Q4 2023 Plexus Corp Earnings 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.
Note. This conference is being recorded.
I would now like to turn the call over to Shawn Harrison Plexus, Vice President of Communications and Investor Relations Shawn.
Thank you Felicia.
And thank you for joining us today.
The statements made and information provided during our call today.
These statements.
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.
The 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 filings. The fiscal year ended October one 2022 supplemented by our Form 10-Q filings and the Safe Harbor and fair disclosure statement in our press release.
We encourage participants on the call. This morning to access the live webcast and supporting materials at plexus website at Www 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, and Oliver Mihm, Executive Vice President and Chief operating Officer.
Consistent with prior earnings calls Todd will provide summary comments before turning the call over to Steven Patrick further details.
Let me now turn the call over to Todd Kelsey.
Thank you Sean good morning, everyone.
Please advance to slide three.
Fiscal 2023 was an exceptional year for plexus R.
Our team's focus on delivering operational excellence and customer service excellence resulted in outstanding financial performance.
In addition, we advanced our sustainable and responsible business practices aligning to our vision to help create the products that build a better world.
As we will discuss in more detail the accelerating momentum built in fiscal 2023 supports our confidence in achieving $5 billion in revenue with five 5% GAAP operating margin by our fiscal 2025.
Please advance to slide four.
For fiscal 2023, we delivered revenue growth in excess of 10% five 2% non-GAAP operating margin.
16% non-GAAP EPS growth.
And free cash flow of $62 million.
While we have consistently delivered industry, leading revenue growth and profitability. This result represents the first time in 15 years, we have delivered double digit revenue growth with greater than 5% operating margin.
With momentum building in many of our markets.
Increasing new program ramps and the opportunity to capture the ongoing unfulfilled demand as supply chain challenges lesson, we continue to forecast forecast accelerating revenue growth as fiscal 2024 progresses.
Please advance to slide five for a review of our fiscal fourth quarter results.
Our fiscal fourth quarter represented our fifth consecutive quarter with revenue in excess of $1 billion.
And our sixth consecutive quarter with GAAP operating margin exceeding non-GAAP operating margin exceeding 5%.
We delivered quarterly revenue of $1.0 billion to $1 billion slightly exceeding the midpoint of our guidance.
The continued progress by our team and its ability to clear supply mitigated ramp delays and inventory correction activity with some healthcare life sciences customers.
In addition, we again under ship demand this quarter by at least $100 million.
Primarily as a result of component shortages.
For the quarter, we delivered GAAP operating margin of five 2%, including 57 basis points of stock based compensation expense meeting the high end of guidance.
GAAP EPS exceeded guidance at $1 44 per share, including 21 of stock based compensation expense.
Please advance to slide six.
In the fiscal fourth quarter, we won 30, new manufacturing programs with $192 million when fully ramped into production.
After delivering record performance in our fiscal third quarter, we witnessed some delay in closing new program win opportunities late in the fiscal fourth quarter.
Nonetheless customer interest remains high and our geographically diverse and industry leading capabilities.
In addition, our funnel of qualified manufacturing opportunities, although down sequentially due to harvesting a normal turnover activity expanded nearly $300 million year over year exiting fiscal 2023 at $3 7 billion.
This funnel continues to include a greater than typical number of large opportunities in each of our market sectors positioning plexus to maintain strong manufacturing wins momentum and robust revenue growth over the long term.
Please advance to slide seven.
We are guiding fiscal first quarter revenue of $990 million to $1.03 billion.
GAAP operating margin of four eight to five 3% inclusive of approximately 52 basis points of stock based compensation expense and.
And GAAP EPS of $1 15.
To $1 33.
Our GAAP EPS guidance includes approximately <unk> 19 of stock based compensation expense.
Okay.
Yeah.
We expect to benefit from sustained robust commercial aerospace demand and improving semiconductor capital equipment demand. While also facing headwinds as a result of short term inventory corrections with certain health care life Sciences customers and a reduction of components procured at above market prices to more normal levels.
Looking further ahead, we continue to forecast accelerating revenue growth as fiscal 2024 progresses, leveraging strong demand in our aerospace and defense and industrial market sectors, accelerating new program ramp momentum and lessening supply chain challenges, which creates the opportunity to capture our.
Ongoing backlog of customer demand.
As a result as revenue growth accelerates. We also anticipate operating margin expansion. Consequently, we remain confident in achieving our goal of $5 billion in revenue with five 5% GAAP operating margin by our fiscal 2025.
Please advance to slide eight.
Finally, I'd like to provide an update on our advances in furthering our sustainable and responsible business practices as well as share some exciting recent recognition.
I am extremely proud of how our team members supported our vision of helping to build a better world in fiscal 2023.
First we contributed over 19000 volunteer hours to our local communities, an increase of 300% year over year.
Next we made a significant expansion of the reach and impact of our employee resource groups, where we added two new groups and 15 chapters globally.
Additionally, we donated over $1 million through our plexus charitable foundation.
Okay.
Further we delivered sustainable solutions within our operations as we expect to substantially exceed our 5% energy intensity reduction goal for fiscal 2023.
This was following a 12% reduction in fiscal 2022.
Yeah.
Finally, we realized a shared benefit from collaborating with companies to help design and produce more sustainable products.
During our fiscal second quarter 2023 earnings call, we highlighted our partnership with bevy, where we manufacture the smartwater dispenser at our Appleton, Wisconsin facility.
This product highlights how we engage with our customers to combine innovation and sustainability to help build a better world.
The Bebee Smartwater dispenser is capable of delivering 40000 different varieties of different delicious water.
Bevy installations have save the equivalent of over 400 million single use water bottles to date, including more than 120000.
At our plexus U S sites.
Last week, the bevy Smartwater dispenser was voted the coolest thing made in Wisconsin for 2023, and our competition held by Wisconsin manufacturers and Commerce. The most influential business Association in Wisconsin.
Operator: Hall. 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.
Operator: The conference call is scheduled to last approximately one hour. Please note, this conference is being recorded.
Wonderful recognition for bevy and our plexus team.
I will now turn the call over to Steve for additional analysis of the performance of our market sectors Steve.
Shawn Harrison: I would now like to turn the call over to Shawn Harrison, Plexus Vice President of Communications and Investor Relations. Shawn? Thank you, Felicia.
Thank you Todd good morning.
I will step through a review of the fiscal fourth quarter and the full fiscal year performance of each of the market sectors for 2023, as well as our expectations for each sector for the fiscal first quarter of 2024.
Shawn Harrison: Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be for looking statements, including without limitations, those regarding revenue, gross margin, selling and administrative expense, operating margin, further income and expense, taxes, cast cycle, capital allocation, and future business outlook. For looking statements or not guarantees, since they are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward looking statements.
Starting with the industrial sector on slide nine revenue declined 2% in the fiscal fourth quarter. The result was better than our expectations of a mid single digit decline.
Improvements in component supply enabled a stronger result.
