Q3 2024 Plexus Corp Earnings Call

Good morning and welcome to the Plexus Corp conference call regarding its fiscal third quarter 2024 earnings announcement. My name is Maria and I will be your operator for today's call.

Maria: Announcement. My name is Maria, 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 Investment.

Speaker Change: At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the conference call for questions.

Shawn Matthew Harrison: 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. Shawn?

Shawn Matthew Harrison: Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements, including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outlook. Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statement.

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 30th, 2023, as supplemented by our Form 10-Q filings in the Safe Harbor and Fair Disclosure Statement in our press release.

Shawn Matthew Harrison: Good morning and thank you for joining us today.

Speaker Change: Some of the statements made and information provided during our call today will be forward-looking statements.

Speaker Change: including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, and future business outlook.

Speaker Change: Forward-looking statements are not guarantees, since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements.

Speaker Change: for a list of factors that could cause actual results differ materially from those discussed.

Speaker Change: Please refer to the company's periodic SEC filings, particularly the risk factors in our Form 10-K filing. The fiscal year ended September 30th, 2023, is supplemented by our Form 10-Q filings in the Safe 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, President and Chief Executive Officer. Steve Frisch, Chief Strategy Officer, Patrick Jermain, Executive Vice President, Chief Financial Officer, and Oliver Mihm, Executive Vice President and Chief Operating Officer. On today's call, Todd will provide summary comments before turning the call over to Oliver and Pat.

Speaker Change: We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus's website at www.plexus.com, clicking on investors at the top of that page.

Speaker Change: Joining me today are Todd Kelsey, President and Chief Executive Officer, Steve Frisch, Chief Strategy Officer, Pat Jermain, Executive Vice President and Chief Financial Officer, and Oliver Mihm, Executive Vice President and Chief Operating Officer.

Speaker Change: With today's call, Todd will provide summary comments before turning the call over to Oliver and Pat for further details.

Shawn Matthew Harrison: Before I turn the call over to Todd, please note that during our fiscal fourth quarter, Plexus will participate in Eden's Virtual Industrial Tech, Robotics, and Cleantech Conference on August 20th and the Benchmark Company's 2024 TMT Conference in New York City on September. With that, let me now turn the call over to Todd Kelsey.

Speaker Change: Before I turn the call over to Todd, please note that during our fiscal fourth quarter, Plexus will participate in Edema's Virtual Industrial Tech, Robotics, and Clean Tech Conference on August 20th and the Benchmark Company's 2024 TMT Conference in New York City on September 4th.

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

Speaker Change: With that, let me now turn the call over to Todd Kelsey. Todd?

Todd P. Kelsey: Before I begin my prepared remarks, I would like to acknowledge that today's call will be Steve Frisch's last earnings call ahead of his retirement at the end of our fiscal 2024. I would like to thank Steve for his numerous contributions to Plexus' growth and success over the past 34 years. Steve, congratulations on your pending retirement, and thank you for your service to Plexus. Please advance to slide three.

Todd P. Kelsey: Thank you, Shawn. Good morning, everyone. Before I begin my prepared remarks, I would like to acknowledge that today's call will be Steve Frisch's last earnings call ahead of his retirement at the end of our fiscal 2024.

Todd P. Kelsey: I would like to thank Steve for his numerous contributions to Plexus' growth and success over the past 34 years.

Speaker Change: Steve, congratulations on your pending retirement, and thank you for your service to Plexus.

Todd P. Kelsey: During our fiscal second quarter earnings call, I highlighted my expectation of a strong finish to fiscal 2024 that would position Plexus for further momentum in fiscal 2025. This view was formed as a result of early signs of demand inflecting higher, aided by share gains and new program ramps. Efforts to increase efficiency and reduce cost, and progress on our Working Capital Initiative. Our fiscal third quarter results and fiscal fourth quarter guidance reinforce this outlook of sustained momentum, creating the potential for 9 to 12% revenue growth for fiscal 2025 with a 5.5% gap and greater than 6% non-gap operating margin exiting fiscal 2025, as well as continued solid free cash flow generation. Please advance to slide four.

Speaker Change: Please advance to slide 3.

Speaker Change: During our fiscal second quarter earnings call, I highlighted my expectation of a strong finish to fiscal 2024 that would position Plexus for further momentum in fiscal 2025.

Speaker Change: This view was formed as a result of early signs of demand inflecting higher aided by share gains and new program ramps.

Speaker Change: Efforts to increase efficiency and reduce cost, and progress on our working capital initiatives.

Speaker Change: Our fiscal third quarter results and fiscal fourth quarter guidance reinforce this outlook of sustained momentum.

Speaker Change: creating the potential for 9 to 12 percent revenue growth for fiscal 2025 with 5.5 percent gap and greater than 6 percent non-gap operating margin exiting fiscal 2025, as well as continued solid free cash flow generation.

Operator: Lee's advanced to slide four. We delivered outstanding fiscal third quarter financial results. Revenue of $961 million was within our guidance range.

Todd P. Kelsey: We delivered outstanding fiscal third-quarter financial results. Revenue of $961 million was within our guidance range. While we experienced stable to improved revenue outlooks for most customers during the quarter, design changes and product launch delays from an industrial customer and a slower than anticipated transition of a competitive market share gain with an aerospace and defense customer resulted in those market sectors performing below our expectations entering the quarter. However, this demand is largely non-perishable and will be realized in future quarters.

