Q2 2024 Plexus Corp Earnings Call

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Brittany Morgan: Good morning, and welcome to the Plexus Corp conference call regarding its fiscal second quarter 2024 earnings announcement. My name is Brittany Morgan, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the conference call to questions. The conference call is scheduled to last approximately one hour. Please note that this conference call is being recorded. I would now like to turn the call over to Mr. Shawn Harrison, Plexus' Vice President of Investor Relations.

Burton Widening: Good morning, and welcome to the Plexus Corp Conference call regarding its fiscal second quarter 2024 earnings announcement. My name is Burton widening and I will be your operator for today's call.

Burton Widening: At this time all participants are in a listen only mode.

Burton Widening: After a brief discussion by management, we will open the conference call for questions.

Burton Widening: Conference call is scheduled to last approximately one hour.

Speaker Change: Please note that this conference call is being recorded.

Speaker Change: Now I'd like to turn the call over to Mr. Shawn Harrison.

Shawn Matthew Harrison: The vice President of Investor Relations Shawn.

Shawn Matthew Harrison: Thank you, Brittany. 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 allocation. Forward-looking statements are not guaranteed since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statement.

Shawn Matthew Harrison: Thank you Britney 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.

Shawn Matthew Harrison: Revenue gross margin selling and administrative expense operating margin other income and expense taxes cash cycle capital allocation and future business outlook.

Shawn Matthew Harrison: We're 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 forward looking statements.

Shawn Matthew Harrison: 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 September 30, 2023, supplemented by our Form 10-Q filing, the Safe Harbor and Fair Disclosure Statement, and our press.

Shawn Matthew Harrison: Or what's 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 filing for the fiscal year ended September 32023, supplemented by our Form 10-Q filings.

Shawn Matthew Harrison: <unk> Harbor and fair disclosure statement in our press release.

Shawn Matthew Harrison: We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page. Joining me today are Todd Kelsey, Chief Executive Officer; Pat Jermain, Executive Vice President and Chief Financial Officer; and Oliver Mihm, Executive Vice President and Chief Operating Officer. Steve Frisch, our President and Chief Strategy Officer, will unfortunately not be participating in today's call due to a death in the family.

Shawn Matthew Harrison: We encourage participants on the call. This morning to access the live webcast and supporting materials Texas' website at www plexus com clicking on investors at the top of that page.

Speaker Change: Joining me today are Todd Kelsey Chief Executive Officer at Jermain, Executive Vice President and Chief Financial Officer, and Oliver Mihm, Executive Vice President and Chief Operating Officer, Steve Frisch, Our President and Chief strategy Officer will unfortunately, not be participating in today's call due to a death in the family.

Shawn Matthew Harrison: Our thoughts are with Steve and his family. On today's earnings call, Todd will provide summary comments before turning the call over to Oliver and Pat for further, Let me now turn the call over to Todd Kelsey. Todd? Thank you, Shawn.

Speaker Change: Steve and his family.

Todd P. Kelsey: With todays earnings call Todd will provide summary comments, referring before turning the call over to Oliver and Pat for further details let.

Todd P. Kelsey: Let me now turn the call over to Todd Kelsey.

Todd P. Kelsey: Thank you, Shawn. Good morning, everyone.

Todd P. Kelsey: Please advance to slide three. I was pleased with the performance of our team during our fiscal second quarter, positioning Plexus to deliver ongoing industry-leading revenue growth along with sustained higher levels of profitability and increased free cash flow generation. Our go-to-market team delivered $255 million in new program wins, consistent with our fiscal first quarter, reflecting both market share gains and new outsourcing opportunities. Our ongoing wins momentum, when combined with a $240 billion available market that is directly aligned to our strategy, supports our expectations of delivering our 9-12% revenue Kager. Our target remains a 5.5% gap operating margin exiting fiscal 2025, which equates to a greater than 6% non-gap operating margin, excluding stock-based compensation.

Todd P. Kelsey: Thank you Sean good morning, everyone.

Todd P. Kelsey: These advance to slide three.

Todd P. Kelsey: I was pleased with the performance of our team during our fiscal second quarter positioning plexus to deliver ongoing industry, leading revenue growth.

Todd P. Kelsey: Along with sustained higher levels of profitability and increased free cash flow generation.

Todd P. Kelsey: Our go to market team delivered $255 million and new program wins, consistent with our fiscal first quarter.

Todd P. Kelsey: Reflecting both market share gains and new outsourcing opportunities.

Todd P. Kelsey: Our ongoing wins momentum when combined with a 240 billion dollar available market that is directly aligned to our strategy supports our expectations of delivering a 9% to 12% revenue CAGR goal.

Todd P. Kelsey: Our target remains a five 5% GAAP operating margin exiting fiscal 2025, which equates to a greater than 6% non-GAAP operating margin excluding stock based compensation expense.

Todd P. Kelsey: We continue to align our operations to achieve this return and expect sequential operating margin expansion in both our fiscal third and fourth quarters. We generated $65 million of free cash flow for the fiscal second quarter, a particularly strong result aided by continued progress on our working capital initiative.

Todd P. Kelsey: We continue to align our operations to achieve this return and expect sequential operating margin expansion in both our fiscal third and fourth quarters.

Todd P. Kelsey: We generated $65 million of free cash flow for the fiscal second quarter, a particularly strong result, aided by continued progress on our working capital initiatives.

Todd P. Kelsey: I anticipate we will sustain our free cash flow momentum during our fiscal second half. Later in our prepared remarks, Pat will provide more details regarding our increased fiscal 2024 free cash flow forecast of approximately $100 million, as well as our plans for deploying excess cash to create additional shareholder value. Please advance to slide four for a review of our fiscal second quarter results. We delivered fiscal second quarter results at the top end of our guidance, with revenue of $967 million and non-GAAP EPS of $0.94, including $0.25 of stock-based compensation. Our non-GAAP operating margin of 4.2%, including approximately 70 basis points of stock-based compensation expense, met our expectation entering the quarter. Please advance to slide five.

Todd P. Kelsey: I anticipate we will sustain our free cash flow momentum during our fiscal second half.

Todd P. Kelsey: Later in our prepared remarks, Pat will provide more details regarding our increased fiscal 2020 for free cash flow forecast of approximately $100 million.

Todd P. Kelsey: As well as our plans for deploying excess cash to create additional shareholder value.

Todd P. Kelsey: Okay.

Todd P. Kelsey: Please advance to slide four for a review of our fiscal second quarter results.

Todd P. Kelsey: Yeah.

Todd P. Kelsey: We delivered fiscal second quarter results at the top end of our guidance with revenue of $967 million.

Todd P. Kelsey: non-GAAP EPS of <unk> 94.

Todd P. Kelsey: Including 25 of stock based compensation expense.

Todd P. Kelsey: Our non-GAAP operating margin of four 2%, including approximately 70 basis points of stock based compensation expense met our expectations entering the quarter.

Todd P. Kelsey: Okay.

Speaker Change: Please advance to slide five.

Todd P. Kelsey: For the fiscal second quarter, we won 32 new manufacturing programs worth $255 million annually when fully ramped into production, supported by solid contributions from each of our market sectors, including our semi-capital subsector, in capitalizing upon the value created by a differentiated service offering and superior execution. As well as our focus on being the leader in highly complex products and demanding regulatory environments, our go-to-market organization is winning significant new outsourcing opportunities and gaining market share in support of sustaining Plexus' industry-leading revenue group. Please advance to slide 6.

Todd P. Kelsey: For the fiscal second quarter, we won 32, new manufacturing programs with $255 million annually when fully ramped into production.

Todd P. Kelsey: Supported by solid contributions from each of our market sectors, including our semi cap sub sector.

Todd P. Kelsey: And capitalizing upon the value created by our differentiated service offering and superior execution.

Todd P. Kelsey: As well as our focus on being the leader in highly complex products and demanding regulatory environments. Our go to market organization is winning significant new outsourcing opportunities and gaining market share and support of sustaining <unk> industry, leading revenue growth.

Todd P. Kelsey: Please advance to slide six.

Todd P. Kelsey: We continue to integrate sustainable and responsible business practices into our operations and partner across our value chain to maximize our collective impact. A few highlights from the fiscal second quarter are as follows. We expanded our engagement with the UN Global Compact by joining the Climate Ambition Accelerator, a program that will help Plexus advance our energy transition strategy and accelerate progress toward setting science-based emissions reduction targets.

Todd P. Kelsey: We continue to integrate sustainable and responsible business practices into our operations and partner across our value chain to maximize our collective impact.

Todd P. Kelsey: A few highlights from the fiscal second quarter are as follows.

Todd P. Kelsey: We expanded our engagement with the UN global compact by joining the climate ambition accelerator a program that will help lexis advance our energy transition strategy and accelerated progress towards setting science based emissions reductions targets.

Todd P. Kelsey: We delivered on our fiscal 2024 initiative to assess our top 100 suppliers based on environmental and social impact criteria. These efforts build the foundation for a more transparent supply chain, aiding our goal to deliver a more sustainable, responsible, and resilient sourcing strategy. We strengthen the value-added capabilities we offer our customers to design, manufacture, and service products while reducing their environmental impact. We were recognized by Glasgow's Center for Engineering, Education, and Development as a finalist for their Net Zero Hero Award based on the capabilities we developed to assess the global warming potential of the products we helped create. The pictures on the slide are members of our team in Scotland who delivered this work.

Todd P. Kelsey: We delivered on our fiscal 2024 initiative to assess our top 100 suppliers based on environmental and social impact criteria.

Todd P. Kelsey: These efforts build the foundation for a more transparent supply chain aiding our goal to deliver a more sustainable responsible and resilient sourcing strategy.