For the full year of fiscal 2023, New program ramps helped overcome the headwinds of the semi cap sub sector to hold revenue flat as compared to fiscal 2022.
Shawn Harrison: For a list of factors that could cause actual results that differ materially from those discussed, please refer to the company's periodic SEC filings, particularly the risk factors in our form 10K filing. The fiscal year ended October 1st, 2022, was supplemented by our form 10K filings, and the state-private fair disclosure statement in our press release.
As we start the fiscal first quarter, we expect new program ramps and strengthening demand with some customers in our semi cap and test and measurement subsectors produced to produce a high single digit increase.
Looking at the wind performance for the industrial sector. The team closed $52 million of qualified manufacturing wins in the fiscal fourth quarter. Two finished fiscal 2023 with strong wins of $461 million.
Shawn Harrison: We encourage participants on the call this morning to access the live webcasts and supporting materials to Plexus's website at www.Plexus.com, clicking on investors at the top of that page.
The new programs include another charging system for electrified heavy equipment that we will produce and our Appleton, Wisconsin facility.
Shawn Harrison: Joining me today are Todd Kelsey, Chief Executive Officer, Steve Frish, President and Chief Strategy Officer, Petra Main, Executive Vice President and Chief Financial Officer, and Oliver Men, Executive Vice President, Chief Operating Officer. Consistent with prior earnings calls, I will provide summary comments before turning the caller's seat and pat for further details.
In addition, we also won a family of products used to improve the efficiency of power grids through automated control. These devices will be manufactured in our radio Romania facility.
We can proceed to health care life Sciences sector on slide 10.
Sector was down 1% for the fiscal fourth quarter, which was in line with our expectations.
Todd Kelsey: Let me now turn the caller at Todd Kelsey. Todd. Thank you, Sean.
For the full year of fiscal 2023, the health care life Science sector grew 20%, which is an exceptional results from our fiscal year view.
Todd Kelsey: Good morning, everyone. Please advance to slide three. Fiscal 2023 was an exceptional year for Plexus. Our team's focus on delivering operational excellence and customer service excellence resulted in outstanding financial performance. In addition, we advanced our sustainable and responsible business practices, aligning to our vision to help create the products that build a better world. As we will discuss in more detail the accelerating momentum built in fiscal 2023 supports our confidence in achieving $5 billion in revenue with 5.5% gap operating margin by our fiscal 2025.
As we move into fiscal 2024, we.
We see some customers adjusting inventory levels down for end of the calendar year, and we see inflated material pricing returning to normal levels.
In addition, the growth trajectory of two new program ramps were reduced to align with broader supply chain constraints as well as near term lower demand.
The net result is we expect revenue in our healthcare life sciences sector to decline low double digits in the fiscal first quarter.
Looking at the wind performance for the health care life Sciences sector, the wins were robust at $104 million for the fiscal fourth quarter.
Todd Kelsey: Please advance to slide four. For fiscal 2023, we delivered revenue growth in excess of 10%, 5.2% non-gap operating margin, 16% non-gap EPS growth, and free cash flow of $62 million. While we have consistently delivered industry leading revenue growth and profitability, this result represents the first time in 15 years we have delivered double-digit revenue growth with greater than 5% operating margin. With momentum building in many of our markets, increasing new program ramps, and the opportunity to capture the ongoing unfulfilled demand as supply chain challenges lesson, we continue to forecast accelerating revenue growth as fiscal 2024 progress.
The strong for initial contributed to the teams healthy wins performance of $336 million for fiscal 2023.
Included in the fiscal fourth quarter wins, or neuro stimulator bladder control system. We will produce this finished medical device and our audio Romania facility.
In addition, we added a new logo rather than industry leader in the diagnostic laboratory equipment area.
We will start the relationship by manufacturing sub assemblies for them in Guadalajara, Mexico.
Advancing to slide 11, our aerospace and defense sector grew 11% in the fiscal fourth quarter. The strong result was in line with our expectations of an approximately 10% increase.
Meaningful expansion with nine of the top 10 customers in the sector enabled a solid outcome.
For the fiscal fourth quarter and for the full year of fiscal 2023, we saw robust demand, especially in commercial aerospace.
Todd Kelsey: Please advance to slide five for a review of our fiscal fourth quarter results. Our fiscal fourth quarter represented our fifth consecutive quarter with revenue and excess of $1 billion in our sixth consecutive quarter with gap operating margin exceeding nine gap operating margin exceeding 5%. We delivered quarterly revenue of $1.02 billion slightly exceeding the midpoint of our guidance. The continued progress by our team in its ability to clear supply, mitigated ramp delays and inventory correction activity with some healthcare life sciences customers.
In spite of the supply chain challenges throughout the year. The team was able to grow the aerospace and defense sector, 17% in fiscal 2023.
As we looked at our fiscal first quarter commercial aerospace demand remains robust and some of the supply chain constraints are easing.
As a result, we anticipate a mid single digit increase for the aerospace and defense sector for the fiscal first quarter.
Reviewing the wind performance for the aerospace and defense sector. The team $136 million of qualified manufacturing opportunities in the fiscal fourth quarter, which brought their fiscal 2023 total to a robust $149 million.
Todd Kelsey: In addition, we again, undership demand this quarter by at least $100 million primarily as a result of component shortages. For the quarter, we delivered gap operating margin of 5.2%, including 57 basis points of stock based compensation expense, meeting the high end of guidance. Gap EPS exceeded guidance at $1.44 per share, including 21 cents of stock based compensation expense. Please advance to slide six. In the fiscal fourth quarter, we won 30 new manufacturing programs worth $192 million when fully ramped into production.
Included in the wins of the large power converter for a defense application from a new division of an existing customer that will be produced in our Boise Idaho facility.
Advancing to slide 12, we can review a few regional highlights of the manufacturing wins for the fiscal fourth quarter.
The Americas wins of $97 million in the fiscal fourth quarter drove the region's fiscal 2023 total to $482 million.
The healthy wins total for the year, along with a robust regional funnel is confirmation of our strong value proposition of the region.
The APAC regions total wins of $183 million in fiscal 2023 benefited from steady wins from the industrial sector throughout the year.
Todd Kelsey: After delivering record performance in our fiscal third quarter, we witnessed some delay in closing new program win opportunities late in the fiscal fourth quarter. Nonetheless, customer interest remains high in our geographically diverse and industry leading capabilities. In addition, our funnel of qualified manufacturing opportunities, although down sequentially due to harvesting and normal turnover activity, expanded nearly $300 million year over year, exiting fiscal 2023 at $3.7 billion. This funnel continues to include a greater than typical number of large opportunities in each of our market sectors positioning plexus to maintain strong manufacturing wins momentum and robust revenue growth over the long term.
With over one half of the region's fiscal fourth quarter wins of $43 million coming from the industrial sector. The fiscal fourth quarter was no exception.
The region is poised for meaningful growth from this sector, especially of the semi cap sub sector strengthens.