Speaker Change: Please advance to slide 4.

Speaker Change: We delivered outstanding fiscal third quarter financial results.

Speaker Change: Revenue of $961 million was within our guidance range.

Todd Kelsey: While we experienced stable to improve revenue outlooks from most customers during the quarter, design changes and product launch delays from an industrial customer, and a slower than anticipated transition of a competitive market share gain with an aerospace and defense customer, resulted in those market sectors performing below our expectations entering the quarter. This demand is largely non-perishable and will be realized in future quarters. During last quarter's earnings call, we forecast our nine-gap operating margin with exit our fiscal 2024, 60 to 100 basis points higher than our fiscal second quarter result. As an outcome of strengthening demand for our engineering solutions and sustaining services, improved efficiencies in manufacturing, and solid cost management, we achieved these expectations earlier than anticipated.

Speaker Change: While we experience stable to improved revenue outlooks for most customers during the quarter,

Speaker Change: design changes and product launch delays from an industrial customer, and a slower-than-anticipated transition of a competitive market share gain with an aerospace and defense customer resulted in those market sectors performing below our expectations entering the quarter.

Speaker Change: This demand is largely non-perishable and will be realized in future quarters.

Todd P. Kelsey: During last quarter's earnings call, we forecast our non-GAAP operating margin would exit our fiscal 2024 60 to 100 basis points higher than our fiscal second quarter results. As a result of strengthening demand from our engineering solutions and sustaining services, improved efficiencies in manufacturing, and solid cost management, we achieved these expectations earlier than anticipated. Our fiscal third quarter non-GAAP operating margin of 5.8% exceeded our guidance range of 5.2 to 5.6% and represented a nearly 90 basis point sequential increase.

Speaker Change: During last quarter's earnings call, we forecast our non-GAAP operating margin would exit our fiscal 2024 60 to 100 basis points higher than our fiscal second quarter result.

Speaker Change: As an outcome of strengthening demand from our engineering solutions and sustaining services, improved efficiencies in manufacturing, and solid cost management, we achieved these expectations earlier than anticipated.

Todd Kelsey: Our fiscal third quarter nine-gap operating margin of 5.8% exceeded our guidance range of 5.2 to 5.6% and represented a nearly 90 basis point sequential increase. 9-gap EPS of $1.45 also exceeded our guidance range, given the robust operating margin performance and lower interest expense, a benefit from deploying the outstanding free cash flow generated this quarter. For the fiscal third quarter, we generated $140 million of free cash flow, the second highest quarterly performance in company history. We have now generated $147 million of free cash flow fiscal year-to-date. Please advance to slide five. Our go-to-market organization also had an outstanding quarter represented by solid winds and substantial customer recognition.

Speaker Change: Our fiscal third quarter non-GAAP operating margin of 5.8% exceeded our guidance range of 5.2 to 5.6% and represented a nearly 90 basis point sequential increase.

Todd P. Kelsey: Non-GAAP EPS of $1.45 also exceeded our guidance range, given the robust operating margin performance and lower interest expense, a benefit from deploying the outstanding free cash flow generated this quarter. For the fiscal third quarter, we generated $114 million of free cash flow, the second highest quarterly performance in company history. We have now generated $147 million of free cash flow this fiscal year to date. Please advance to slide five.

Speaker Change: non-GAAP EPS of $1.45 also exceeded our guidance range given the robust operating margin performance and lower interest expense, a benefit from deploying the outstanding free cash flow generated this quarter.

Speaker Change: For the fiscal third quarter, we generated $114 million of free cash flow, the second highest quarterly performance in company history. We have now generated $147 million of free cash flow fiscal year to date.

Speaker Change: Please advance to slide 5.

Speaker Change: Our go-to-market organization also had an outstanding quarter represented by solid wins and substantial customer recognition.

Todd Kelsey: During the quarter, we were honored to receive awards recognizing delivery performance and supplier excellence from two of our top customers, Honeywell Aerospace and Metronic. This positive sentiment was also born out in the strong engagement and the results of our recently completed annual customer satisfaction survey. Our team's passion for delivering zero defects with perfect delivery and commitment to customer service excellence creates an ongoing dividend that is reflected in our new program, wind strength, and industry leading revenue growth. For the fiscal third quarter, we won 35 manufacturing programs worth $279 million in revenue annually when fully ramped into production.

Speaker Change: During the quarter, we were honored to receive awards recognizing delivery performance and supplier excellence from two of our top customers, Honeywell Aerospace and Medtronic.

Todd P. Kelsey: This positive sentiment was also borne out in the strong engagement and the results of our recently completed Annual Customer Satisfaction Survey. Our team's passion for delivering zero defects with perfect delivery and commitment to customer service excellence creates an ongoing dividend that is reflected in our new program win strength and industry-leading revenue growth. For the fiscal third quarter, we won 35 manufacturing programs worth $279 million in revenue annually when fully ramped into production.

Speaker Change: This positive sentiment was also borne out in the strong engagement and the results of our recently completed Annual Customer Satisfaction Survey.

Speaker Change: Our team's passion for delivering zero defects with perfect delivery and commitment to customer service excellence creates an ongoing dividend that is reflected in our new program win strength and industry-leading revenue growth.

Speaker Change: For the fiscal third quarter, we won 35 manufacturing programs worth $279 million in revenue annually when fully ramped into production.