Todd P. Kelsey: We strengthened the value added capabilities, we offered our customers to design manufacture and service products, while reducing their environmental impact.

Todd P. Kelsey: We were recognized by Glasgow, Scotland centers for Engineering Education and development as a finalist for their net zero Hero Award based on the capabilities, we developed to assess the global warming potential of the products we help create.

Todd P. Kelsey: Pictures.

Todd P. Kelsey: Slide are members of our team in Scotland, who delivered this work.

Todd P. Kelsey: We also partnered with Purdue University on a custom curriculum to deepen our mutual understanding of eco design principles in order to strengthen our sustainable product development solution. Finally, we are excited that later in the fiscal third quarter, we'll release our annual sustainability report, which captures the demonstrated progress made in fiscal 2023 to advance our sustainable and responsible business practices as we realize our vision to help create products that build a better world. Please advance to slide seven.

Todd P. Kelsey: We also partnered with Purdue University and accustomed curriculum to deepen our mutual understanding of eco design principles in order to strengthen our sustainable product development solutions.

Todd P. Kelsey: Finally.

Todd P. Kelsey: We are excited that later in the fiscal third quarter, we will release, our annual sustainability report, which captures the demonstrated progress made in fiscal 2023 to advance our sustainable and responsible business practices as we realize our vision to help create the products that build a better world.

Todd P. Kelsey: Yeah.

Todd P. Kelsey: Okay.

Todd P. Kelsey: Please advance to slide seven.

Todd P. Kelsey: We believe our revenue growth is in the early stages of inflecting higher, and for the fiscal third quarter, we are guiding revenue of $960 million to $1 billion. Robust demand from our aerospace and defense market sector, and an ongoing gradual recovery in demand for semiconductor capital equipment that is aided by our market share gains over the past two years, and continued new program ramps are more than mitigating the inventory correction headwinds from our healthcare, life sciences, and industrial market sectors.

Todd P. Kelsey: We believe our revenue growth is in the early stages of inflicting higher and for the fiscal third quarter, we are guiding revenue of $960 million to $1 billion.

Todd P. Kelsey: Robust demand from our aerospace and defense market sector and.

Todd P. Kelsey: An ongoing gradual recovery in demand for semiconductor capital equipment that is aided by our market share gains over the past two years.

Todd P. Kelsey: And continued new program ramps are more than mitigating the inventory correction headwinds from my health care life Sciences, and industrial market sectors.

Todd P. Kelsey: We're also forecasting a non-gap operating margin of 5.2 to 5.6%, which excludes approximately 70 basis points of restructuring charges associated with realigning our manufacturing capabilities to best support long-term customer needs and approximately 60 basis points of stock-based compensation expense. Following these actions, we do not expect any further restructuring activity this fiscal year.

Todd P. Kelsey: We are also forecasting non-GAAP operating margin of five 2% to five 6%, which excludes approximately 70 basis points of restructuring charges associated with realigning our manufacturing capabilities to best support long term customer needs.

Todd P. Kelsey: And approximately 60 basis points of stock based compensation expense.

Todd P. Kelsey: Following these actions we do not expect any further restructuring activity this fiscal year.

Todd P. Kelsey: As mentioned with our fiscal first quarter update... While we continue to measure our performance against GAP metrics, beginning with this fiscal third quarter, we are excluding stock-based compensation expense from our operating margin and EPS guidance for easier comparability to peers. Therefore, on a directly comparable basis.

Todd P. Kelsey: As mentioned with our fiscal first quarter update.

Todd P. Kelsey: While we continue to measure our performance against GAAP metrics, beginning with this fiscal third quarter.

Todd P. Kelsey: We are excluding stock based compensation expense from our operating margin and EPS guidance for easier comparability to peers.

Todd P. Kelsey: Therefore on a directly comparable basis.

Oliver K. Mihm: The midpoint of our fiscal third quarter non-GAAP operating margin guidance is 50 basis points higher than our fiscal second quarter results, and is at the high end of our previously provided outlook of 30 to 50 basis points of sequential operating margin expansion. Finally, we are guiding fiscal third quarter non-GAAP EPS of $1.22 to $1.37, which excludes $0.21 of stock-based compensation expense and $0.21 of restructuring charges. We continue to anticipate a strong finish to fiscal 2024, positioning Plexus for further momentum into fiscal 2025, for the fiscal fourth quarter.

Todd P. Kelsey: The midpoint of our fiscal third quarter non-GAAP operating margin guidance is 50 basis points higher than our fiscal second quarter results.

Todd P. Kelsey: We're at the high end of our previously provided outlook of 30 to 50 basis points of sequential operating margin expansion.

Todd P. Kelsey: Finally, we are guiding fiscal third quarter non-GAAP EPS of $1 22.

Todd P. Kelsey: To $1 37.

Todd P. Kelsey: Which excludes 21 of stock based compensation expense and 21 of restructuring charges.

Todd P. Kelsey: We continue to anticipate a strong finish to fiscal 2024 positioning plexus for further momentum into fiscal 2025.

Todd P. Kelsey: For the fiscal fourth quarter.

Oliver K. Mihm: We anticipate monosequential revenue expansion, reflecting a continuation of the trends we expect for the fiscal third quarter. We are also anticipating an additional 30 to 50 basis points of non-GAAP operating margin for the fiscal fourth quarter, benefiting from volume leverage and operating improvements from our restructuring action. At the midpoint, our non-GAAP operating margin exiting fiscal 2024 would be improved by 90 basis points when compared to our fiscal second quarter trough.

Todd P. Kelsey: We anticipate modest sequential revenue expansion, reflecting a continuation of the trends, we expect for the fiscal third quarter.

Todd P. Kelsey: We are also anticipating an additional 30 to 50 basis point expansion in non-GAAP operating margin for the fiscal fourth quarter benefiting from volume leverage and operating improvements from our restructuring actions.

Todd P. Kelsey: At the midpoint, our non-GAAP operating margin exiting fiscal 2024 would be improved by 90 basis points when compared to our fiscal second quarter trough.

Oliver K. Mihm: In summary, I'm pleased with how our team continues to execute for our shareholders despite a challenging macro environment. We remain focused on delivering our 9-12% Organic Revenue CAGR goal over the long term, generating at least 5.5% gap operating margin, in excess of 6% non-gap operating margin exiting fiscal 2025, and producing more consistent and greater free cashflow. I will now turn the call over to Oliver for additional analysis of the performance of our market sectors.

Todd P. Kelsey: In summary, I am pleased with how our team continues to execute for our shareholders. Despite the challenging macro environment.

Todd P. Kelsey: We remain focused on delivering our 9% to 12% organic revenue CAGR goal over the long term.

Todd P. Kelsey: <unk> generated at least five 5% GAAP operating margin in excess of 6% non-GAAP operating margin exiting fiscal 2025 and.

Todd P. Kelsey: And producing more consistent and greater free cash flow.

Todd P. Kelsey: I will now turn the call over to Oliver for additional analysis of the performance of our market sectors Oliver.

Oliver K. Mihm: Thank you, Todd. Good morning.

Oliver K. Mihm: Thank you Todd good morning.

Oliver K. Mihm: I will begin with a review of the fiscal second quarter performance of each of our market sectors, our expectations for each sector for the fiscal third quarter, and some directional sector commentary for fiscal 2024. I will also review the annualized revenue contribution of our WINS performance for each market sector and region and then provide an overview of our funnel of qualified manufacturing opportunities. Starting with the industrial sector on slide eight, revenue decreased 4% sequentially in the fiscal second quarter. This result met our expectation of a low single-digit decrease.

Oliver K. Mihm: I will begin with review of the fiscal second quarter performance of each of our market sectors, our expectations for each sector for the fiscal third quarter and some directional sector commentary for fiscal 2024.

Oliver K. Mihm: I will also review the annualized revenue contribution of our wins performance for each market sector and region and then provide an overview of our of our funnel of qualified manufacturing opportunities.

Oliver K. Mihm: Starting with the industrial sector on slide eight revenue decreased 4% sequentially in the fiscal second quarter. This.

Oliver K. Mihm: This result met our expectation of a low single digit decrease.

Oliver K. Mihm: Incremental revenue gains resulting from resolved supply chain constraints help to compensate for softer end market demand across certain market subsets. As we start the fiscal third quarter, inventory corrections are creating muted demand in multiple subsectors, offset in part by incremental increases and semi-casts and the early stages of recovery and broadband communication. This will result in flat revenue for the industrial sector for the fiscal third quarter.

Oliver K. Mihm: Incremental revenue gains, resulting from its all supply chain constraints helped to compensate for a softer end market demand across certain markets subsectors.

Oliver K. Mihm: As we start the fiscal third quarter inventory corrections are creating muted demand in multiple sub sectors offset in part by incremental increases in semi cap and the early stages of recovery in broadband communications.

Oliver K. Mihm: This will result in flat revenue for the industrial sector for the fiscal third quarter.

Oliver K. Mihm: The industrial market sector had strong wins in the fiscal second quarter of $104 million. Wins were balanced across our subsectors and included three substantial program wins from existing customers and semi-cashiers. Additional new program wins for the fiscal second quarter included a win with a new customer that leverages AI-enabled technology to support more sustainable mining. Plexus was selected in part due to our capabilities across all of our services, including our ability to commercialize their design, assemble their product, and provide sustaining services.

Oliver K. Mihm: The industrial market sector had strong wins in the fiscal second quarter of $104 million.

Oliver K. Mihm: Wins were balanced across our sub sectors and included three substantial program wins from existing customers in semi cap.