Finally, the EMEA region had its sixth consecutive quarter of wins over $50 million.
With $52 million of new wins in the fiscal fourth quarter. The region recorded an impressive $280 million of wins in fiscal 2023.
With our fiscal 2023 revenue growth rate over 30% the regional operations team did an outstanding job converting the wins to revenue.
We expect the momentum to continue resulting in another exceptional growth year for the region in fiscal 2024.
Todd Kelsey: Please advance to slide seven. We are guiding fiscal first quarter revenue of $990 million to $1.03 billion. Gap operating margin of 4.8 to 5.3% inclusive of approximately 52 basis points of stock based compensation expense and gap EPS of $1.15 to $1.33. Our gap EPS guidance includes approximately 19 cents of stock based compensation expense. We expect to benefit from sustained robust commercial aerospace demand and improving semiconductor capital equipment demand, while also facing headwinds as a result of short term inventory corrections with certain health care life sciences customers and a reduction of components procured at above market prices to more normal levels.
I will finish with a review of our funnel of qualified manufacturing opportunities on slide 13.
The combined funnel remains strong at $3 7 billion.
For the fiscal fourth quarter, the industrial sector on a closed at $938 million.
New qualified opportunities, especially from semi cap customers backfill in the quarterly wins to maintain the industrial funnel at a very healthy level.
The health care life science sector funnel dipped given the strong wins performance internal of our activity.
At $1 9 billion at the end of fiscal fourth quarter. The funnel remains at a very resilient model.
The aerospace and defense sector team grew with funnel by $110 million to close our exceptionally strong level of $840 million for the fiscal fourth quarter.
New security and commercial space opportunities contributed to the strong growth.
Todd Kelsey: Looking further ahead, we continue to forecast accelerating revenue growth as fiscal 2024 progresses, leveraging strong demand in our aerospace and defense and industrial market sectors, accelerating new program ramp momentum and lessening supply chain challenges, which creates the opportunity to capture our ongoing backlog of customer demand. As revenue growth accelerates, we also anticipate operating margin expansion, consequently remain confident in achieving our goal of $5 billion in revenue with 5.5% gap operating margin by our fiscal 2025. Please advance to slide 8.
Fiscal 2023 was a solid year for our global market development team.
The capitalized upon the strong value proposition that our operations and supply chain teams have created by securing $946 million in manufacturing wins in fiscal 2023.
On top of this almost $1 billion of wins the global market development team expanded the funnel of qualified manufacturing opportunities by $283 million during fiscal 2023 and exceptional result.
We started fiscal 2024 in a great position for continued strong wins performance.
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 fourth quarter results are summarized on slide 14.
Todd Kelsey: Finally, I'd like to provide an update on our advances in furthering our sustainable and responsible business practices, as well as share some exciting recent recognition. I'm extremely proud of how our team members supported our vision of helping to build a better world in fiscal 2023. First, we contributed over 19,000 volunteer hours to our local communities, an increase of 300% year over year. Next, we made a significant expansion of the reach and impact of our employee resource groups, where we added two new groups and 15 chapters globally.
While revenues slightly exceeded our guidance midpoint gross margin of nine 4% exceeded the top end of our guidance.
Robust growth in our aerospace and defense market sector, and strong fixed cost management, especially in our APAC region drove the healthier than expected performance.
Selling and administrative expense of $43 $4 million was slightly above guidance, primarily due to higher incentive and stock based compensation expense associated with stronger profitability performance as.
As a percentage of revenue SG&A was four 2%, which was consistent with expectations.
Todd Kelsey: Additionally, we donated over $1 million through our Plexus charitable foundation. Further, we delivered sustainable solutions within our operations, as we expect to substantially exceed our 5% energy intensity reduction goal for fiscal 2023. This is following a 12% reduction in fiscal 2022. Finally, we realized a shared benefit from collaborating with companies to help design and produce more sustainable products. During our fiscal second quarter 2023 earnings call, we highlighted our partnership with Bevy, where we manufacture the smart water dispenser at our Appleton Wisconsin facility.
GAAP operating margin of five 2% was at the high end of our guidance due to the improved gross margin. This result included 57 basis points of stock based compensation expense.
Nonoperating expenses were favorable to expectations as a result of foreign exchange gains and lower than expected interest expense.
GAAP diluted EPS of $1 44 exceeded our guidance for the factors previously mentioned along with the benefit from a slightly favorable tax rate.
Turning to our cash flow and balance sheet on slide 15.
We are very pleased with the better than forecasted free cash flow performance as we wrapped up the fiscal year, we delivered $90 million in cash from operations and spent $24 million on capital expenditures, resulting in robust fiscal fourth quarter free cash flow of $66 million.
Todd Kelsey: This product highlights how we engage with our customers to combine innovation and sustainability to help build a better world. The Bevy smart water dispenser is capable of delivering 40,000 different varieties of different delicious water, while Bevy installations have saved the equivalent of over 400 million single-use water bottles to date, including more than 120,000 at our Plexus U.S, sites. Last week, the Bevy smart water dispenser was voted the coolest thing made in Wisconsin for 2023 in a competition held by Wisconsin manufacturers and commerce, the most influential business association in Wisconsin. A wonderful recognition for Bevy and our Plexus team.
For the fiscal year, we spent $104 million on capital expenditures, which equated to approximately two 5% of revenue.
We ended the year in a strong balance sheet position cash totaled $257 million, while total debt was $431 million.
We had $267 million available to borrow under our credit facility and a conservative gross debt to EBITDA ratio of one six times.
For the fiscal year, we delivered return on invested capital of 13, 4%, which was 440 basis points above our weighted average cost of capital.
Steve Frish: I will now turn the call over to Steve for additional analysis of the performance of our market sectors. Steve. Thank you, Todd.
Steve Frish: Good morning. I will step through a review of the fiscal fourth quarter and the full fiscal year performance of each of the market sectors for 2023, as well as our expectations for each sector for the fiscal first quarter of 2024. Starting with the industrial sector on slide nine, revenue declined 2% in the fiscal fourth quarter. The result was better than our expectations of a mid-single digit decline. Improvements and component supply enabled the stronger result.
Exceptional operating performance relative to slightly higher working capital investments led to a 40 basis point improvement over fiscal 2022.
Each year, we recalculate, our 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 2024 will reduce to eight 2% from 9% in fiscal 2023.
Steve Frish: For the full year of fiscal 2023, new program ramps helped overcome the headwinds of the semi-cap sub-sector, the whole revenue flat as compared to fiscal 2022. As we start the fiscal first quarter, we expect new program ramps and strengthening demand with some customers in our semi-cap and testing measurement sub-sectors produce to produce a high single digit.
Cash cycle ended the fiscal year at 87 days favorable to expectations and sequentially lower by three days. Please turn to slide 16 for details on our cash cycle.
We were encouraged to see our supply chain. Our regional teams continue to drive reductions in gross inventory dollars. This quarter saw a sequential reduction of $80 million, which contributed to the seven day reduction in inventory days.