Todd P. Kelsey: Included in this result is a record contribution within healthcare life science. In addition, our engineering solutions organization is seeing increased market sector diversification and demand for its services, resulting in the team achieving the highest level of new business wins in the past four quarters, a positive leading indicator of our overall business health. Please advance to slide 6.

Todd Kelsey: Included in this result is a record contribution within healthcare life sciences.

Speaker Change: Included in this result is a record contribution within healthcare life sciences.

Todd P. Kelsey: In addition, our engineering solutions organization is seeing increased market sector versification and demand for services, resulting in the team achieving the highest level of new business winds in the past four quarters, a positive leading indicator of our overall business health. Please advance to slide six.

Speaker Change: In addition, our Engineering Solutions Organization is seeing increased market sector diversification and demand for its services, resulting in the team achieving the highest level of new business wins in the past four quarters, a positive leading indicator of our overall business health.

Todd P. Kelsey: Our sustainability journey is central to realizing our vision to help create products that build a better world. In June, we published our Fiscal 2023 Sustainability Report, capturing the demonstrated progress we made in Fiscal 2023 to advance our sustainable and responsible business practices. Highlights from the report, which is available on Plexus's sustainability web page, include expanding our technical capabilities to design, manufacture, and service products that are more environmentally sustainable and responsibly produced; and joining the UN Global Compact to drive action by aligning to the UN Sustainability Goals.

Todd Kelsey: Our sustainability journey is central to realizing our vision to help create the products that build a better world. The combination of these factors create the potential to generate 9-12% revenue growth for fiscal 2025 with 5.5% gap and greater than 6% 9-gap operating margin exiting the fiscal year. In addition, we expect continued salary cash flow generation, which will be deployed to create additional shareholder value and drive EPS leverage.

Speaker Change: Please advance to slide 6.

Speaker Change: Our sustainability journey is central to realizing our vision to help create the products that build a better world.

Todd P. Kelsey: Achieving an 8.4% energy intensity reduction across Plexus' global manufacturing sites, launching two new employee resource groups, supporting nearly 20,000 paid volunteer hours through our Volunteer Time Off program, and donating in excess of $1 million globally through the Plexus Community Foundation. We are continuing to build on these achievements during fiscal 2024 and remain committed to environmental impact reductions, aided by initiatives such as the installation of 1600 solar panels at our Kelso Scotland facility, which is shown on this slide.

Speaker Change: In June , we published our Fiscal 2023 Sustainability Report, capturing the demonstrated progress we made in Fiscal 2023 to advance our sustainable and responsible business practices.

Speaker Change: Highlights from the report, which is available on Plexus's Sustainability webpage, include expanding our technical capabilities to design, manufacture, and service products which are more environmentally sustainable and responsibly produced.

Speaker Change: Joining the UN Global Compact to drive action by aligning to the UN's sustainability goals.

Speaker Change: Achieving an 8.4% energy intensity reduction across Plexus's global manufacturing sites.

Speaker Change: Launching two new employee resource groups.

Speaker Change: Supporting nearly 20,000 paid volunteer hours through our volunteer time off program.

Speaker Change: and donating in excess of $1 million globally through the Plexus Community Foundation.

Speaker Change: We are continuing to build on these achievements during fiscal 2024 and remain committed to environmental impact reductions, aided by initiatives such as the installation of 1,600 solar panels at our Kelso Scotland facility, which is shown on this slide.

Todd P. Kelsey: We also continue to give back to our communities. We are partnering with the Greater Fox Cities Habitat for Humanity on our second complete home build. Plexus provides financial support for the build, while our team members support the home's construction, leveraging our volunteer time off program. I'm proud to share that Plexus was chosen as one of America's greatest workplaces for mental well-being by Newsweek Magazine. In addition, our team in Guadalajara, Mexico, was awarded the Jalisco Responsible Badge. These awards recognize the importance we place on our team members' safety and total well-being since our people are at the heart of our strategy. Please advance to slide seven.

Speaker Change: We also continue to give back to our communities. We're partnering with the Greater Fox Cities Habitat for Humanity on our second complete home build. Plexus provides financial support for the build, while our team members support the home's construction, leveraging our volunteer time off program.

Speaker Change: I'm proud to share that Plexus was chosen as one of America's greatest workplaces for mental well-being by Newsweek Magazine.

Speaker Change: In addition, our team in Guadalajara, Mexico was awarded the Jalisco Responsible Badge.

Speaker Change: These awards recognize the importance we place on our team members' safety and total well-being since our people are at the heart of our strategy.

Todd P. Kelsey: As the fiscal third quarter progressed, an increasing amount of customer input supported our view that demand is inflecting higher in many of our end markets, creating momentum into fiscal 2025. In particular, in addition to the tailwinds from market share gains and new program RAMs, we continue to experience robust underlying commercial aerospace and defense demand, increasing healthcare life sciences customer forecasts, and improved semiconductor capital equipment and broadband communications demand. As a result of these market factors, we are getting revenue in the range of $990 million to $1.03 billion, representing solid sequential growth.

Speaker Change: Please advance to slide 7.

Speaker Change: As the fiscal third quarter progressed, an increasing amount of customer input supported our view that demand is inflecting higher in many of our end markets, creating momentum into our fiscal 2025.

Speaker Change: In particular, in addition to the tailwinds from market share gains and new program ramps, we continue to experience robust underlying commercial aerospace and defense demand,

Speaker Change: Increasing Healthcare Life Sciences Customer Forecasts, and Improved Semiconductor Capital Equipment and Broadband Communications Demand.

