and so.
Got the footprint the curious in the $4 billion, but as we go to five we do expect growth in all three regions from a facility standpoint, and that's driven by what we expect our customers to ask us for.
Now with that said our historical growth engine had been APAC outperforming kind of the other regions I think what we're seeing now is more of a more balanced growth in all three regions as we look to go to $5 billion and beyond and so companies that historically, but just default to APAC or a different region or now looking maybe at Mexico.
Or.
In Eastern Europe , and part of that is for the geopolitical reasons, but part of it is also a bit more focus on the ESG side of the world in terms of what is the carbon footprint associated with moving to your product around and so we see more conversations.
And more considerations of things beyond maybe just what is the lowest part price.
But our expectation and then what we see in our forecast is growth in all three regions.
As we go to $5 billion.
Okay. Okay. Thanks for that.
Very helpful and just lastly, if I may just in terms of inventory.
It sounded like Youre seeing a little bit.
Of better supply, but still working hard dealing with the spot broker market et cetera.
But Pat you also talked about expectation for.
Increased cash flow as you get through the year. So are you hearing from customers that.
We've had enough inventory or let's let's start to rebalance.
Because I know a lot of OEM customers are having working capital requirements are.
Issues as well because they have to obviously find some of some of your inventory.
We're not necessarily hearing that I think the focus Matt is really on some of the new program ramps and being able to support.
The inventory that's needed for those so I mean, we do see some growth in working capital with the topline growth, but just at a lower rate than we had experienced all of fiscal 'twenty two.
Got it okay. Thank you.
And thank you.
And one moment our next question.
Thank you and our next question comes from Anja Soderstrom from Sidoti. Your line is now open.
Alright, Thank you for taking my questions and congratulations on another great quarter.
So I'm just curious.
It does mean any change in sentiment among the company have you seen any more comments given the uncertain economic environment.
Okay.
Yeah.
Yeah on your this is Oliver I'll take that.
I would say that the decommit rate has not changed appreciably just referencing back to what Steven Todd mentioned earlier.
Primary commodity that ends up being the limiting factor for us to create that cleaning kit is often in the semiconductor commodity and Steve can connect the dots early that's due that lagging edge technology components.
We are not seeing an increase in <unk>, we're seeing.
Really no change in lead time, which is what underscores todd's remark in the prepared commentary there that we have not seen an appreciable change in the overall supply chain constrained dynamic.
Okay, Thank you and and given this now.
Navigating the supply chain challenges quite well and so as we come out of that and that normalizes, what kind of impact do you think that might have on your business.
Well I think we've got a couple of things that are going to have an impact on our business I think in the nearest term when we look at the supply chain normalizing as we have the unfulfilled backlog to essentially clear so that.
That's going to result in some increased revenue over that time period, but I do believe that the processes. We've put in place to manage through this period are going to help us to forecast and drive revenue and drive inventory more effectively as we move forward, so hopefully and with any luck we're out.
This in calendar 'twenty three at some point it hopefully at least by the end of it and then we're driving better processes and tools and such so one other clarification I wanted to make on semiconductors, as well too and when we talked about lead times not changing for us. It's it's the lead times for the gating components, which are those.
Lagging edge ones, we are seeing improvements in leading edge semiconductors as well as some of the other commodities that we track and I wouldn't say, it's a great environment, but it is an improved environment, but the gating components are equally as difficult in.
Challenging and long to get.
Yes, it's more specific.
Okay. Thank you that was all for me.
And thank you.
One moment for our next question.
And our next question comes from Paul Chung from Jpmorgan. Your line is now open.
Hi.
For taking my questions.
So just first off can you talk about kind of the pricing versus volume dynamic where you've seen what's been the kind of the uplift from component inflation. If you could quantify that and where are you seeing more volume ramps as well.
Yes, Paul this is Pat.
Inflation standpoint, it's kind of mid single digit is what we're seeing.
And then we're also seeing on the labor side, some increases that we're working with our customers on.
But that's essentially what we're seeing at this point.
Got you and then on the wins, you've had very strong wins over the past seven quarters trailing four quarters basis.
Youre seeing some declines here for the second consecutive quarter is there anything to read into there.
Backlog remains quite robust, we're seeing a pretty nice visibility here.
<unk>.
Into 'twenty three and beyond.
Yes, there is nothing we're reading into it right now I mean, we had strong wins in the fiscal second quarter of 2002, and one of the reasons, we stay focused on the trailing four quarters is.