Steve Frish: College Inc. Looking at the winds performance for the industrial sector, the team closed $52 million of qualified manufacturing winds in the fiscal fourth quarter to finish fiscal 2023 with strong winds of $461 million. The new programs include another charging system for electrified heavy equipment that we will produce in our Appleton Wisconsin facility. In addition, we also want a family of products used to improve the efficiency of power grids through automated control. These devices will be manufactured in our Aradia Romania facility.
Partially offsetting this was a four day reduction in payable days related to earlier procurement and timing of payments.
Days and receivables sequentially improved by four days, primarily due to fiscal year end collection efforts and increased activity under our receivables factoring program.
When looking at our advanced payment days, you may have noticed an increase in days for all the previously reported periods.
Steve Frish: We can proceed to health care life sciences sector on slide 10. Sector was down 1% for the fiscal fourth quarter, which was in line with our expectations. For the full year of fiscal 2023, the health care life sciences sector grew 20%, which is an exceptional result from a fiscal year view.
I want to mention a change we made during the fiscal fourth quarter and how we present these days.
Obviously, our balance sheet included certain advanced payments within other accrued liabilities.
As these payments increased over the last several quarters and are similar in nature to previously reported customer deposits, we are combining advanced payments with customer deposits.
Steve Frish: As we move into fiscal 2024, we see some customers adjusting in-trail levels down for end of the calendar year, and we see inflated material pricing returning to normal levels. In addition, the growth trajectory of two new program ramps were reduced to align with broader supply chain constraints, as well as near-term lower demand.
On our balance sheet, you'll now see a total for these types of payments referred to as advanced payments from customers.
From a days perspective. This reclassification has lowered our reported cash cycle between 16 and 27 days over the period shown on slide 16.
Steve Frish: That result is a very expected revenue in our health care life sciences sector to decline low double digits in the fiscal first quarter. Looking at the winds performance for the health care life sciences sector, the winds were robust at $104 million for the fiscal fourth quarter. The strong phraseness contributed to the team's healthy winds performance of $336 million for fiscal 2023. Included in the fiscal fourth quarter winds are a neutered stimulator bladder control system. We will produce this finished medical device in our Aradia Romania facility.
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 17.
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 slightly lower than the fiscal fourth quarter.
We expect some near term impact on margins due to investments in fixed costs to support forecasted sequential revenue growth as we move through fiscal 2024.
Steve Frish: In addition, we added a new logo that is an industry leader in the diagnostic laboratory equipment area. We will start the relationship by manufacturing sub-assemblies for them in Guadalara, Mexico.
We expect selling and administrative expenses in the range of $42 five to $43 5 million essentially flat with the fiscal fourth quarter.
Steve Frish: Advancing to slide 11, our aerospace and defense sector grew 11% in the fiscal fourth quarter. The strong result was in line with our expectations of an approximately 10% increase. Meaningful expansion with nine of the top 10 customers in the sector enabled the solid outcome. For the fiscal fourth quarter and for the full year of fiscal 2023, we saw a robust demand, especially in commercial aerospace. In spite of the supply chain challenges throughout the year, the team was able to grow the aerospace and defense sector 17% in fiscal 2023.
Keep in mind that we would expect to see an increase in SG&A expense when we get to our fiscal second quarter with merit increases being effective January one.
Nonoperating expenses or anticipate anticipated to be in the range of 10% to $10 5 million.
Higher due to the absence of certain insurance benefits and foreign exchange gains recognized in the fiscal fourth quarter.
Our effective tax rate for both the fiscal first quarter and fiscal year is expected to be in the range of 14% to 16%.
Steve Frish: As we look to the fiscal first quarter, commercial aerospace demand remains robust and some of the supply chain constraints are easing. As a result, we anticipate a mid-single digit increase for the aerospace and defense sector for the fiscal first quarter. We're viewing the winds performance for the aerospace and defense sector, the team $136 million of qualified manufacturing opportunities in the fiscal fourth quarter, which brought their fiscal 2023 total to a robust $149 million.
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 in the range of 90 to 94 days.
This will be sequentially higher by five days, primarily due to inventory requirements in support of program ramps.
With modest working capital investments, coupled with higher capital expenditures to support anticipated future revenue growth, we expect a usage of cash for the fiscal first quarter a trend we have experienced the last few years during the fiscal first quarter.
Steve Frish: Included in the winds is a large power converter for a defense application from a new division of an existing customer that will be produced in our Boise Idaho facility.
Steve Frish: Advancing the slide 12, we can review a few regional highlights of the manufacturing winds for the fiscal fourth quarter. The America's winds of $97 million in the fiscal fourth quarter drove the region's fiscal 2023 total to $482 million. The Healthy Winds Total for the Year, along with a robust regional funnel, is confirmation of the strong value proposition of the region. The APAC Regions Total wins of $183 million in fiscal 2023, benefited from steady wins from the industrial sector throughout the year.
A few comments on the full year, we expect capital spending in the range of $110 million to $130 million, which does not include any site additions.
We are projecting slightly higher working capital investments compared to the prior year to fund growth expectations in the second half of fiscal 2024.
Lastly, we expect to deliver improved free cash flow as we move through fiscal 2024, ending the year with more than $50 million.
Steve Frish: With over one half of the region's fiscal fourth quarter wins of $43 million coming from the industrial sector, the fiscal fourth quarter was no exception. The region is poised for meaningful growth from the industrial sector, especially at the Semicat Subsector Strengthens. Finally, the mayor even had its sixth consecutive quarter of wins over $50 million. With $52 million of new wins in the fiscal fourth quarter, the region recorded an impressive $280 million of wins in fiscal 2023. With a fiscal 2023 revenue growth rate of over 30%, the regional operations team did an outstanding job converting the wins to revenue.
Over the next couple of months, we will be reviewing with our board of directors and appropriate capital allocation plan.
We will discuss our anticipated revenue growth and desire to continue capital returns through our share repurchase program, while we take into consideration market conditions timing of free cash flow and the current elevated interest rate environment.
With that.
Alicia, let's now open the call for questions.
Thank you.
At this time, we will conduct a question and answer session. As a reminder to ask a question you want me to prior one one on your telephone and wait for your name to be announced.
Steve Frish: We expect a momentum to continue resulting in another exceptional growth year for the region in fiscal 2024.
One moment, while I compile the Q&A roster.
Steve Frish: We'll finish with a review of a funnel of qualified manufacturing opportunities on slide 13. The combined funnel remains strong at $3.7 billion for the fiscal fourth quarter, the industrial sector funnel closed at $938 million. New qualified opportunities, especially from Semicat customers, backfilled the quarterly wins to maintain the industrial funnel at a very healthy level.
Okay.
Your first question comes from the line of David Williams of the Benchmark Company. David. Please go ahead.
Hey, good morning, Thanks for letting me ask the question and congrats on the solid execution here gentlemen.