Speaker Change: As a result of these market factors, we are getting revenue in the range of $990 million to $1.03 billion, representing solid sequential growth.

Todd P. Kelsey: We're also forecasting a non-gap operating margin of 5.6 to 6% and Nongap EPS of $1.50 to $1.65. I anticipate that Plexus will sustain our momentum into fiscal 2025. We are positioned to see revenue benefits from share gains and new program wins and healthy growth across each of our market sectors, leading to continued quarterly sequential revenue growth. In addition, we have optimized our business, creating substantial efficiencies while introducing working capital initiatives to drive more consistent and meaningful free cash flow generation.

Speaker Change: We're also forecasting non-GAAP operating margin of 5.6 to 6%, and non-GAAP EPS of $1.50 to $1.65.

Speaker Change: I anticipate that Plexus will sustain our momentum into fiscal 2025. We are positioned to see revenue benefits from share gains and new program wins and healthy growth across each of our market sectors, leading to continued quarterly sequential revenue growth.

Speaker Change: In addition, we have optimized our business, creating substantial efficiencies while introducing working capital initiatives to drive more consistent and meaningful free cash flow generation.

Todd P. Kelsey: The combination of these factors creates the potential to generate nine to 12% revenue growth for fiscal 2020, with a 5.5% gap and greater than 6% non-gap operating margin exiting the fiscal year. In addition, we expect continued solid free cash flow generation, which will be deployed to create additional shareholder value and drive EPS leverage. I will now turn the call over to Oliver for additional analysis of the performance of our market sectors.

Speaker Change: The combination of these factors create the potential to generate nine to twelve percent revenue growth for fiscal 2025 with 5.5 percent gap and greater than six percent non-gap operating margin exiting the fiscal year.

Speaker Change: In addition, we expect continued solid-free cash flow generation, which will be deployed to create additional shareholder value and drive EPS leverage.

Oliver Mihm: I will now turn the call over to Oliver for additional analysis of the performance of our market sectors. Oliver. Thank you, Todd. Good morning. I will begin with the review of the fiscal third quarter performance of each of our market sectors. Our expectations for each sector for the fiscal fourth quarter and some directional sector commentary for fiscal 2025. I will also review the annualized revenue contribution of our links for performance for each market sector and region and then provide an overview of our funnel qualified manufacturing opportunities. Starting with the industrial sector on slide eight, revenue decreased 4% sequentially in the fiscal third quarter.

Speaker Change: 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: I will begin with a review of the fiscal third quarter performance of each of our market sectors, our expectations for each sector for the fiscal fourth quarter, and some directional sector commentary for fiscal 2025. I will also review the annualized revenue contribution of our wind power performance for each market sector and region, and then provide an overview of our funnel of qualified manufacturing. Starting with the industrial sector on slide eight, revenue decreased 4% sequentially in the fiscal third quarter.

Oliver: Thank you, Todd. Good morning.

Oliver: I will begin with a review of the fiscal third quarter performance of each of our market sectors, our expectations for each sector for the fiscal fourth quarter, and some directional sector commentary for fiscal 2025.

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

Speaker Change: Starting with the industrial sector on slide 8, revenue decreased 4% sequentially in the fiscal third quarter.

Oliver K. Mihm: The result was below our expectation of flat revenue for the fiscal third quarter and primarily driven by a new product introduction push out due to customer design revisions and regulatory. Looking ahead to the fiscal fourth quarter, we expect sequential strength and semi-cap. Test and Measurement, and Broadband Communication.

Oliver Mihm: The result was below our expectation of flat revenue for the fiscal third quarter and primarily driven by a new product introduction pushout due to customer design revisions and regulatory delays. Looking ahead to the fiscal fourth quarter, we expect sequential strength in semi-caps, test and measurement, and broadband communications. This will result in high single-digit revenue growth for the industrial sector for the fiscal fourth quarter. Industrial market sector wins for the fiscal third quarter of $58 million included a win that establishes a new partnership with a global leader in nuclear energy. We will be supplying products that support the green energy transition.

Speaker Change: The result was below our expectation of flat revenue for the fiscal third quarter and primarily driven by a new product introduction push-out due to customer design revisions and regulatory delays.

Speaker Change: Looking ahead to the fiscal fourth quarter, we expect sequential strength and semi-cap, test and measurement, and broadband communications.

Oliver K. Mihm: This will result in high single-digit revenue growth for the industrial sector for the fiscal fourth quarter. Industrial market sector wins for the fiscal third quarter of $58 million included a win that establishes a new partnership with a global leader in nuclear energy. We will be supplying products that support the green energy transition. Our wins also included a next-generation product for an existing broadband communications customer. This product will be built at our Penang, Malaysia campus.

Speaker Change: This will result in high single-digit revenue growth for the industrial sector for the fiscal fourth quarter.

Speaker Change: The industrial market sector wins for the fiscal third quarter of $58 million, including a win that establishes a new partnership with a global leader in nuclear energy.

Oliver Mihm: Our wins also included an ex-generation product for an existing broadband communications customer. This product will be built in our Penang, Malaysia campus. Within the semi-caps, our wins included two programs with an existing customer. One program reflects the market share gain, while the other program marks the engagement with a new division with this customer. Our new program awards, coupled with some customers starting to show demand increases, gives us optimism for continued semi-caps growth in fiscal 2025. Our fiscal year 2024 industrial market sector outlook of a low single-digit year-over-year revenue decline remains unchanged. As we look to fiscal 2025, we expect a return to growth led by semi-caps, test and measurement, and broadband communications.