Oliver K. Mihm: Additional new program wins for the fiscal second quarter included a win with a new customer that Leverages AI enabled technology to support more sustainable mining operations.

Oliver K. Mihm: Flexes with selected in part due to our capabilities across all of our services, including our ability to commercialize their design assemble their product and provides sustaining services.

Oliver K. Mihm: This program will be built and serviced in our Boise, Idaho facility. We also expanded our portfolio with a leading energy infrastructure customer to include engagement from a new division with a complex mechanical assembly that will be produced at our Xiamen, China campus. Looking ahead, we now anticipate a low single-digit decline in revenue for our industrial market sector for fiscal 2024, as a gradual strengthening in SEMICAP and the early stages of an anticipated communications uplift are more than offset by some delays in new program ramp timing and generally muted demand associated with customers working through inventory. Please advance to slide nine.

Oliver K. Mihm: This program will be built and serviced in our Boise, Idaho facility.

Oliver K. Mihm: We also expanded our portfolio with a leading energy infrastructure customer to include engagement from a new division with a complex mechanical assembly that will be produced in our Xiamen China campus.

Oliver K. Mihm: Looking ahead, we now anticipate a low single digit decline in revenue for our industrial market sector for our fiscal 2024 as a gradual strengthening in semi cap and the early stages of an anticipated communications uplift is more than offset by some delays in new program ramp timing and generally muted demand associated with customers.

Oliver K. Mihm: Working through inventory.

Oliver K. Mihm: Please advance to slide nine.

Oliver K. Mihm: Revenue in our healthcare life sciences sector was down 1% sequentially for the fiscal second quarter, which modestly exceeded our expectation of a low single-digit decrease. Demand increases inside the quarter from both existing programs and new product launches drove the improvement. In the near term, we believe inventory corrections have largely subsided as revenue has stabilized. We expect our healthcare life sciences sector revenue to be flat for the fiscal third quarter.

Oliver K. Mihm: Revenue in our health care life Sciences sector was down 1% sequentially for the fiscal second quarter, which modestly exceeded our expectation of a low single digit decrease.

Oliver K. Mihm: Demand increases in fact, the quarter from both existing programs and new product launches drove the improvement.

Oliver K. Mihm: In the near term, we believe inventory corrections have largely subsided as revenue has stabilized.

Oliver K. Mihm: We expect our healthcare life sciences sector to be flat for the fiscal third quarter.

Oliver K. Mihm: Healthcare Life Sciences Sector wins for the fiscal second quarter were strong and totaled $109 million. These are WINS-included programs with two new customers. We have been awarded the production of a point-of-care diagnostic device for our Chicago, Illinois facility and an in vitro fertilization device for a Bangkok, Thailand facility. This marks our first Healthcare Life Sciences win for our facility in Bangkok.

Oliver K. Mihm: Health care life Sciences sector wins for the fiscal second quarter was strong and totaled $109 million.

Oliver K. Mihm: Our wins included programs with two new customers, we have been awarded the production of our point of care diagnostic device for our Chicago, Illinois facility.

Oliver K. Mihm: And in in vitro fertilization device for our Bangkok, Thailand facility.

Oliver K. Mihm: This marks our first health care life Sciences wins for our facility in Bangkok.

Oliver K. Mihm: Our fiscal second quarter wins also included a competitive market share gain, with a longstanding customer awarding Plexus the production of a patient monitoring device due to our consistent, exceptional operational performance and Executive Engagement and Relationships. The award is for our Guadalajara campus and marks the expansion of services for this customer to all three of our operating regions. Looking at the health care life sciences market sector for fiscal 2024, as a result of inventory corrections and the approximately five percentage point growth head. Additionally, from the year-over-year reduction of components procured at above-historical market prices, we continue to anticipate year-over-year revenue decline in the team.

Oliver K. Mihm: Our fiscal second quarter wins also included a competitive market share gain with a longstanding customer awarding plexus. The production of our patient monitoring device due to our consistent exceptional operational performance.

Oliver K. Mihm: And executive engagement and relationships.

Oliver K. Mihm: The award is for our Guadalajara campus and marks the expansion of services for this customer to all three of our operating regions.

Oliver K. Mihm: Looking at the health care life Sciences market sector for fiscal 2024, as a result of the inventory corrections and the approximately five percentage point growth headwind from the year over year reduction of components procured at above historical market prices, we continue to anticipate year over year revenue decline in the teens.

Oliver K. Mihm: The strength of new program wins gives us optimism for F25 as they ramp to volume. Advancing to slide 10, our aerospace and defense sector increased 2% sequentially in the fiscal second quarter, beating our expectation of a low single-digit decrease. Improved supply chain performance and new program ramps proceeding ahead of schedule contributed to the better than expected performance. As we look to the fiscal third quarter, continued robust commercial aerospace demand and new program strength in the defense, security, and space subsectors contribute to our expectation of a high single-digit increase for the aerospace and defense sectors.

Oliver K. Mihm: The strength of new program wins gives us optimism for F. 'twenty five as they ramp to volume.

Oliver K. Mihm: Advancing to slide 10, our aerospace and defense sector increased 2% sequentially in the fiscal second quarter.

Oliver K. Mihm: Meeting our expectation of a low single digit decrease.

Oliver K. Mihm: Improved supply chain performance.

Oliver K. Mihm: <unk> New program ramps proceeding ahead of schedule and contributed to the better than expected performance.

Oliver K. Mihm: As we look to the fiscal third quarter continued robust commercial aerospace demand and new program strength in the defense and security and space Subsectors contribute to our expectation of a high single digit increase for the aerospace and defense sector.

Oliver K. Mihm: Our fiscal second quarter wins for the aerospace and defense sector were strong at $42 million. We won two new programs with a recently acquired space subsector customer, supporting both military and commercial applications. These assemblies will be produced in our Kelso Scotland facility.

Oliver K. Mihm: Our fiscal second quarter wins for the aerospace and defense sector was strong at $42 million. We won two new programs with our recently acquired space sub sector customer supporting both military and commercial applications.

Oliver K. Mihm: These assemblies will be produced in our Kelso, Scotland facility.

Oliver K. Mihm: We also won the Next Generation product from an existing customer in our security subsector that will be built at our Penang, Malaysia campus. For Fiscal 2024, aerospace and defense demand continues to be robust across all of our subsectors. As a result, we continue to expect revenue growth for fiscal 2024 to exceed the high teens growth witnessed in fiscal 2023.

Oliver K. Mihm: We also won the next generation product from an existing customer and our security sub sector that will be built in our Penang Malaysia campus.

Oliver K. Mihm: For fiscal 2020 for aerospace and defense demand continues to be robust across all of our sub sectors.

Oliver K. Mihm: As a result, we continue to expect revenue growth for fiscal 2024 to exceed the high teens growth witnessed in fiscal 2023.

Oliver K. Mihm: Moving to slide 11, we can review the regional highlights of the manufacturing wins for the fiscal second quarter. The Americas wins were robust at $120 million and included a substantial win from an existing communications subsector customer for the production of its next generation device and our Guadalajara, Mexico campaign. The APAC region's fiscal second quarter wins of $94 million included a significant program expansion with an existing healthcare life sciences sector customer for a monitoring device. That device is built at our Penang, Malaysia campus.

Oliver K. Mihm: Advancing to slide 11, we can review the regional highlights of the manufacturing wins for the fiscal second quarter.

Oliver K. Mihm: The Americas wins were robust at $120 million and included a substantial win from an existing communication sub sector customer for the production of its next generation device and our Guadalajara, Mexico campus.

Oliver K. Mihm: The APAC regions fiscal second quarter wins of $94 million included a significant program expansion with an existing health care life sciences sector customer for a monitoring device.

Oliver K. Mihm: That devices built in our Penang Malaysia campus.

Oliver K. Mihm: The EMEA region's second quarter wins of $41 million continue its recent strong wins performance and includes a substantial award from an existing SemiCap customer for our facility in Livingston, Scotland. Please advance to slide 12 for a review of our funnel of qualified manufacturing operators. Given solid wind harvesting in the past few quarters, as well as the typical ebb and flow of programs in and out of the funnel, the total funnel decreased to $3.5 billion.

Oliver K. Mihm: The EMEA region second quarter wins at $41 million continues its recent strong wins performance and includes a substantial award from an existing semi cap customer for our facility in Livingston, Scotland.

Oliver K. Mihm: Please advance to slide 12 for a review of our funnel of qualified manufacturing opportunities.

Oliver K. Mihm: Given the solid wins harvesting the past few quarters as well as the typical ebb and flow of programs in and out of the funnel. The total funnel decreased to $3 5 billion.

Oliver K. Mihm: While sequentially lower, recall that our qualified funnel of manufacturing opportunities only breached the $3.5 billion threshold in fiscal 2023. Furthermore, multiple market sectors noted the strength of their unqualified, early-stage opportunities as we continue to pursue programs in our large, addressable market for outsourcing. The industrial sector funnel dipped slightly to $893 million, but it demonstrated resilience as we backfilled almost all of the wind. The semi-cap subsector had both strong winds and a substantial increase in funnel size.

Oliver K. Mihm: While sequentially lower recall that are qualified or.

Oliver K. Mihm: Qualified funnel of manufacturing opportunities only breached the $3 5 billion threshold in fiscal 2023.

Oliver K. Mihm: Further multiple market sectors noted the strength of their unqualified early stage opportunities as we continue to pursue programs and our large addressable market for outsourcing.

Oliver K. Mihm: The industrial sector funnel dipped slightly to $893 million.

Oliver K. Mihm: The funnel demonstrated resilience as we backfill the almost all of the wins.