Thanks, David.
So maybe first just thinking about the.
Steve Frish: The health early science sector funnel dipped given the strong wins performance and turnover activity. At $1.9 billion at the end of fiscal fourth quarter, the funnel remains at a very resilient level. The aerospace defense sector team grew as funneled by $110 million to close an exceptionally strong level of $840 million for the fiscal fourth quarter. New security and commercial space opportunities contributed to the strong growth.
You mentioned a couple of delays in closing in the healthcare segment is there anything there that you can elaborate on it or maybe help us with is this something we should expect that to continue or was this a one off just any color would be helpful. I think.
This is Steve I'll start with that one.
Viewed more as a one off I mean transitions of new program ramps, especially the complexity of finished medical devices.
They're not uniform at all times and so as we look at what's happening with the couple that I mentioned, one is more related to supply chain challenges with the disposable which we don't do.
Steve Frish: Fiscal 2023 was a solid year for our global market development team. They capitalized upon the strong value proposition that our operations and supply chain teams have created by securing $946 million in manufacturing wins in fiscal 2023. On top of this, almost $1 billion of wins, the global market development team expanded the funnel of qualified manufacturing opportunities by $283 million during fiscal 2023 an exceptional result.
And that's causing a little bit of slowness in the capital equipment that we're trying to deliver.
And then the other part was more of a technical issue associated with what that customer is working through with their end markets that's been resolved.
For the most part so there they are working with their end customers figuring out to ramp schedules so from our standpoint.
There is nothing really kind of an anomaly associated with what we would see in a typical ramp schedule for our complex health care product.
Steve Frish: We start fiscal 2024 in a great position for continued strong wins performance.
Pat: I will now turn the call to Pat for an end up review of our financial performance. Thank you, Stephen.
Okay, great. Thanks, Thanks, so much for that.
Pat: Good morning, everyone. Our fiscal fourth quarter results are summarized on 514. While revenues slightly exceeded our guidance midpoint, gross margin of 9.4% exceeded the top end of our guidance. Robust growth in our aerospace and defense market sector and strong fixed cost management, especially in our APAC region, drove the healthier than expected performance. Selling in the Ministry of expense of $43.4 million was slightly above guidance, primarily due to higher incentive and stock based compensation expense associated with stronger profitability performance.
And then maybe secondly, just you talked about the industrial and the improvement in the semi cap equipment is this more of an in demand improvement that youre seeing or maybe more related to component procurement.
And does this continue or is this maybe just.
A one off here, we should expect that to be slower as you kind of move through the first quarter.
Yes, so David we're seeing a couple of different factors in semi cap. One is were seeing what I would call a modest improvement in end markets and I would say, it's the first time in and probably five or six quarters that we saw forecast come up just a bit and we're also taking advantage of of <unk>.
Pat: As a percentage of revenue, SGNA was 4.2%, which was consistent with expectations. James Ricchiuti, Steven Fox, David Williams, Steven Fox, David Williams, David Williams We are very pleased with the better than forecasted free cash low performance as we wrapped up the fiscal year. We delivered $90 million in cash from operations and spent $24 million on capital expenditures, resulting in robust fiscal fourth quarter free cash low of $66 million. For the fiscal year, we spent $104 million on capital expenditures, which equated to approximately 2.5% of revenue.
Share gains within that market space. So again, if you look back to 'twenty three to fiscal 'twenty. Three we were down in the low double digits on a market that was down 20% to 25%. So.
Far outperformed the market and as we think about 'twenty four and if we start to see some reasonable improvement, which right. Now. We're just we're just predicting a modest improvement are projecting a modest improvement if we see a substantial improvement wed expect well outgrow the market again, keeping in mind that our CAGR in that.
Space was 30% from fiscal <unk> to fiscal 'twenty two.
So taking it back you asked about components freeing up wasn't necessarily a factor in the semi cap space is a little bit more of a factor with aerospace and defense.
Okay, great. Thanks, so much for that and then just you talked about.
And you'd be able to fulfill some of the $100 million.
And fulfill our under ship this quarter do you think you can when you think you can get to that maybe where you can completely fulfill that demand is that next quarter or are we still several quarters out before you think you start shipping that yes. We think it really continues throughout 24. So we expect to have an impact from Q2 to Q4 of 24, so not so.
Pat: We ended the year in a strong balance sheet position, cash totaled $257 million while total debt was $431 million. We had $267 million available to borrow under our credit facility and a conservative gross debt to epitile ratio of 1.6 times. For the fiscal year, we delivered return on invested capital of 13.4%, which was 440 basis points above our weighted average cost of capital. Exceptional operating performance relative to slightly higher working capital investments led to a 40 basis point improvement over fiscal 2022.
<unk> in Q1.
But we are starting to see some modest improvements in lagging edge semiconductors as well.
Thanks, so much for the time guys I appreciate it thank you David.
One moment for the next question.
The next question comes from the line of Melissa Fairbanks of Raymond James and Associates.
Pat: Each year, we retaliate our 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 2024 will reduce to 8.2% from 9% since fiscal 2023. Cash cycle ended the fiscal year at 87 days favorable to expectations and sequentially lower by 3 days.
Melissa Please go ahead.
Hey, guys, thanks, very much and great quarter.
Pat for a change I have one for you Tom.
It came down yeah total debt came down really nicely on a sequential basis.
I'm wondering what we should assume for interest expense going forward.
Assuming the new working capital investments that you talked about and then longer term, maybe if you could explain how you're thinking about balancing deploying cash between the buyback and paying down debt.
Pat: Please turn to slide 16 for details on our cash cycle. We were encouraged to see our supply chain and regional teams continue to drive reductions and gross inventory dollars. This quarter saw a sequential reduction of $80 million, which contributed to the seven-day reduction in inventory days. Partially offsetting this was a four-day reduction in payable days related to earlier procurement and timing of payments. Days and receivables sequentially improved by four days primarily due to fiscal year and collection efforts and increased activity under our receivables factory program.
Sure Yeah, let me start with Q1, we do expect a usage of cash so we would probably be a little higher in the revolver.
By the end of December.
As we move through fiscal 'twenty, four, though I think we've got real opportunity to bring down inventory.
Continuing that trend from 'twenty three there will be some return of advance payments that we'll be doing as we.
Dispose of that inventory, especially around excess and obsolete inventory so.
Net net from a days perspective, Melissa I think we can improve our cash cycle, probably five to 10 days from where we ended fiscal 'twenty three so under this new reclassification basis, we're probably in the low <unk> or high <unk>.
Pat: When looking at our advance payment days, you may have noticed an increase in days for all the previously reported periods. I want to mention a change we made during the fiscal fourth quarter and how we present these days. Previously, our balance sheet included certain advance payments within other accrued liabilities. As these payments increased over the last several quarters and are similar in nature to previously reported customer deposits, we are combining advance payments with customer deposits, on her balance sheet, you will now see a total for these types of payments referred to as advanced payments from customers.