Speaker Change: We will be supplying products that support the green energy transition.

Speaker Change: Our wins also included a next generation product for an existing broadband communications customer. This product will be built in our Penang, Malaysia campus.

Oliver K. Mihm: Within Semicap, our wings included two programs with an existing customer. One program reflected a market share gain, while the other program marked the engagement with a new division with this. Our new program awards, coupled with some customers starting to show demand increases, give us optimism for continued semi-cap growth in fiscal 2025. However, our fiscal year 2024 industrial market sector outlook of a low single-digit year-over-year revenue decline remains unchanged. As we look to fiscal 2025, we expect a return to growth led by semi-cap, tester measurement, and broadband communications, with our other market subsectors finding stability as the fiscal year progresses. Please advance to slide nine.

Speaker Change: Within Semicap, our wings included two programs with an existing customer.

Speaker Change: One program reflects a market share gain, while the other program marks the engagement with a new division with this customer.

Speaker Change: Our new program awards, coupled with some customers starting to show demand increases, give us optimism for continued semi-cap growth in fiscal 2025.

Speaker Change: Our fiscal year 2024 industrial market sector outlook of a low single-digit year-over-year revenue decline remains unchanged.

Speaker Change: As we look to fiscal 2025, we expect a return to growth led by SEMICAP, tester measurement, and broadband communications, with our other market subsectors finding stability as the fiscal year progresses.

Oliver Mihm: With our other market sub-sectors finding stability as the fiscal year progresses.

Oliver Mihm: Please advance to slide nine. Revenue and our healthcare lifeline sector with flats sequentially for the fiscal third quarter, meeting our expectations. Our sequential growth outlook for the healthcare lifeline sector reflects an improved trend for recent quarters, as we expect revenue to increase mid-single digits for our fiscal fourth quarter. The increase is principally driven by multiple new programs with existing customers, as well as further strengthening and demand for our engineering solutions. The healthcare lifeline sector wins for the fiscal third quarter, where exceptionally strong and total $197 million. A new quarterly sector record, resulting from robust harvesting activity by the team.

Oliver K. Mihm: Revenue in our healthcare life sciences sector was flat sequentially for the fiscal third quarter, meeting our expectations. Our sequential growth outlook for the healthcare life sciences sector reflects an improved trend from recent quarters, as we expect revenue to increase mid-single digits for our fiscal fourth quarter. The increase is principally driven by multiple new program ramps with existing customers, as well as further strengthening of demand for our engineering solution. Healthcare life sciences sector wins for the fiscal third quarter were exceptionally strong and totaled $197 million, a new quarterly sector record resulting from robust harvesting activity by the team.

Speaker Change: Please advance to slide 9.

Speaker Change: Revenue in our healthcare life sciences sector was flat sequentially for the fiscal third quarter, meeting our expectations.

Speaker Change: Our sequential growth outlook for the healthcare life sciences sector reflects an improved trend from recent quarters, as we expect revenue to increase mid-single digits for our fiscal fourth quarter.

Speaker Change: The increase is principally driven by multiple new program rams with existing customers, as well as further strengthening in demand for our engineering solutions.

Speaker Change: Healthcare Life Sciences sector wins for the fiscal third quarter were exceptionally strong and totaled $197 million, a new quarterly sector record resulting from robust harvesting activity by the team.

Oliver K. Mihm: Five of the programs won are new products or next-generation products with existing customers, demonstrating the strength of our ongoing partnership. Our wins also included a substantial award for a single-use device product supporting surgical procedures. This product will be produced at our Guadalajara, Mexico campus and is reflective of our strong standing with this customer relative to operational excellence and customer service excellence across all three regions. We also had two significant ultrasound awards for our facility in Oradea, Romania.

Speaker Change: Five of the programs won are new products or next generation products with existing customers, demonstrating the strength of our ongoing partnerships.

Speaker Change: Our wins also included a substantial award for a single-use device product supporting surgical procedures.

Speaker Change: This product will be produced in our Guadalajara, Mexico campus and is reflective of our strong standing with this customer relative to operational excellence and customer service excellence across all three regions.

Speaker Change: We also had two significant ultrasound awards for our facility in Oradea, Romania.

Oliver K. Mihm: One of these awards is in recognition of our historically strong execution as our customer has decided to award Plexus sole source status. Our fiscal 2024 Healthcare Life Sciences Market Sector Outlook of a mid-teens year-over-year revenue decline remains unchanged, inclusive of the previously mentioned headwind from procuring components at above market price. As we look to fiscal 2025, we remain optimistic about a return to strong growth, benefiting from the sequential revenue improvement we expect for the fiscal fourth quarter and the ongoing strength and program.

Speaker Change: One of these awards is in recognition of our historically strong execution as our customer has decided to award Plexus sole source status.

Speaker Change: Our Fiscal 2024 Healthcare Life Sciences Market Sector Outlook of a Mid-Teens Year-over-Year Revenue Decline remains unchanged, inclusive of the previously mentioned headwind from procuring components at above market prices.

Speaker Change: As we look to our fiscal 2025, we remain optimistic for a return to strong growth benefiting from the sequential revenue improvement we expect for the fiscal fourth quarter and the ongoing strength and program ramps.