We don't try to close our goal at the end of each quarter, because it drives rational pricing, sometimes I think probably the only one thing that we're mindful of is the distractions in the aerospace and defense that are being caused by the supply disruptions.
Other than that.
Nothing nothing that we're looking at we are as I mentioned in my commentary.
Starting to see some of our other customers that had been distracted in the past and industrial as well as in health care life Sciences, starting to do kind of what they did in the past a bit pre COVID-19, which is start looking at their manufacturing strategy and more.
The detail and I think with all the things that Covid brought to all the different companies out there.
Do see more strategic discussion starting to happen about what it is given the supply chain disruptions that have happened given COVID-19 that's happened.
What do they want their spending a few more cycles thinking about what they want their long term manufacturing strategy to be and typically when that starts to happen that's good for us.
Got you and then lastly, Pat on on cash flow did you mentioned capex for 'twenty three and.
How do we think about free cash flow conversion kind of long term beyond beyond 'twenty three it sounds like working cap.
Made somewhat elevated in 2003 as you kind of work through that backlog, but can.
Can we start to see more meaningful conversion maybe in 2004 in your view. Thank you Yep Yep I sure do you see that Paul I did mentioned the guide for 'twenty, three being a $110 million to $130 million without any consideration to site additions.
At that level, we would be less than 3% of revenue and I think going forward, that's probably a good goal for us.
Because with the organic growth, we're facing we're going to have to continue our investments in capital expenditures and working capital but.
But I do see a better conversion rate clearly better than fiscal 'twenty. Two when we were faced with supply chain constraints. So.
Again growing organically, we're going to have to invest in if you're in the teens growth that is going to consume cash, but I fully believe we'll be able to generate free cash flow for disc.
Distribution to our shareholders.
And I think longer term it would be in the range of about 80% net income conversion.
Okay. Thank you very much very nice execution.
Thank you thanks, Paul Thank you.
And one moment for our next question.
And we have a follow up question from Jim Ricchiuti Needham <unk> Company. Your line is now open.
Yes.
Everyone defines secular growth differently.
Within your portfolio.
I'm wondering.
Which areas or opportunities are you most excited about in fiscal 'twenty three.
In fiscal 'twenty four.
Highlighting a few electric.
Electrification charging applications warehouse automation, but I wonder if.
Where do you see.
Yes, again the potential for <unk>.
Bigger growth.
Yes, what we see certainly robotic assisted surgery and that's one we've talked about a lot within health care I think therapeutics.
A really significant growth market for us where we have a number of a very exciting new programs that are ramping so those jump first and foremost in mind, we have the commercial space that we've talked about in.
In General Aerospace is just in a position to have a strong recovery because of the the down cycle that it's in right. Now. So those are some I would say are are particularly exciting maybe one other one within health care would be single use devices that would be used in surgical products.
Got it helpful. And then finally, if I could one last question just on the.
Thailand capacity.
You may have touched on this but I'm wondering about.
The interest level from new customers versus existing customers awarding additional programs as a result of your expanded footprint there.
Yeah, right now primarily the business thats going into it now we're ramping now is existing customers, but theres a good deal of new customer interest as well too. So we believe we'll have a nice balanced portfolio of new and existing as we move forward.
And the new customers would be a fiscal 'twenty four.
Contribution perhaps.
Okay.
There'll be a fair assessment that our Thailand would be primarily existing customer revenue in 'twenty three and then it start to blend between existing and new in 'twenty four and beyond Thank you that's fair.
Got it and I think what for me. Thanks.
Thank you Jim.
Go ahead, sorry say, one other comment about Thailand, the exciting part for us with existing customers is that there is it's not all transfer of existing business Theres new programs, so that theyre.
Bringing the facility so we're getting market share gain with a facility as they look to bring new programs into the and the operations, including stuff from China. So.
We've got many different avenues for growth there.
Got it thanks for that additional color and congratulations on that.
Sure.
Thanks, so much Jim.
And thank you.
And I am showing no further questions I would now like to turn the call back over to Todd Kelsey CEO for closing remarks.
Alright, Thank you Justin I'd like to thank everybody, who joined our call today. We certainly appreciate your support and interest in flex us and one of the things I would like to reiterate in closing is that we're very excited about the momentum that we built through fiscal 2022. We believe this finished positions us for meaningful revenue growth and strong EPS leverage in fiscal.
2023, so thank you all very much and everybody have a nice day.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
So raise your hand during Q&A you can dial one one.
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