Pat: From a day's perspective, this reclassification has lowered our reported cast cycle between 16 and 27 days over the periods shown on slide 16. Quarter gross margin is expected to be in the range of 9.1 to 9.5 percent. At the midpoint gross margin would be slightly lower than the fiscal fourth quarter. We expect some near term impact on margins due to investments in fixed costs to support forecasted sequential revenue growth as we move through fiscal 2024.
And every day, we free up is about $10 million of free cash flow. So that then can equate to bringing that down through.
Through 'twenty four.
We've got about $6 million left under our current authorization.
The share repurchase program. So we will definitely execute on that amount and over the next month or two we will meet with our board just to look at where interest rate levels are we want to commit excess cash to returning that to shareholders but.
But there could be an element of trying to delever a bit as well with the amount of free cash flow will be gen.
<unk> generated in fiscal 'twenty four.
Okay great.
Maybe extending the interest expense.
Conversation out to your customers outside of what you mentioned in healthcare are you seeing any impact to deal closures our program ramps due to customer concerns about interest rates and then I think Todd touched on this in his comments is there any change to the way your customers are thinking about building or holding inventory.
Pat: We expect selling administrative expenses in the range of 42.5 to 43.5 million dollars essentially flat with the fiscal fourth quarter. Keep in mind that we would expect to see an increase in SGNA expense when we get to our fiscal second quarter with merit increases being effective January 1st. Non-operating expenses anticipated to be in the range of 10 to 10.5 million dollars sequentially higher due to the absence of certain insurance benefits and foreign exchange gains recognized in the fiscal fourth quarter.
Yes, so Steve maybe I'll start in terms of impact on deals really no impact yet.
It relates to where interest rates are at that.
We see flow through I think from an inventory standpoint, yes inventories are a big topic of conversation with virtually all customers.
Yes.
Everybody is trying to figure out how to drive them down I think.
Some of the easing if we can continue to see easing in the component markets that will help that's the biggest impact for US is the lead times are still extended.
So if those free up that will definitely make the conversations and the ability to drive inventories down with our customers much easier.
Pat: Our effective tax rate for both the fiscal first quarter and fiscal year is expected to be in the range of 14 to 16 percent. 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 cast cycle days in the range of 90 to 94 days. This would be sequentially higher by five days primarily due to inventory requirements in support of program ramps.
There's a lot of mutual commitment to driving down inventory right now.
That sounds about right sounds good.
Alright, thanks very much that's all from me. Thanks again, thanks Melissa.
One moment for your next question.
The next question comes from the line of Jim Ricchiuti of Needham <unk> Company. Jim. Please go ahead.
Pat: With modest working capital investments coupled with higher capital expenditures to support anticipated future revenue growth. We expect a usage of cash for the fiscal first quarter a trend we have experienced the last few years during the fiscal first quarter.
Hi, Good morning, this is Chris <unk> on for Jim.
Congrats on the solid results and thank you for taking the questions.
You mentioned that within the funnel youre seeing a greater number of larger opportunities just curious if you could elaborate on.
Pat: A few comments on the full year we expect capital spending in the range of 110 to 130 million dollars which does not include any site additions. We are projecting slightly higher working capital investments compared to the prior year to fund growth expectations in the second half of fiscal 2024. Last we expect to deliver improved free cash flows we moved through fiscal 2024 ending the year with more than 50 million dollars. Over the next couple months we will be reviewing with our boarder directors an appropriate capital allocation plan.
That is strategic.
Or.
Or is that just a function of the market and then.
Is that across end markets are you seeing that concentrated in any.
Any particular end market in particular, thank you.
It's across the markets, Chris and they're up kind of across the board. These larger opportunities and I would say, it's a little bit of both it's a bit of a sign of the market and.
The views of Oems in that market, but it also has to do with our go to market strategy and the way our teams or are approaching the market and opportunities that are out there. So I suspect we will continue.
Pat: We will discuss our anticipated revenue growth and desire to continue capital returns through our share repurchase program. While we take into consideration market conditions time in a free cash flow and the current elevated interest rate environment.
To increase those numbers of larger opportunities and we typically think of something greater than $20 million is a larger opportunity, but I think we'll continue to see that increase over time.
Operator: With that Felicia let's now open the call for questions. Thank you. At this time we will conduct a question and answer session.
Alright, great. Thank you very much.
And then just.
Operator: As a reminder to ask a question you will try to prepare one one on your telephone and wait for your name to be answered. One moment while I compile the Q&A roster.
Could you help me understand.
Sure.
Okay.
Or reconcile I guess, the cadence of sequential increases in health care life science wins versus.
Yes, the expectation that that market might be a.
A little bit softer in the near term.
Steve Frish: Your first question comes from the line of David Williams of the benchmark company. David, please go ahead. Hey, good morning. Thanks for letting me ask a question and congrats on the solid execution here. Thanks David. So maybe first, just thinking about the, you mentioned a couple of the ladies in closing in the healthcare segment. Is there anything there that you're going to elaborate on or maybe help us with? Is this something we should expect to continue or was this a one off?
And are there any particular.
Applications within life science that Youre seeing.
More more.
More challenged than the average in the near term. Thank you.
Yes, so there's a number of factors that are going on with health care life Sciences, as we look into fiscal 'twenty, four and I'd start with the fact that we're coming off of two outstanding growth years of 18% and 20%.
Steve Frish: Just any color would be helpful, I think. Now, this is Steve. I'll start with that one. I viewed more as a one off. I mean, transitions of new program or have especially the complexity of finished medical devices. They're not uniform at all times. And so as we look at what happening with a couple that I mentioned, one is more related to supply chain challenges with the disposable, which we don't do. That's causing a little bit of slowness and the capital equipment that we're trying to deliver.
In 2002 and 23, so there is a strong I would call it a difficult comparison.
The sector is going up against but then there's a number of factors that are that are turning 24 into.
A little bit of a challenging year from a growth standpoint, one is I talked about the.
Reduction of procurement of parts at above market.
Market prices to more normalized levels that was most pronounced in the healthcare life sciences marketplace in the tune of north of $100 million. So you think about that is as impacting.
Steve Frish: And then the other part was more of a technical issue associated with what that customer is working through with their end markets. That's been resolved for the most part. So they're working with their end customers, figuring out a ramp schedule. So from our standpoint, there's nothing really kind of an anomaly associated with what we would see in a typical ramp schedule for a complex healthcare product.
Impacting the revenue comparison right off the top there's also factors going on with inventory corrections with certain customers, who may be got a bit ahead of what their demand was and thats a near term issue that's happening right now.
There is a bit of softening that's going on with certain end markets like imaging for instance, we're seeing a bit of softening and then finally the program ramps that Steve referred to so when you combine all those together.