Oliver K. Mihm: Moving to slide 10, our aerospace and defense sector increased 4% sequentially in the fiscal third quarter, below our expectation of a high single-digit increase. Supply constraints related to commercial aerospace program-specific components and customer design changes were the predominant factors. These issues will continue into our fiscal fourth quarter, offsetting continued strong underlying demand. As a result, we expect revenue for the aerospace and defense sector to be flat for our fiscal fourth quarter.

Speaker Change: Advancing to slide 10, our aerospace and defense sector increased four percent sequentially in the fiscal third quarter, below our expectation of a high single-digit increase.

Speaker Change: Supply constraints related to commercial aerospace program-specific components and customer design changes were the predominant factor.

Speaker Change: These issues will continue into our fiscal fourth quarter, offsetting continued, strong, underlying demand.

Speaker Change: As a result, we expect revenue for the aerospace and defense sector to be flat for our fiscal fourth quarter.

Oliver K. Mihm: Our wins for the fiscal third quarter for the aerospace and defense sector of $24 million included a next-generation emergency responder radio that will be built in our Aradia Romania facility. We also want a number of follow-on next generation products for our Neenah, Wisconsin, campus, including communications equipment for an aerospace program. These awards further underscore our dedication to customer service excellence and creating strong partnerships with our customers. Our outlook for fiscal 2024 remains unchanged as aerospace and defense demand continues to be robust across all of our product lines.

Speaker Change: Our wins for the fiscal third quarter for the aerospace and defense sector of 24 million dollars included a next generation emergency responder radio that will be built in our Aradia Romania facility.

Speaker Change: We also want a number of follow-on next-generation products for our Nena, Wisconsin campus, including communications equipment for an aerospace platform.

Speaker Change: These awards further underscore our dedication to customer service excellence and creating strong partnerships with our customers.

Speaker Change: Our outlook for fiscal 2024 remains unchanged as aerospace and defense demand continues to be robust across all of our subsectors.

Oliver K. Mihm: As a result, we continue to expect revenue growth for fiscal 2024 to exceed the high growth rate witnessed in fiscal 2023. Further, we see continued positive demand tailwinds in fiscal 2025. Moving to slide 11, we can review the regional highlights of the manufacturing wins for the fiscal third quarter. America's wins were exceptionally strong at $163 million and included the addition of a new healthcare life sciences sector customer for our Chicago, Illinois facility with the award of this customer's next generation neonatal support product.

Speaker Change: As a result, we continue to expect revenue growth for Fiscal 2024 to exceed the high teams growth witnessed in Fiscal 2023. Further, we see continued positive demand tailwinds in Fiscal 2025.

Speaker Change: Advancing to slide 11, we can review the regional highlights of the manufacturing wins for the fiscal third quarter.

Speaker Change: The Americas wins were exceptionally strong at $163 million and included the addition of a new healthcare life sciences sector customer for our Chicago, Illinois facility with the award of this customer's next generation neonatal support product.

Oliver K. Mihm: This manufacturing wind builds upon an existing engineering services engagement. The APAC region's fiscal third quarter wins of $57 million included a substantial semi-cap program with an existing customer for our Penang, Malaysia campaign. Plexus was selected due to our early, proactive engagement in highlighting and addressing technical issues. The EMEA region's fiscal third quarter wins of $59 million include a healthcare life sciences sector drug delivery device that will be produced in our Oradea, Romania facility. Our historical execution strength, including the nimbleness of our response to ensure customer success, contributed to this win.

Speaker Change: This manufacturing wind builds upon an existing engineering services engagement.

Speaker Change: The APAC region's fiscal third quarter wins at $57 million included a substantial semi-cap program with an existing customer for our Penang, Malaysia campus.

Speaker Change: Plexus was selected due to our early, proactive engagement in highlighting and addressing technical issues.

Speaker Change: The EMEA region's fiscal third quarter wins of $59 million includes a healthcare life sciences sector drug delivery device that will be produced in our Oradea, Romania facility.

Speaker Change: Our historical execution strength, including the nimbleness of our response to ensure customer success, contributed to this win.

Oliver K. Mihm: Please advance to slide 12 for a review of our funnel of qualified manufacturing opportunities. Even with the strong winds performance, our funnels saw an uptick to $3.6 billion, as we were able to convert a number of unqualified early stage operators and a qualified manufacturing opportunity. The industrial sector grew 7% sequentially to $955 million.

Speaker Change: Please advance to slide 12 for a review of our funnel of qualified manufacturing opportunities.

Speaker Change: Even with the strong winds performance, our funnels saw an uptick to $3.6 billion as we were able to convert a number of unqualified early stage opportunities.

Speaker Change: and the qualified manufacturing opportunities.

Oliver K. Mihm: The funnel's increase was driven by Semicap and reflective of growing subsector confidence. Despite the record wins, the healthcare life sciences sector funnel incrementally grew to $1.8 billion and is well represented across both existing customers and new targets. The funnel for the aerospace and defense sector increased to $859 million. This sector is contributing significantly to both the diversification and the uplift in our engineering solutions funnel. Finally, with improving customer decision making, wins for engineering solutions hit a four-quarter high, enabling future growth and improved utilization of our engineering. I will now turn the call over to Pat for an in-depth review of our financials and financial performance. Thank you.

Speaker Change: The industrial sector grew 7% sequentially to $955 million. The funnel's increase was driven by Semicab and reflective of growing subsector confidence.