Oliver K. Mihm: The semi cap sub sector had both strong wins and a substantial increase in the funnel size.

Oliver K. Mihm: Aligned with our sector strategy, the opportunities reflected in our FANOR are balanced across a variety of markets and across both existing customers, new divisions of existing customers, and new customers. The healthcare life sciences sector wins performance contributed to the reduction in the funnel, declining to 1.8 billion dollars. Strength in early-stage opportunities provides optimism for future growth for the healthcare and life sciences sector. The funnel for the aerospace and defense sector remains strong at $822 million, with a great breadth of opportunities across the commercial aerospace, defense, security, and space subsectors.

Oliver K. Mihm: Aligned with our sector strategy the opportunities reflected in our funnel are balanced across a variety of markets and across both existing customers new divisions of existing customers and new customers.

Oliver K. Mihm: The health care life Sciences sector wins performance contributed to the reduction in the funnel declining to $1 8 billion.

Oliver K. Mihm: Strength in early stage opportunities provides optimism for future wins growth for the health care life Sciences sector.

Oliver K. Mihm: The funnel for the aerospace and defense sector remains strong at $822 million with a great breadth of opportunities across the commercial aerospace defense security and space sub sectors.

Oliver K. Mihm: Lastly, the funnel of opportunities for our engineering solutions remains robust. Customer decision making saw incremental improvement during the fiscal second quarter, and our wins rebounded slightly as a result. In addition, the market sector diversity within the funnel has improved, positioning Plexus to benefit from future growth and significantly improve the utilization of our engineering team. I will now turn the call over to Pat for an in-depth review of our financial performance. Pat? Thank you.

Oliver K. Mihm: Lastly, the funnel of opportunities for our engineering solutions remains robust.

Oliver K. Mihm: Customer decision, making saw incremental improvements during the fiscal second quarter and our wins rebounded slightly as a result and.

Oliver K. Mihm: In addition, the market sector diversity within the funnel has improved positioning plexus to benefit from the future growth and significantly improved utilization of our engineering team.

Oliver K. Mihm: I will now turn the call over to Pat for an in depth review of our financial performance.

Patrick John Jermain: Thank you, Oliver, and good morning, everyone. Our fiscal second quarter results are summarized on slide 13. With revenue at the top end of our guidance, gross margin of 9.1% came in above our midpoint due to slightly better fixed cost leverage. Productivity improvements and the start of savings from our restructuring efforts led to a sequential gross margin improvement. However, despite the impact from seasonal compensation costing, selling and administrative expense of $47.6 million was slightly above our guidance. However, as a percentage of revenue, SG&A of 4.9% was consistent with expectations.

Pat: Thank you Oliver and good morning, everyone. Our fiscal second quarter results are summarized on slide 13 with.

Pat: With revenue at the top end of our guidance gross margin of nine 1% came in above our midpoint due to slightly better fixed cost leverage.

Pat: Productivity improvements and the startup savings from our restructuring efforts led to a sequential gross margin improvement despite the impact from seasonal compensation cost increases.

Pat: Selling and administrative expense of $47 6 million was slightly above our guidance. However, as a percentage of revenue SG&A of four 9% was consistent with expectations.

Patrick John Jermain: Non-GAAP operating margin of 4.2 percent, which excludes 120 basis points of restructuring charges, met the midpoint of our guidance. This result included over 70 basis points of stock-based compensation expense. Recall last quarter that I mentioned we would begin sharing non-GAAP operating margin and EPS excluding stock-based compensation for easier comparability to peers. This exclusion is reflected in our fiscal third quarter guidance.

Pat: non-GAAP operating margin of four 2%, which excludes 120 basis points of restructuring charges met the midpoint of our guidance. This result included over 70 basis points of stock based compensation expense.

Speaker Change: Recall last quarter that I mentioned, we will begin sharing non-GAAP operating margin and EPS exclusive of stock based compensation expense for easier comparability to peers. This exclusion is reflected in our fiscal third quarter guidance.

Patrick John Jermain: We have also included a table in our press release presenting operating margin and EPS excluding restructuring charges and stock-based compensation expense for the last six quarters. Non-operating expenses of $10.5 million were favorable to expectations due to a lower than anticipated net interest expense. Non-GAAP diluted EPS of $0.94, which excludes $0.36 of restructuring charges, was at the top end of our guidance due to the factors previously mentioned along with favorable tax rates.

Oliver K. Mihm: We have also included a table in our press release, presenting operating margin and EPS, excluding restructuring charges and stock based compensation expense for the last six quarters.

Oliver K. Mihm: Nonoperating expenses of $10 $5 million were favorable to expectations due to lower than anticipated net interest expense.

Oliver K. Mihm: non-GAAP diluted EPS of <unk> 94.

Oliver K. Mihm: Which excludes 36 <unk> of restructuring charges was at the top end of our guidance due to the factors previously mentioned along with a favorable tax rate.

Patrick John Jermain: Turning to our cash flow and balance sheet on slide 14, we were pleased with our free cash flow performance in the quarter. We delivered $88 million in cash from operations and spent $23 million on capital expenditures. Resulting in free cash flow of $65 million. This result significantly exceeded our net income and expectations. With the usage of cash in the fiscal first quarter, we have now generated free cash flow of $33 million through the first six months of fiscal 2024.

Oliver K. Mihm: Turning to our cash flow and balance sheet on slide 14.

Oliver K. Mihm: We were pleased with our free cash flow performance. This quarter, we delivered $88 million in cash from operations and spent $23 million on capital expenditures, resulting in free cash flow of $65 million.

Oliver K. Mihm: This results significantly exceeded our net income and expectations.

Oliver K. Mihm: With a usage of cash in the fiscal first quarter. We have now generated free cash flow of $33 million through the first six months of fiscal 2024.

Patrick John Jermain: During the quarter, we purchased approximately 186,000 shares of our stock for $17.6 million. We have approximately $38 million available under our current $50 million authorization and expect to consistently exercise the remaining amount during the second half of fiscal 2024, creating additional shareholder value. We ended the fiscal second quarter with a cash balance of $265 million and total debt of $438 million. We had $261 million available to borrow under a credit facility and a conservative gross debt to EBITDA ratio of less than 1.8. In addition to funding our share repurchase authorization, we will use any excess cash to reduce borrowing under our credit facility.

Oliver K. Mihm: During the quarter, we purchased approximately 186000 shares of our stock for $17 $6 million.

Oliver K. Mihm: We have approximately $38 million available under our current $50 million authorization and expect to consistently exercised the remaining amount during the second half of fiscal 2020 for creating additional shareholder value.

Oliver K. Mihm: We ended the fiscal second quarter with a cash balance of $265 million and total debt of $438 million.

Oliver K. Mihm: We had $261 million available to borrow under our credit facility and a conservative gross debt to EBITDA ratio of less than one eight times.

Oliver K. Mihm: In addition to funding our share repurchase authorization, we will use any excess cash to reduce borrowing under our credit facility.

Patrick John Jermain: For the fiscal second quarter, we delivered a return on invested capital of 9.9%, which was 170 basis points above our weighted average cost of capital. Cash cycle at the end of the fiscal second quarter was 91 days, 10 days favorable to expectation, and sequentially improved by four days. Please turn to slide 15 for details on our cash cycle. Our cash cycle improvement came from a combination of lower inventory days and higher days in advance payments. We were encouraged to see our supply chain and regional teams drive sequential improvement in both areas.

Oliver K. Mihm: For the fiscal second quarter, we delivered return on invested capital of nine 9%, which was 170 basis points above our weighted average cost of capital.

Oliver K. Mihm: Cash cycle at the end of the fiscal second quarter was 91 days 10 days favorable to expectations and sequentially improved by four days. Please turn to slide 15 for details on our cash cycle.

Oliver K. Mihm: Our cash cycle improvement came from a combination of lower inventory days and higher days in advance payments, we were encouraged to see our supply chain and regional teams.

Oliver K. Mihm: <unk> sequential improvement in both areas they.

Patrick John Jermain: They delivered a $56 million sequential reduction in gross inventory, which now sits at the lowest quarterly imbalance in two years. As Todd has already provided the revenue and EPS guidance for the fiscal third quarter, I will review some additional details, which are summarized on slide 16. Fiscal third quarter gross margin is expected to be in the range of 9.3 to 9.7 percent. At the midpoint, gross margin would be 40 basis points higher than the fiscal second quarter. Improved productivity across all of our regions, better fixed cost leverage, and savings recognized from our restructuring efforts are contributing to the anticipated improvement.

Oliver K. Mihm: They delivered a $56 million sequential reduction in gross inventory, which now sits at the lowest quarter imbalance in two years.

Oliver K. Mihm: As Todd has already provided the revenue and EPS guidance for the fiscal third quarter I'll review, some additional details which are summarized on slide 16.

Oliver K. Mihm: Fiscal third quarter gross margin is expected to be in the range of nine 3% to nine 7% at the midpoint gross margin would be 40 basis points higher than the fiscal second quarter.

Oliver K. Mihm: Improved productivity across all of our regions better fixed cost leverage and savings recognized from our restructuring efforts are contributing to the anticipated improvement.

Oliver K. Mihm: We expect selling and administrative expenses in the range of 45, 5% to $46 5 million, which is fairly consistent with the fiscal second quarter.

Patrick John Jermain: We expect selling and administrative expenses in the range of $45.5 to $46.5 million, which is fairly consistent with the fiscal second quarter. Note that our SG&A guidance is inclusive of approximately $5.5 million of stock-based compensation expense. Non-operating expenses are anticipated to be in the range of $10.5 to $11 million, which is also fairly consistent with the fiscal second quarter. Our non-GAAP effective tax rate for both the fiscal third quarter and fiscal year is expected to be in the range of 15 to 17 percent.