Steve Frish: Okay, great. Thanks. Thanks so much for that. And then maybe secondly, just you talked about the industrial and the improvement in the semi cap equipment. Is this more of an end demand improvement that you're seeing or maybe more related to component procurement? And does this continue or is this maybe just a one off here? We should expect that to be slower as you kind of move through the first quarter. Yes, so David, we're seeing a couple of different factors in in semi cap on one is we're seeing what I would call a modest improvement and markets and it's the first time in and probably five or six quarters that we saw forecast come up just a bit.
A bit of a headwind within that sector now the one thing I wanted to do though is highlight the strong.
<unk> opportunities within the other sectors, so within aerospace and defense and industrial.
The industrial market, which includes semi cap, we're expecting very strong double digit growth in both of those in in fiscal 'twenty four.
Steve Frish: We're also taking advantage of share gains within that market space. So again, if you look back to 23 to fiscal 23, we were down in the low double digits on a market that was down 20 to 25%. So far outperform the market. And as we think about 24 and if we start to see some reasonable improvement, which right now we're just we're just predicting a modest improvement or projecting a modest improvement.
Great. Thank you very much hey, Chris It's Shawn Harrison here, just wanted to get back to that part of your earlier question as well about wins versus near term revenues.
Because of the complexity of the markets, we play in healthcare life Sciences.
Our program win that incubation period from time of when the revenue could be two years could be three years could be a little bit longer depending upon the regulatory approvals required to ramp that Steve said earlier. These programs are extremely complex, so winning something today and the strong win rate doesn't really mean anything to revenue in the near term but.
Steve Frish: If we see a substantial improvement, we'd expect to well outgrow the market and again, keeping in mind that our keger in that space was 30% from fiscal 15 to fiscal 22. So in taking it back, you asked about components freeing up wasn't necessarily a factor in the semi cap space is a little bit more of a factor with aerospace and defense. Okay, great. Thanks so much for that. And then just you talk about maybe able to fulfill some of the $100 million of unfulfilled or undershift this this quarter.
It is a great indicator over the long term.
Great. Thank you very much I appreciate the color.
One moment for our last question.
Your last question comes from the line of Anya <unk> of Sidoti <unk>. Please go ahead.
Hi, Thank you for taking my question and congratulations on a great quarter.
I'm, just curious where the aerospace and defense how much of that growth is driven by.
Steve Frish: Do you think you can when you think you can get to that maybe where you can completely fulfill that demand. Is that next quarter, or are we still several quarters out before you think you start shipping that? Yeah, we think it really continues throughout 24. So we expect to have an impact from Q2 to Q4 of 24. So not so much in Q1. But we are starting to see some modest improvements in lagging edge semiconductors as well. Thanks so much for the time, guys. Appreciate it. Thank you, David. One moment for the next question.
The demand versus.
Sort of that.
Build.
As component does become more available.
Yes. This is Steve I'll take that one the demand through fiscal 'twenty three.
For <unk>.
Commercial aerospace was there it's always been there we've had a pretty significant backlog of activity and so.
As we talked about a little bit in fiscal 'twenty three that.
That sector was a little bit slower pipelining the materials.
We.
Now I'll have a much higher confidence with our customers in terms of the pipeline materials, we're starting to see some either strengths in some of the lagging of semiconductor components. So we're able to.
Melissa Fairbanks: The next question comes from the line of Melissa Fairbanks of Raymond James and Associates. It's Melissa, please go ahead. Hey guys, thanks very much and great quarter.
The flow of that through and shipping products for our customers, which we expect to continue at a better rate here in 'twenty four than we did in 'twenty three given the environment. So strong demand continues easing of components sets us up for a pretty good fiscal 2024 as it relates to commercial aerospace we believe.
Pat: Pat, for a change, I have one for you. Total debt came down really nicely on a sequential basis. I'm wondering what we should assume for interest expense going forward, assuming the new working capital investments that you talked about. And then longer term, maybe if you could explain how you're thinking about balancing deploying cash between the buyback and paying down debt. Sure. Yeah, and let me start with Q1. We do expect a usage of cash.
Okay. Thank you and in terms of inventory.
I think Pat you noted do you expect that to improve throughout fiscal 2024, do you think you're going to get back to historical levels ever in terms of inventory or is there sort of a new normal we should expect there longer term.
Pat: So we would probably be a little higher in the revolver by the end of December. As we move through fiscal 24, though, I think we've got real opportunity to bring down inventory dollars continuing that trend from 23. There will be some return of advance payments that we'll be doing as we dispose of that inventory, especially around excess and obsolete inventory. So net net from a day's perspective of Melissa, I think we can improve our cash cycle, probably five to 10 days from where we ended fiscal 23.
Yes, there is.
I think it's going to be tough to get back to the pre.
Pre pandemic levels.
But I just think with some of the new processes, we put in place and as we see lead times coming down I mean, we can make some really significant.
Efforts and improvements.
Keep in mind on yet to the company growing at the rate, it's growing and we're just going to see more working capital investments required so from a dollars perspective.
I don't think we will get back to those levels from a days perspective.
I think we will see improvement.
Whether it's to the pre pandemic level.
Pat: So under this new reclassification basis, we're probably in the low 80s or high 70s. And every day we free up is about $10 million of free cash flow. So that then can equate to bringing debt down through 24. We've got about $6 million left under our current authorization for the share repurchase program. So we'll definitely execute on that amount. And over the next month or two, we'll meet with our board just to look at where interest rate levels are.
We didn't see that could be a little further out to see that type of level. Specifically this is oliver on you're talking to what we're seeing in our commodities weighted average lead times are coming down. So if you look at it across our entire commodity base.
We're just under 15% lead time.
Coming back reducing quarter over quarter specific to semiconductors, which has historically been a stickier spot for US we saw lead times come down just over just under 20% quarter over quarter moving from about nine months to move in about seven months, but the point here getting back to your question is at seven months, that's still two and a half X what we would have historically.
Pat: We want to commit excess cash to return that to shareholders. But there could be an element of trying to deliver a bit as well with the amount of free cash flow will be generating in fiscal 24.
We considered a normal lead time for semiconductor commodity so.
As Pat noted that that comes down we expect to see inventory reduced but we're still quite a bit a ways from what we would consider normal lead times.
Steve Frish: Okay, great. Maybe extending the interest expense conversation out to your customers. Outside of what you mentioned in health care, are you seeing any impact to deal closures or program ramps due to customer concerns about interest rates? And then I think Todd touched on this in his comments, is there any change to the way your customers are thinking about building or holding inventory?
Thank you and I think.
Ian you passed on the in the past said that.
Certainly in terms of the supply chain challenges and what not.
Potential customers have had.
<unk> been reluctant to ship outsourcing model, what do you see there now.
Steve Frish: Yeah, so Steve, maybe I'll start. In terms of impact on deals, really no impact yet as it relates to where interest rates are at, that we see flow through. I think from an inventory standpoint, yes, inventories are a big topic of conversation with virtually all customers. Everybody's trying to figure out how to drive them down. I think some of the easing, if we can continue to see easing in the component markets, that will help. That's the biggest impact for us. The lead times are still[inaudible] going to ask you a few questions. I'm going to ask you a few questions, for.