Speaker Change: Despite the record wins, the healthcare life sciences sector funnel incrementally grew to 1.8 billion dollars and is well represented across both existing customers and new targets.

Speaker Change: The funnel for the aerospace and defense sector increased to $859 million. This sector is contributing significantly to both the diversification and uplift in our engineering solutions funnel.

Speaker Change: Finally, with improving customer decision-making, wins for engineering solutions hit a four-quarter high, enabling future growth and improved utilization of our engineering team.

Patrick John Jermain: Thank you, Oliver, and good morning everyone. Our fiscal third quarter results are summarized on slide 13. As mentioned, revenue was within our guidance range. However, gross margin of 9.8% exceeded our guidance and was sequentially higher by 70 basis points. Several factors led to this improvement, including customer mix, greater demand for engineering solutions and sustaining services, efficiency gains across our manufacturing regions, and savings realized from our restructuring effort. Selling an administrative expense of $46 million met expectations.

Speaker Change: I will now turn the call over to Pat for an in-depth review of our financials, financial performance. Pat. Thank you Oliver and good morning everyone. Our fiscal third quarter results are summarized on slide 13.

Pat: As mentioned, revenue was within our guidance range. However, gross margin of 9.8% exceeded our guidance and was sequentially higher by 70 basis points.

Pat: Several factors led to this improvement including customer mix, greater demand for engineering solutions and sustaining services, efficiency gains across our manufacturing regions, and savings realized from our restructuring efforts.

Patrick John Jermain: This amount included $6 million of stock-based compensation expense. Non-gap operating margin of 5.8% exceeded our guidance due to the strong gross margin performance. This result excludes 100 basis points of restructuring charges and 70 basis points of stag-based compensation expense. Non-operating expense of $8.9 million was also favorable to expectations due to improved foreign exchange performance and lower than anticipated interest expense as we deployed a portion of our excess cash to reduce debt. Non-gap diluted EPS of $1.45 exceeded the top end of our guidance due to the factors mentioned. This result excludes $0.30 of restructuring charges and $0.24 of stock-based compensation expense.

Pat: Selling an administrative expense of $46 million met expectations. This amount included $6 million of stock-based compensation expense.

Pat: non-GAAP operating margin of 5.8% exceeded our guidance due to the strong gross margin performance.

Speaker Change: This result excludes 100 basis points of restructuring charges and 70 basis points of stag-based compensation expense.

Speaker Change: Non-operating expense of $8.9 million was also favorable to expectations due to improved foreign exchange performance and lower than anticipated interest expense as we deployed a portion of our excess cash to reduce debt.

Speaker Change: Non-gap diluted EPS of $1.45 exceeded the top end of our guidance due to the factors mentioned.

Speaker Change: This result excludes $0.30 of restructuring charges and $0.24 of stock-based compensation expense.

Patrick John Jermain: Turning to our cash flow and balance sheet on slide 14, we were very pleased with our free cash flow performance this quarter. We delivered $131 million in cash from operations and spent $17 million on capital expenditures, resulting in free cash flow of $114 million. This result significantly exceeded our expectations.

Speaker Change: Turning to our cash flow and balance sheet on slide 14.

Speaker Change: We were very pleased with our free cash flow performance this quarter. We delivered $131 million in cash from operations and spent $17 million on capital expenditures, resulting in free cash flow of $114 million.

Patrick John Jermain: As Todd mentioned, this is the second highest performance in company history. With this strong performance, we reduced our borrowing by $89 million while continuing to support our share repurchase program. During the quarter, we purchased approximately 185,000 shares of our stock for $18.6 million. We have $19.5 million remaining under the current $50 million authorization and plan to continue purchases during our fiscal fourth quarter. Next month, we will be reviewing with our Board of Directors our plans for a new program once the current authorization is completed.

Speaker Change: This result significantly exceeded our expectations.

Speaker Change: As Todd mentioned, this is the second highest performance in company history.

Todd P. Kelsey: With the strong performance, we reduced our borrowing by $89 million while continuing to support our share repurchase program.

Operator: Graham. During the quarter, we purchased approximately 185,000 shares of our stock for $18.6 million. We have $19.5 million remaining under the current $50 million authorization and plan to continue purchases during our fiscal fourth quarter.

Speaker Change: During the quarter, we purchased approximately 185,000 shares of our stock for $18.6 million.

Speaker Change: We have $19.5 million remaining under the current $50 million authorization and plan to continue purchases during our fiscal fourth quarter.

Operator: Next month we will be reviewing with our board of directors her plans for a new program once the current authorization is completed. At the end of the quarter, we have an additional $350 million available to borrow under our credit facility and a conservative gross debt to e-pital ratio, less than 1.3 times. In addition to funding our sharing purchases, we will continue to use any excess cash to reduce borrowing under our credit facility. For the fiscal third quarter, we delivered return on invested capital of 10.4%, which was 120 basis points above our weighted average cost of capital.

Speaker Change: Next month, we will be reviewing with our Board of Directors our plans for a new program once the current authorization is completed.

Patrick John Jermain: At the end of the quarter, we had an additional $350 million available to borrow under our credit facility and a conservative gross debt-to-EBITDA ratio of less than 1.3 times. In addition to funding our share repurchases, we will continue to use any excess cash to reduce borrowing under our credit facility. For the fiscal third quarter, we delivered a return on invested capital of 10.4%, which was 220 basis points above our weighted average cost of capital.