Oliver K. Mihm: Note that our SG&A guidance is inclusive of approximately $5 5 million of stock based compensation expense.

Oliver K. Mihm: Non operating expenses are anticipated to be in the range of 10 $5 million to $11 million, which is also fairly consistent with fiscal second quarter.

Oliver K. Mihm: Our non-GAAP effective tax rate for both the fiscal third quarter and fiscal year is expected to be in the range of 15% to 17%.

Oliver K. Mihm: With continued attention and focus on working capital efficiency, our expectation for the balance sheet is that we will recognize further reductions in working capital investments compared to the fiscal second quarter.

Patrick John Jermain: With continued attention and focus on working capital efficiency, our expectation for the balance sheet is that we will recognize further reductions in working capital investments compared to the fiscal second quarter. Based on our revenue forecast, we expect this level of working capital will result in cash cycle days in the range of 84 to 88 days. At the midpoint, this would be a sequential improvement of five days, which is mainly related to reductions in growth in the mid.

Oliver K. Mihm: Based on our revenue forecast, we expect this level of working capital will result in cash cycle days in the range of 84 to 88 days.

Oliver K. Mihm: At the midpoint this would be a sequential improvement of five days, which is mainly related to reductions in gross inventory.

Oliver K. Mihm: This improvement should lead to another quarter of positive free cash flow.

Speaker Change: A couple of comments on the full year, we continue to expect capital spending in the range of $100 million to $120 million, which will equate to less than 3% of revenue.

Patrick John Jermain: This improvement should lead to another quarter of positive free cash flow. A couple comments on the full year. We continue to expect capital spending in the range of $100 to $120 million, which will equate to less than 3% of revenue. Last quarter, I mentioned that we could generate up to $50 million in free cash flow for the fiscal year. With further progress on working capital initiatives, we are now projecting approximately $100 million of free cash flow for fiscal 2024. With that, Brittany, let's now open the call to questions. Thank you. At this time.

Oliver K. Mihm: Last quarter, I mentioned that we could generate up to $50 million in free cash flow for the fiscal year with further progress on working capital initiatives. We are now projecting approximately $100 million of free cash flow for fiscal 2024.

Oliver K. Mihm: With that Britney, let's now open the call for questions.

Britney: Thank you.

Britney: At this time, we will conduct a question and answer session.

Brittany Morgan: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A. Our first question comes from the line of David Williams with The Benchmark Company. David, your line is now open.

Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Britney: So ill draw your question. Please press star one one again.

Britney: Please standby, while we compile the Q&A.

Britney: Okay.

Britney: Okay.

Britney: Our first question comes from the line of David Williams with the benchmark company.

David Neil Williams: Your line is now open.

David Neil Williams: Hey, good morning, and thanks for taking my questions. Good morning, David. Good morning. I guess maybe Oliver or Todd, if you think about the industrial segment and you mentioned some of that weakening there, it seems we've been hearing maybe a little bit better commentary out of some of the semi-suppliers in terms of some improvement there, even on the communication side. So just wondering if you could maybe parse through where you're seeing some weakening and whether you think that it's inventory related or more demand related or if it's just specific, maybe to where you have greater exposure. Thank you.

David Neil Williams: Hey, good morning, and thanks for taking my questions.

David Neil Williams: Good morning, David Good morning, I guess, maybe maybe Oliver tonne.

David Neil Williams: Do you think about the industrial segment and you mentioned some of that weakening there.

David Neil Williams: We've been hearing maybe a little bit better commentary out of some of the semi suppliers in terms of some improvement there even on the communication side. So just wondering if you could maybe parse through where youre seeing some weakening and whether you think that inventory related or more demand related or if it's just specific maybe to where you are where you have greater exposure. Thank you.

Todd P. Kelsey: Yeah, David, I'll start with some of the good things that are happening in the industrial segment, then I'll pass it over to Oliver and talk about maybe where some of the challenges are. If we take a look at SemiCap, first of all, as we've talked about in the last few quarters, we believe we're through the bottom and are seeing incremental improvement within SemiCap demand. Now, the bulk of what we're seeing in revenue gains is from market share and market share gains that we've had recently, but we are seeing some modest market improvement as well, too, which we anticipate will accelerate into 25, but we expect it to accelerate at some point.

Speaker Change: Yeah, So David I'll start with some of the good things that are happening in the industrial segment, then I'll pass it over to Oliver and talk about maybe where some of the challenges are.

Todd P. Kelsey: If we take a look at semi cap first of all we as we've talked about the last few quarters. We believe we were through the bottom and are seeing incremental improvement within semi cap demand now the bulk of what we're seeing in revenue gains is from market share and market share gains that we've had recently, but we are seeing some modest mark.

Oliver: That improvement as well too, which we anticipate will accelerate likely into 'twenty five but it will we expect it to accelerate at some point. We're also seeing some signs of improvement within communications as well too so.

Todd P. Kelsey: We're also seeing some signs of improvement within communications as well. So, again, early signs, not ready to declare a great recovery at this point, but we are seeing some positive momentum there. I'll pass this over to Oliver now.

Speaker Change: Again, the early signs not.

Oliver: Not ready to declare a great recovery at this point, but we are seeing some positive momentum there.

Oliver K. Mihm: Yeah. So, to add to that, if I consider other subsectors inside industrial, Jim, we are seeing a little bit more of a muted outlook in either electrification or automation and industrial equipment. I would attribute that to inventory corrections, as we've seen rippling through other subsectors in prior quarters. So, I would attribute that to that. And then specific, you know, just to reiterate what Todd said at the end and, on a positive note, even if we see some incremental pushouts and say semi-cap due to a fab delay or something like that, on the whole, both for semi-capacitated and broadband communications, we're seeing those early indications of modest market improvement.

Speaker Change: Pass it over to Oliver now yeah, so to add on to that if I consider other subsectors inside industrial Jim.

Oliver K. Mihm: We are seeing a little bit more of a muted outlook in either say electrification or automation and industrial equipment.

Oliver K. Mihm: Attribute that to inventory corrections as we've seen rippling through other subsectors in prior quarters.

Oliver K. Mihm: And then specific just to reiterate what Todd segment at the end and on a positive note. Even if we see some incremental push outs than say semi cap due to a fab to fab delay or something like that on the whole both for semi cap and broadband communications.

Oliver K. Mihm: Sealing those early indications of modest market improvement.

Speaker Change: Okay, great great. Thanks for that and you had mentioned some delays in that industrial on the programs is that related to maybe some of the Fabless Jeff talked.

David Neil Williams: Great, great. Thanks for that. And you had mentioned some delays in that industrial on the programs. Is that related to maybe some of the fat push-outs that you talked about just now?

Oliver K. Mihm: <unk> talked about just now.

Speaker Change: Sorry, just the second half of your sentence I didn't catch it.

David Neil Williams: Yes, you had mentioned earlier that there were some program delays within the industrial segment is that related to maybe some of the pushout.

Oliver K. Mihm: Sorry, just the second half of your sentence; I didn't catch it.

Speaker Change: App delays that you just spoke of.

David Neil Williams: Yeah, you had mentioned earlier that there were some program delays within the industrial segment. Is that related to maybe some of the pushouts on the FAB delays that you just spoke of?

Oliver K. Mihm: Yes, exactly right Sam correlating those two points would be correct.

David Neil Williams: Okay, great great.

David Neil Williams: And then maybe.

Oliver K. Mihm: Yeah, exactly. Right. Correlating those two points would be correct.

David Neil Williams: Can you talk a little bit about the improvement that youre seeing in the engineering services side.

Todd P. Kelsey: Okay, okay, great. And then maybe, Todd, can you talk a little bit about the improvement that you're seeing on the engineering services side? And has that really improved outside of the restructuring actions that you took last quarter? And is that, I guess, in terms of the operating margin boost this quarter, is there a way to think about that contribution?

Todd P. Kelsey: And is that really improved outside of the restructuring actions that you've taken last quarter end and is that.

Todd P. Kelsey: I guess from a.

Todd: In terms of the operating margin boost this quarter is there a way to think about that contribution.

Todd: Yes, well certainly the restructuring activities helped but we are seeing a demand improvement in engineering as well too as Oliver mentioned wins ticked up and the encouraging thing.

Todd P. Kelsey: Yeah, well, certainly the restructuring activities helped, but we are seeing a demand improvement in engineering as well, too. As Oliver mentioned, wins ticked up, and the encouraging thing is that a number of the new program wins are, I would call them, brand new programs that have the potential for many follow-on phases. So we're getting a lot more confident around our demand for engineering solutions. The other thing I'd add is we're seeing good diversification within our funnel and within our wins within engineering, and I view that as a real positive as we continue to penetrate the other sectors beyond healthcare lifestyle.

Todd P. Kelsey: The new program wins are I would call brand new programs that have the potential for for many follow on phases. So we're getting a lot more confident around our demand within engineering solutions. The other thing I'd add is we are seeing good diversification within our funnel and within our wins within engineering.

Todd P. Kelsey: I view that as a real positive as we continue to penetrate the other sectors beyond health care life Sciences.

Todd P. Kelsey: Okay.

Speaker Change: One more that May here, yes, David I was just going to say from a margin standpoint, some of the actions we've taken will.

David Neil Williams: David, I was just going to say from a margin standpoint some of our actions we've taken will benefit Q3 and that's reflected in our guidance, but probably more so fully in Q4 and going forward after that. Okay, all right. And Pat, maybe just one more for you, on free cash flow. That's certainly been an area of focus for you all, and you've done a fantastic job at paying it off. Can you talk about, maybe, what the puts and takes are there, and how we should think about that? It's kind of given the program.