Given the current economic conditions.
Yes, I think I think the concept there what we've talked about historically is if you go back to say Covid period. There is a general hesitancy, maybe you can make some decisions do we want to outsource their has reduced travel we want to be able to go and see the facility that we will be moving.
Our product too and certainly I think over the past few quarters, we've seen that reverse and so I think that the tendency to make decisions has come back.
<unk>.
The larger deals that Todd too Todd talked to earlier also is representative of that dynamic in that shift.
Okay. Thank you and I will fall for me.
Okay.
I would now like to turn it back to Todd Kelsey for closing remarks.
Alright, Thank you Felicia.
Well I thought in closing I would spend just a bit of time talking about our fiscal 2020 for outlook and how we see that playing out and I guess I would start by saying it looks much the same as we thought 90 days ago. So we expected we'd be in a bit of a revenue trough where over Q3.
In Q4 of fiscal 'twenty three into Q1 of 'twenty four playing out as we expected, but then driving into.
Strong growth in Q2, Q3, and Q4 of fiscal 2024 as we saw stable.
<unk> and markets acceleration of new program ramps, some lessening of supply chain constraints. So that's that's still playing out and I would also note that in.
In spite of the strong margin performance of 23, we believe we can continue to expand margins as revenue increases and we gain better leverage with maybe the only caveat being our fiscal Q2, where we have the seasonal headwinds due to compensation adjustments and such which come into play so.
Everything is looking on track for us for fiscal 'twenty four of based on what we thought a quarter ago and we continue to progress the way, we expect and Thats what gives us confidence we can exit the year around the five 5% operating margin range and drive towards this $5 billion in revenue.
At five 5% and our 25% so lots of confidence as we look forward.
And then in closing I just want to thank everybody again for joining our call. We appreciate the interest in plexus and all of your support and have a nice day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Yes.
Okay.
[music].
Okay.
Okay.
Shawn Harrison: Great, thank you very much. Hey Chris, it's Shawn Harrison here. Just wanted to get back to the part of your earlier question as well about wins versus near term revenues. Because of the complexity of the markets we play in healthcare life sciences, a program win in that incubation period from time of winter revenue could be two years, could be three years, could be a little bit longer depending upon the regulatory approvals required to ramp that. Steve said earlier, these programs are extremely complex, so winning something today in the strong win rate doesn't really mean anything to revenue in the near term, but it is a great indicator over the long term.
Operator: Great, thank you very much.
Operator: Appreciate it.
Anja Söderström: One moment for our last question. The last question comes from the line of Anja Soderstrom of Sedotti. Anja, please go ahead.
Steve Frish: Hi, thank you for taking my questions and congratulations on that great quarter. I'm just curious for the aerospace and defense. How much of that growth is driven by the demand versus sort of that get log build as component has become more available? Yeah, this is Steve. I'll take that one demands through fiscal 23 for commercial aerospace was there. It's always been there. We've had a pretty significant backlog of activity. And so as we talked about a little bit in fiscal 23, that sector was a little bit slower pipelining the materials.
Steve Frish: We now have a much higher confidence with our customers in terms of the pipelining materials, we're starting to see some easing strength and some of the lagging at semiconductor components, so we're able to to flow that through in the shipping products for our customers, which we expect to continue at a better rate here in 24 than we did in 23 given the environment. So strong demand continues easing of components sets us up for a pretty good fiscal 2024 is relates to commercial aerospace, we believe.
Steve Frish: Okay, thank you. Any in terms of inventory. I think that you know that you expect that to improve route fiscal 2024. Do you think you're going to get back to historical levels ever in terms of inventory or is there sort of a new normal we should expect there longer term? Yeah, there's I think it's going to be tough to get back to the pre pandemic levels, but I just think with some of the new processes we put in place.
Steve Frish: And as we see lead times coming down, I mean, we can make some really significant efforts and improvements. Keep in mind, Anya, too, with the company growing at the rate it's growing, we're just going to see more working capital investments required. So from a dollar's perspective. You know, I don't think we'll get back to those levels from a days perspective, I think we'll see improvement. Whether it's to the pre pandemic level, you know, we'll wait and see that could be a little further out to see that type of level.
Steve Frish: Yeah, specifically, this is Oliver, Anya, talking to what we're seeing in our commodities. Way to the average lead times are coming down if you look at it across our entire commodity base, or just under 15% lead time coming back reducing quarter-over-quarter. Specific to semi-conductors which we as historically been a stickier spot for us, we saw lead times come down just over, sorry, just under 20% quarter-over-quarter, moving from about nine months to moving about seven months.
Steve Frish: But the point here getting back to your question is that seven months, that's still two and a half X, what we would have historically considered a normal lead time for a semi-conductor commodity. So as Pat noted, if that comes down, we expect to see inventory reduced, but we're still quite a bit away from what we've considered normally times. Thank you, and I think you and your parents have in the past said that due to the uncertain in terms of the supply chain challenges and what not some potential customers have had been reluctant to ship them outsourcing model.
Steve Frish: So what do you see there now given the current economic conditions? I think the concept there what we talk about historically is if you go back to say, you know, COVID period, there is a general hesitancy maybe to make some decisions, do we want outsource, there is reduced travel, we want to be able to go and see the facility that we will be moving our product to. And certainly I think over the past few quarters, we've seen that reversed, and so I think that the tendency to make decisions has come back. I think that the larger deal the Todd to Todd talk to earlier also is representative of that dynamic in that shift.
Steve Frish: Okay, thank you.
Operator: That was all for me.
Todd Kelsey: I would now like to turn it back to Todd Kelsey for closing remarks. All right, thank you, Felicia. Why I thought in closing I would spend just a bit of time talking about our fiscal 2024 outlook and how we see that playing out. And I guess I would start by saying it looks much the same as we thought 90 days ago. So we expected we'd be in a bit of a revenue trough were over Q3 and Q4 fiscal 23 into Q1 of 24, playing out as we expected, but then driving into strong growth in Q2, Q3 and Q4 fiscal 2024 as we saw stable legislation and markets acceleration of new program ramps, some lessening of supply chain constraints.
Todd Kelsey: So that's that's still playing out and I'd also note that in spite of the strong margin performance of 23, we believe we can continue to expand margins as revenue increases and we gain better leverage with maybe the only caveat being our fiscal Q2 where we have the seasonal headwinds due to compensation adjustments and such which come into play. So everything is looking on track for us for fiscal 24 of based on what we thought a quarter ago and we continue to progress the way we expect and that's what gives us confidence.
Todd Kelsey: We can exit the year around the five and a half percent operating margin range and drive towards this five billion in revenue at five and a half percent in in our 25 so lots of confidence as we look forward.
Todd Kelsey: Then in closing, I just want to thank everybody again for joining our call. We appreciate the the interest in plexus and all of your support and have a nice. Wednesday. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.