David Neil Williams: Benefit Q3, and Thats reflected in our guidance, but probably more so fully in Q4 and going forward after that.

Speaker Change: Okay Alright perfect.

David Neil Williams: Maybe just one more for you on the free cash flow.

David Neil Williams: Certainly been an area of focus for you all and you've done a fantastic job at paying off can you talk about maybe what the puts and takes are there and how we should think about that maybe the free cash flow as we get beyond this year maybe into next year, just kind of given the progress that you've made thus far thank you.

Patrick John Jermain: Sure, maybe I'll start with this quarter and where we saw improvement because I think that's going to lead into future quarters as well. I mean, we had anticipated, and forecasted actually, an investment in working capital in Q2, and the reverse happened. We generated $65 million of positive free cash flow. There are probably three main areas that came from gross inventory, a lot of effort around getting after aged inventory, a big effort to moderate what's actually coming into our facilities, adjusting minimum order quantities, bringing down lead times, all of those benefited gross inventory.

Pat: Sure maybe I'll start with this quarter and where we saw improvement because I think that's going to lead into future quarters as well I mean, we had anticipated forecast is actually an investment in working capital in Q2, and the reverse happened we generated $65 million of positive free cash flow and there is probably three main areas.

Patrick John Jermain: It came from obviously gross inventory a lot of effort around getting after aged inventory.

Patrick John Jermain: Effort to moderate what's actually coming into our facilities.

Patrick John Jermain: Adjusting minimum order quantities, bringing down lead times all of those have benefited gross inventory, but then also higher advanced payments.

Patrick John Jermain: But then also higher advanced payments; some of that's linked to excess and obsolete inventories. So getting customer commitments for that excess and obsolete inventory benefited us. And then some capital spending pullback that some of that's just deferral that we'll see in Q3, but some of that is just based on our revenue growth and pulling back on some of that spending. So going forward, David, we do see a path to continuing to bring gross inventory down, so generating similar amounts of free cash flow in Q3 and Q4 would be our expectation.

Patrick John Jermain: Some of Thats linked to excess and obsolete inventory, so getting customer commitments to that excess and obsolete inventory.

Patrick John Jermain: Benefited us and then some capital spending pullback that some of Thats just deferral that we will see in Q3.

Patrick John Jermain: But some of that is just based on our revenue growth in.

Patrick John Jermain: And pulling back on some of that spending so going forward David.

Patrick John Jermain: We do see a path to continuing to.

Patrick John Jermain: Bring gross inventory down.

Patrick John Jermain: So generating similar amounts of free cash flow in Q3 and Q4.

Patrick John Jermain: And then as we get into 25, I think getting back to a more normalized free cash flow that we've seen kind of pre-pandemic is our expectation. So just a reminder from a cash cycle day perspective, each day we pull out is $10 million of free cash flow we're freeing up. So really nice improvement in Q2 and expectations for Q3 and beyond.

Patrick John Jermain: Would be our expectation and then as we get into 'twenty five I think getting back to a more normalized free cash flow that we've seen kind of pre pandemic.

Patrick John Jermain: It is our expectation. So just a reminder from a cash cycle day perspective, each day, we pull out is $10 million.

Patrick John Jermain: Free cash flow, we're freeing up so really nice improvement in Q2 and expectation for Q3 and beyond.

Speaker Change: Thanks, so much for the time.

Patrick John Jermain: Sure.

David Neil Williams: All right. Thank you so much. One moment for our next question, please. Our next question comes from the line of Jim Ricchuti with Needham & Company. Your line is now open.

Patrick John Jermain: Okay.

Speaker Change: Alright, thank you so much.

James Andrew Ricchiuti: Our next question please.

David Neil Williams: Okay.

David Neil Williams: Okay.

James Andrew Ricchiuti: Our next question comes from the line of Jim Ricchiuti with Needham <unk> Company. Your line is now open.

James Andrew Ricchiuti: Hi, good morning. You may have addressed this already; I may have just missed it. I was on another call, but I was hoping to hear some reference to the inventory correction in industrial and some of the subsectors spreading. And I was wondering, you know, if it sounds like you're on the margin, a little bit more positive about what you're seeing in SEMICAP. So where are you seeing some signs of, you know, potentially some softening in the industrial sector? Yeah, well,

James Andrew Ricchiuti: Hi, Good morning, you may have addressed this and I may have just missed it I was on.

James Andrew Ricchiuti: On another call, but I was hoping I heard some reference too.

James Andrew Ricchiuti: The inventory correction and industrial and some of the Subsectors scrubbing and I was wondering.

James Andrew Ricchiuti: It sounds like you are on the margin a little bit more positive about what youre seeing in semi cap. So where are you seeing some signs.

James Andrew Ricchiuti: Potentially some softening in industrial.

James Andrew Ricchiuti: Okay.

Todd P. Kelsey: Yeah, I'll jump in there, Jim, and provide some overview as to how we're looking at industrial. Yeah, you're correct.

Speaker Change: Yes, I'll jump in there Jim and provide.

Speaker Change: Our provide some oversight overview as to how we're looking at industrial.

Oliver K. Mihm: Our commentary here in our scripted remarks pointed out some inventory reductions, creating some needed demand specifically in industrial equipment, automation, and electrification. We do see still incremental pushouts, say inside Semicap as we hear about FAB delays, FAB deployment delays. But on the whole, both within Semicap and comms, we're seeing early in early incremental modest market improvement.

Speaker Change: Yes, Youre correct our commentary here in our script prepared remarks was pointing out some inventory reductions.

Oliver K. Mihm: Creating some muted demand specifically in industrial equipment automation and electric electrification.

Oliver K. Mihm: We do see still incremental push outs say inside semi cap as we hear about fab delays fab deployment delays, but on the whole both within semi cap and comms, we're seeing early.

Oliver K. Mihm: Early incremental modest market improvement.

Speaker Change: Got it and.

James Andrew Ricchiuti: It's maybe a tougher one to answer, but just the broader correction that you're seeing in healthcare and even in some of the industrial markets where you've maybe seen the inventory challenges a little earlier on. Any sense as to when that correction, those headwinds, may begin to abate?

Oliver K. Mihm: And this may be a tougher one to answer but just the broader.

James Andrew Ricchiuti: Correction that you're seeing.

James Andrew Ricchiuti: Healthcare.

James Andrew Ricchiuti: And even in some of the industrial markets, where you may be seeing the inventory.

James Andrew Ricchiuti: <unk> is a little earlier on.

James Andrew Ricchiuti: Any sense as to when that correction those headwinds maybe begin to abate.

Todd P. Kelsey: Yeah, so maybe I'll take a tour through each of our markets here, Jim, and talk about where I think we are at the moment. If we look at A&D, continued strong growth across all subsectors within aerospace and defense, so that would include security and commercial space, strong growth in each of those subsectors in fiscal 24, and the outlook for 25 looks encouraging as well, too. If we go over to health care, that's where we've seen the most severe inventory corrections.

Speaker Change: Yes, so maybe I'll take.

Todd P. Kelsey: Our guide through each of our markets here, Jim and talk about where I think we're at at the moment. If we look at A&D continued strong.

Todd P. Kelsey: Really across all sub sectors with within aerospace and defense. So that would include security and commercial space strong growth in each of those sub sectors in fiscal 'twenty, four and the outlook for 'twenty five looks encouraging as well too.

Todd P. Kelsey: If we go over to health care.

Todd P. Kelsey: That's where we've seen the most severe inventory corrections.

Todd P. Kelsey: Now, we believe we've hit the bottom there, so there's been stability in our forecast over the course of the past quarter, where previously we had been seeing degradation on a quarter-over- quarter basis, so there's signs we've hit the bottom there, and then the question just becomes, when do markets recover? So, as we look to 25, right now we're projecting some strong growth within health care, but that's a result of program ramps, not market recovery at this point, so as markets recover, I think we could have a really strong growth projection at that time or growth outlook, and then looking at industrial, that's been the latest one to soften a bit, so over half the sector, I would say, is on an upward trend right now, that being Semicap and our communications business, and the balance is seeing a bit of an inventory correction at this point, that's really kind of taking away from the growth that we're seeing in the other two subsectors.

Todd P. Kelsey: Now we believe we've hit the bottom there so theres been stability in our forecast over over the.

Todd P. Kelsey: Of course of the past quarter, where previously we had been seeing degradation on a quarter over quarter basis. So there are signs we've hit the bottom there and then the question just becomes when do market's recovery recover so as we looked at 25 right now we're projecting some strong growth within healthcare, but thats a result of <unk>.

Todd P. Kelsey: Program ramps not market recovery at this point so.

Todd P. Kelsey: As markets recover I think we could.

Todd P. Kelsey: It could have a really strong.

Todd P. Kelsey: Growth projection at that time, our growth outlook and then looking at industrial.

Todd P. Kelsey: That's been the latest wanted to soften a bit so so over half the sector I would say is on an upward trend right now that would be in semi cap and our communications business.

Todd P. Kelsey: And the balance is seeing a bit of an inventory correction at this point.

Todd P. Kelsey: That's really kind.

Todd P. Kelsey: Kind of taking away from the growth that we're seeing in the other two subsectors.

James Andrew Ricchiuti: Got it. That's helpful. Thank you. Sure.

Speaker Change: Got it.

Speaker Change: That's helpful. Thank you.

James Andrew Ricchiuti: Sure.

Melissa Ann Dailey Fairbanks: All right, thank you so much. One moment for our next question, please. All right, our next question comes from the line of Melissa Fairbanks with Raymond James and Associates. Your line is now open.

Speaker Change: Great. Thank you so much.

Melissa Ann Dailey Fairbanks: Our next question.

Melissa Ann Dailey Fairbanks: Yeah.

Melissa Ann Dailey Fairbanks: Sure.

Melissa Ann Dailey Fairbanks: Our next question comes from the line of Melissa Fairbanks with Raymond James and Associates. Your line is now open.

Melissa Ann Dailey Fairbanks: Hey guys, thanks so much.

Melissa Ann Dailey Fairbanks: Hey, guys. Thanks, so much maybe just a follow up Todd on on your comments on the health care business.

Todd P. Kelsey: Maybe just to follow up, Todd, on your comments on the health care business. You know, we know you faced some headwinds there for quite some time, first from supply constraints, and now maybe an overcorrection in terms of the buying patterns. But you actually slightly outperformed your expectations in March. Can you maybe give us an update on what you're seeing in each product category there, or any greater level of detail in terms of where the inventory corrections are coming, or maybe what's getting a little bit better?

Todd P. Kelsey: Sure.

Todd P. Kelsey: No you faced some headwinds there for quite some time first from <unk>.

Todd P. Kelsey: Supply constraints now maybe an over correction in terms of the buying patterns, but you actually slightly outperformed your expectations. In March can you maybe give us an update on what youre seeing in each product category, there or any greater level of detail in terms of where the inventory corrections are coming or maybe getting a little bit better.

Oliver K. Mihm: Yeah, I think I'll pass it over to Oliver to give you a little color on that, Melissa.

Todd P. Kelsey: Yes, I think I'll pass it over to Oliver to give you a little color on that Melissa Melissa as we consider our future.

Melissa Ann Dailey Fairbanks: Melissa, as we consider our Q2 performance, I would say that it's less subsector-based and more customer-specific. So, we had a few customers that specifically increased their demand through the quarter, and then we had a couple of program ramps, both with new customers and existing customers, that were essentially ahead, so they moved a little bit faster than expected. And those are the things that all contributed to the beat. Okay. A better

Oliver: Good morning.

Melissa Ann Dailey Fairbanks: As we consider our Q2 performance I.

Melissa Ann Dailey Fairbanks: I would say that's less sub sector based and more customer specific so we had a few customers that specifically increase their demand through the quarter and then we had a couple of program ramps, both with new customers and existing customers that.

Melissa Ann Dailey Fairbanks: We're essentially ahead, so moved a little bit faster than expected.

Melissa Ann Dailey Fairbanks: And those are the things that all contributed to the beat.

Melissa Ann Dailey Fairbanks: Okay, the better performance outerwear.

Todd P. Kelsey: So for my follow-up, and this might not be fair, but it seems like we have to talk about AI on every call. So in the past, you've talked about deploying AI and machine learning in your own manufacturing processes. Some of your peers recently have been pretty outspoken about their own exposure to AI, either in the data center or some of the more industrial applications like power management. Can you remind us if you've got any direct exposure to this market?

Speaker Change: Excellent excellent.

Speaker Change: For my follow up.

Todd P. Kelsey: Might not be fair, but it seems like we have to talk about AI on every call.

Todd P. Kelsey: The past you've talked about deploying AI and machine learning in your own manufacturing processes. Some of your peers recently have been pretty outspoken about their own exposure to AI either on the data center some of the more industrial applications like power management can you remind us if you've got any direct exposure to this market outside of your own internal processes.

Melissa Ann Dailey Fairbanks: Sure, absolutely, Melissa. I think the most direct line that I can paint for you is if you kind of play AI and then build out associated with that and how that's gonna ripple through to semi-capital equipment. So that's gonna be something that we're gonna participate heavily in. We also expect AI to drive continued innovation. So, for instance, within healthcare, you could expect that to drive faster product innovation as they develop, for instance, I'm kind of making things up, but algorithms to enable them to come up with patient outcomes more quickly and the innovation and device launches associated with that, we think that's something we would directly stand to gain. Excellent!

Speaker Change: Sure absolutely Mercer I think.

Melissa Ann Dailey Fairbanks: Most direct line that I can paint for you is if you contemplate AI and then build out associated with that and how that is going to ripple through to semi cap equipment. So that it can be something that we're going to participate heavily in.

Melissa Ann Dailey Fairbanks: We also expect AI to drive continued innovation so with for instance, within healthcare you could expect that to drive faster product innovation as they develop for instance on kind of making things up and algorithms.

Melissa Ann Dailey Fairbanks: Enable them to come up with patient outcomes more quickly and the innovation and device launching associated with that and we think thats something we would directly stand to gain from.

Melissa Ann Dailey Fairbanks: Excellent. Thanks very much. That's all for me for now. All right, thank you both.

Speaker Change: Excellent. Thanks, very much that's all from me for now.

Speaker Change: Alright, Thanks Melissa.

Steven Bryant Fox: Thank you so much. One moment for our next question. Our next question comes from the line of Steven Fox with Fox Advisors, LLC. Your line is now open.

Speaker Change: Thank you so much.

Steven Bryant Fox: Our next question.

Steven Bryant Fox: Our next question comes from the line of Steven Fox with Fox Advisors LLC. Your line is now open.

Steven Bryant Fox: Hi, good morning. First off, you mentioned on the SEMICAP side that you're not only winning new programs, but you're seeing your funnel expand at the same time. I think that was the only area where you said that this quarter. You also called out some growth that's benefiting from new programs, et cetera. It seems like you have a lot of momentum there.

Steven Bryant Fox: Hi, Good morning, I had two questions first off.

Steven Bryant Fox: You mentioned on the semi cap side that youre not only.

Steven Bryant Fox: Winning new programs, but youre seeing your final expand at the same time I think that was the only area, where you said that this quarter.

Steven Bryant Fox: You called out some growth benefitting from new programs et cetera. It seems like you have a lot of momentum there but.

Steven Bryant Fox: But my question is, I was wondering if you could sort of size us up on where you're seeing the most success with SEMICAP, why you're taking share, is anything changing in the supply chain? Because I know at times you compete with EMS companies, but there are also, you know, sort of tier one, tier two players to SEMICAP guys that do some of the stuff you do. So sort of, you know, what's changed maybe over the last couple years as the industry has gone through this downturn for you guys? Thanks. And then I had a follow-up question. Sure.

Steven Bryant Fox: My question is I was wondering if you could sort of rightsize us on where you're seeing the most success on semi cap.

Steven Bryant Fox: Youre, taking share is anything changing in the supply chain because I know at times you compete with the EMS companies, but there is also sort of tier one tier two players in the semi cap guys that do some of the stuff you do so sort of what's changed maybe over the last couple of years as has the industry has gone through this downturn for you guys. Thanks, and then I had a few.

Todd P. Kelsey: Sure. So, I'll take this. Steve, it's Todd.

Steven Bryant Fox: Okay.

Steven Bryant Fox: Sure. So I'll take this Steve as Todd.

Todd P. Kelsey: So, from a SemiCap standpoint, and this goes with the new wins as well, too, we basically play across the entire spectrum within SemiCap, our semi-manufacturing in the process, as well as test and back-end. We ship finished systems, so I think our capabilities are outstanding within the space, and that's recognized by our customers. And I would say we're kind of playing across the technology spectrum as well as memory and logic. Another big part for us within SemiCap is our engineering capabilities. So, we're able to bring a lot of technology into our offering for our customers.

Todd: So from a semi cap standpoint.

Todd P. Kelsey: This goes with the new wins as well too.

Todd P. Kelsey: Acyclic play across the entire spectrum within semi cap or semi manufacturing in the process as well as test and back end. So that's a significant piece of business for us as well.

Todd P. Kelsey: The reason, we're taking share is execution.

Todd P. Kelsey: Team performs incredibly well from.

Todd P. Kelsey: From a standpoint of quality and delivery within that market space. We ship finished system. So I think our our capabilities are our.

Todd P. Kelsey: Our outstanding within the space and that's recognized by our customers and I would say, we're we're kind of playing across the technology spectrum as well as memory and logic. Another big play for us within semi cap is our engineering capabilities. So we're able to bring a lot of technology into our offering.

Steven Bryant Fox: Great, that's helpful. And then, secondly, Pat, you mentioned improved productivity. Could you just put a little color around that?

Todd P. Kelsey: For our customers.

Steven Bryant Fox: Okay.

Speaker Change: Great. That's helpful. And then just secondly, Pat you mentioned improved productivity can you just put a little color around that.

Patrick John Jermain: Where are you seeing the benefits right now, and what kind of initiatives are helping productivity in the future? Thanks.

Steven Bryant Fox: Yes.

Speaker Change: We are seeing the benefits right now.

Patrick John Jermain: What kind of initiatives are helping productivity maybe in the future. Thanks.

Oliver K. Mihm: Yeah, maybe I'll start and then Oliver could jump in. It's really across all of our regions. We've seen productivity improvements. In Europe, we've secured some new wins, so leveraging our capacity better is benefiting our gross margin in Europe. Same can be said for a mayor where we're, um, increasing, uh, capacity and utilization with some of the new programs that are going in. So, Oliver, let you add anything else from a productivity standpoint that you're seeing.

Oliver K. Mihm: Yes, maybe I'll start and then Oliver could could jump in.

Oliver: It's really across all of our regions.

Oliver: You've seen productivity improvements.

Oliver: In Europe, we secured some new wins, so leveraging our capacity better.

Oliver: Benefiting our gross margin within Europe.

Oliver: The same can be said for Amir where were.

Oliver: Increasing capacity and utilization with some of the new program ramps that are going in so.

Oliver K. Mihm: Oliver.

Oliver: Let you add anything else from a productivity standpoint that youre seeing.

Oliver K. Mihm: Yeah, I'll add they broke even in the fiscal second quarter, so that's good news. And as those program ramps continue to approach full volume production, that profitability will obviously improve, and continue to improve. And then specifically internally, we have something that we measure called transformation cost, essentially the cost required to transform raw materials to finished products. And we've got laser focus on improvement goals by site. It's something that we think is really important for us as a business, and so that'll continue to drive additional benefits.

Oliver K. Mihm: I'll add two things bad things first just in terms of utilization I'll note that our Bangkok site broke even in fiscal second quarter. So thats. Good news as those program ramps continue to approach full volume production that profitability will obviously improve continue to improve.

Oliver K. Mihm: And then specifically internally, we have something that we measure called transformation costs essentially the cost required to transform raw materials to finished product and we've got laser focus on improvement goals by site. It's something that we think is really important for us as a business and so that will continue to drive additional benefit as well, yes, one of those areas.

Oliver K. Mihm: Yeah, one of those areas would be around quality and scrap and seeing scrap expense coming down with the improved quality that we're having. And that's just one example. You know, the focus on transformation costs that Oliver mentioned. Great, that's all super helpful.

Oliver K. Mihm: Be around quality, and scrap and scrap expense coming down with improved quality of that perhaps and that's just one example.

Oliver K. Mihm: The focus on transformation costs at Oliver mentioned.

Steven Bryant Fox: Great, that's all super helpful. Thank you. Thank you, Steve. Thank you so much.

Speaker Change: Great. That's all Super helpful. Thank you.

Speaker Change: Thanks, Steve.

Anja Marie Theresa Soderstrom: Thank you so much. One moment for our next question. Our next question comes from the line of Anja Soderstrom with Sidoti. Your line is now open.

Speaker Change: Thank you so much one moment our next question.

Anja Marie Theresa Soderstrom: Okay.

Anja Marie Theresa Soderstrom: Yes.

Anja Marie Theresa Soderstrom: Our next question comes from the line of Omnia Sato Stone with Sidoti. Your line is now open.

Anja Marie Theresa Soderstrom: Hi, thank you for taking my questions. I also have two questions here. In terms of the final contraction for the quarter, how should we think about that? Is there lumpiness there, or how should we think about that going forward?

Anja Marie Theresa Soderstrom: Alright, Thank you for taking my questions.

Anja Marie Theresa Soderstrom: I also have two questions here Andrew.

Anja Marie Theresa Soderstrom: Final contraction for the corner Hunter I would think about that is there lumpiness.

Anja Marie Theresa Soderstrom: Uh huh.

Anja Marie Theresa Soderstrom: As you think about that going forward.

Oliver K. Mihm: Yeah, I'll answer that, Anja, this is all... As I consider the funnel on the whole, the first thing I'll point out is that we do not manage that to quarterly boundaries. So there's typical ebb and flow, and that's just a natural part of the process. I'll also reflect on the fact that we've had a number of quarters of really strong winds recently that contributed to that funnel pulling back. And then the other thing I'll point out... is we continue to still have a larger number than typical of large opportunities in our funnel.

Anja Marie Theresa Soderstrom: Yes, I'll answer that Anya this is Oliver.

Oliver K. Mihm: As I consider the Faneuil Hall, the first thing I'll point out is that we do not manage that the quarterly boundaries. So theres typical ebb and flow and that's a natural part of the process also reflect on the fact that we've had a number of quarters of really strong wins recently that contributed to that funnel pulling back.

Oliver K. Mihm: And then the other thing I'll point out.

Oliver K. Mihm: And as we continue to still have a larger number than typical of large opportunities in our funnel and then as during our prepared comments. We also track internally and something we don't publish what we would call our unqualified early stage funnel and multiple of our sectors have specifically pointed out that they see a lot of strength.

Oliver K. Mihm: And then, as during our prepared comments, we also track internally in something we don't publish, what we would call our unqualified early stage funnel. And multiple of our sectors have specifically pointed out that they see a lot of strength there. And so that then gives us optimism that the funnel is going to come back.

Oliver K. Mihm: There and so that then gives us optimism that the funnel is going to backfill them nicely.

Anja Marie Theresa Soderstrom: Okay, thank you. And then I just want some clarification on Todd's comments around the free cash flow and the CapEx spend being pushed out, or you're pulling back on that. Is that just a matter of that being pushed out into labor this year, or are you getting softer on your CapEx spend because you see softer growth ahead?

Anja Marie Theresa Soderstrom: Okay. Thank you and then I just want some clarification on pat's comments around free.

Anja Marie Theresa Soderstrom: Free cash flow on the Capex spend being pushed out then.

Anja Marie Theresa Soderstrom: Pulling back on that is that just a matter of that being pushed out.

Anja Marie Theresa Soderstrom: Until later this year are you getting softer on a capex spend of FCC software well go ahead.

Patrick John Jermain: No, I think some of it, Anja, is just timing between quarters and when some of it hits. And I'd say we typically come into a quarter thinking we're going to spend a lot more than we typically do. And that's a quarterly trend we have seen for several quarters. Um, I'm keeping the CapEx spending at $100 to $120 million this year. So that's consistent with last quarter. I started the year, I think, at 110 to 130 million. So it's come down a little bit just based on our needs this year, but still pretty consistent with what we expected a quarter ago.

Todd: No I think some of it is just timing between quarters and when.

Patrick John Jermain: Some of it hits and I'd say, we typically come into a quarter.

Patrick John Jermain: And we're going to spend a lot more than we typically do and thats.

Patrick John Jermain: Our quarterly trend, we have seen for several quarters.

Patrick John Jermain: I'm, keeping the capex spending at $100 million to $120 million. This year. So that's consistent with last quarter I started the year I think at $110 million to $130 million. So it's come down a little bit just based on our needs. This year.

Patrick John Jermain: But still pretty consistent with what we expected a quarter ago, and what I'd add to <unk>.

Todd P. Kelsey: And what I'd add, Anja, is that we're very optimistic about our growth potential. So we're not backing off from an investment.

Todd P. Kelsey: We're very optimistic in our growth potential for fiscal 'twenty five.

Anja: So were not backing off from an investment standpoint at all.

Anja Marie Theresa Soderstrom: Okay, thank you. Actually, I have one follow-up question, too.

Todd P. Kelsey: Okay.

Anja: Okay. Thank you actually I had one follow up to just in general with your customer on that.

Todd P. Kelsey: Just in general, with your customers and the sentiment of giving due to the economic uncertainty, however you are in the outsourcing industry, how do you see them? Are they more cautious? Are they more turning to outsourcing? Or just in general, what are you seeing among your customers when you speak to them?

Todd P. Kelsey: Gentlemen, thank given the economic.

Speaker Change: Thank you.

Todd P. Kelsey: However, we are in the outsourcing industry.

Todd P. Kelsey: How do you see them are they more caution and so are there more.

Todd P. Kelsey: Turning to outsourcing or just in general what are you seeing in pain.

Todd P. Kelsey: Customized when you speak to that.

Anja Marie Theresa Soderstrom: Yeah, I think in general, there's a continued movement towards more and more outsourcing. And I think as the economy ebbs and flows, when the economy is worse, you generally see an increase in outsourcing, so it's a bit inversely proportional. Right now, we're seeing good interest in outsourcing, as the WED put it, and it continues to improve.

Todd P. Kelsey: Yes, I think in general there is a continued movement towards more and more outsourcing and I think as.

Anja Marie Theresa Soderstrom: The economy ebbs and flows of the.

Anja Marie Theresa Soderstrom: When the economies worse, you generally see an increase in outsourcing so it's a bit inversely proportional.

Anja Marie Theresa Soderstrom: Right now we're seeing good interest in outsourcing is the word bullet so.

Anja Marie Theresa Soderstrom: It continues to improve.

Todd P. Kelsey: Okay, great. Thank you. That was all for me.

Speaker Change: Okay, great. Thank you and I will talk for me.

Todd P. Kelsey: Thank you so much for that. I have no further questions. I would now like to turn the call back over to Todd Kelsey for closing remarks.

Speaker Change: Alright, Thanks Sonya.

Todd P. Kelsey: Thank you so much for that.

Todd P. Kelsey: Showing no further questions I would now like to turn the call back over to Todd Kelsey a closing remark.

Todd P. Kelsey: All right, thank you, Brittany. I'd like to thank everybody for joining us, our shareholders, investors, analysts, and Plexus team members. In concluding, I would like to state again how pleased I am with our team. We remain focused on activities to create shareholder value, and these include delivering our 9 to 12 percent revenue growth goal over the long term, generating at least 5.5 percent gap operating margin, exiting fiscal 2025, and producing more consistent and greater free cash flow. Thank you all and have a wonderful day.

Speaker Change: Alright, Thank you Britney I'd like to thank everybody for joining us our shareholders investors analysts plexus team members.

Todd P. Kelsey: In concluding I would like to state again, how pleased I am with our team continues to execute we remain focused on activities to create shareholder value and these include delivering our 9% to 12% revenue growth goal over the long term generating at least five 5% GAAP operating margin exiting fiscal 2000.

Todd P. Kelsey: 25% and producing more consistent and greater free cash flow.

Todd P. Kelsey: Thank you all and have a wonderful day.

Brittany Morgan: Okay, thank you for participating in today's conference. This does conclude the program. You may now disconnect.

Brittany Morgan: Okay.

Speaker Change: Thank you for participating in today's conference. This does conclude the program you may now disconnect.

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