Speaker Change: At the end of the quarter, we had an additional $350 million available to borrow under our credit facility and a conservative gross debt-to-EBITDA ratio of less than 1.3 times.

Speaker Change: In addition to funding our share repurchases, we will continue to use any excess cash to reduce borrowing under our credit facility.

Speaker Change: For the fiscal third quarter we delivered return on invested capital of 10.4 percent which was 220 basis points above our weighted average cost of capital.

Patrick John Jermain: Cash cycle at the end of the fiscal third quarter was 83 days, three days favorable to expectations and sequentially improved by eight 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 payment. We continue to be encouraged by the efforts from our supply chain, customer facing, and regional teams to drive sequential improvements in both areas.

Operator: Cash cycle at the end of the fiscal third quarter was 83 days, three days favorable to expectations and sequentially improve by eight days. Please turn to slide 16 for details on our cash cycle. Our cash cycle improvement came from the combination of lower inventory days and higher days in advance payments. We continue to be encouraged by the efforts from our supply chain, customer facing, and regional teams to drive sequential improvements in both areas. This quarter, they delivered an $84 million sequential reduction in gross inventory. When compared to last year's fiscal third quarter, gross inventory is lower by more than $200 million, which contributed to the 10-day reduction in inventory days over that period.

Speaker Change: Cash cycle at the end of the fiscal third quarter was 83 days, three days favorable to expectations, and sequentially improved by eight days.

Speaker Change: Please turn to slide 15 for details on our cash cycle.

Speaker Change: Our cash cycle improvement came from a combination of lower inventory days and higher days in advance payments.

Speaker Change: We continue to be encouraged by the efforts from our supply chain, customer facing, and regional teams to drive sequential improvements in both areas.

Patrick John Jermain: This quarter, they delivered an $84 million sequential reduction in gross inventory. When compared to last year's fiscal third quarter, gross inventory is lower by more than $200 million, which contributed to the 10-day reduction in inventory days over that period. As Todd has already provided the revenue and EPS guidance for the fiscal fourth quarter, I'll review some additional details, which are summarized on slide. Fiscal fourth quarter gross margin is expected to be in the range of 9.7 to 10 percent.

Speaker Change: This quarter, they delivered an $84 million sequential reduction in gross inventory.

Speaker Change: When compared to last year's fiscal third quarter, gross inventory is lower by more than $200 million, which contributed to the 10-day reduction in inventory days over that period.

Operator: As Todd has already provided the revenue and EPS guidance for the fiscal fourth quarter, I'll review some additional details which are summarized on five 16. The fiscal fourth quarter gross margin is expected to be in the range of 9.7 to 10%. At the midpoint, gross margin would be similar to the fiscal third quarter. We expect selling administrative expense in the range of 50.5 to 51.5 million dollars, which is inclusive of approximately $10 million a stock-based compensation expense. Note that this amount includes accelerated stock-based compensation expense related to a previously announced executive retirement. Looking ahead to fiscal 2025, we would expect quarterly stock-based compensation expense to be $6 to $7 million dollars.

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

Patrick John Jermain: At the midpoint, gross margin would be similar to the fiscal third quarter. We expect selling and administrative expenses in the range of $50.5 to $51.5 million, which is inclusive of approximately $10 million, a stock-based compensation expense. Note that this amount includes accelerated stock-based compensation expense related to a previously announced executive retirement. Looking ahead to fiscal 2025, we would expect quarterly stock-based compensation expense to be $6 to $7 million. Fiscal fourth quarter non-GAAP operating margin is expected to be in the range of 5.6 to 6 percent.

Todd P. Kelsey: Fiscal fourth quarter gross margin is expected to be in the range of 9.7 to 10 percent. At the midpoint, gross margin would be similar to the fiscal third quarter.

Todd P. Kelsey: We expect selling and administrative expense in the range of $50.5 to $51.5 million, which is inclusive of approximately $10 million of stock-based compensation expense.

Speaker Change: Note that this amount includes accelerated stock-based compensation expense related to a previously announced executive retirement.

Speaker Change: Looking ahead to fiscal 2025, we would expect quarterly stock-based compensation expense to be six to $7 million.

Operator: The fiscal fourth quarter non-GAAP operating margin is expected to be in the range of 5.6 to 6%. Non-operating expense is anticipated to be in the range of 8.2 to 8.7 million dollars. This would be a sequential improvement as we continue to deploy excess cash to reduce our borrowing and related interest expense. Entering fiscal 2025, we anticipate a further reduction to non-operating expense, as we are currently forecasting approximately $8 million dollars for quarter. For the fiscal fourth quarter, we are estimating a non-GAAP effective tax rate between 16 and 18% diluted shares outstanding approximately 27.7.

Speaker Change: Fiscal fourth quarter non-GAAP operating margin is expected to be in the range of 5.6 to 6%.

Patrick John Jermain: Non-operating expense is anticipated to be in the range of $8.2 to $8.7 million. This would be a sequential improvement as we continue to deploy excess cash to reduce our borrowing and related interest expense. Entering fiscal 2025, we anticipate a further reduction in non-operating expense, as we are currently forecasting approximately $8 million per quarter. For the fiscal fourth quarter, we are estimating a non-gap effective tax rate between 16 and 18% and diluted shares outstanding of approximately $27.7. Even with working capital investments needed to support sequential revenue growth anticipated in the fiscal fourth quarter, our expectation for the balance sheet is to see consistent working capital investments compared to the fiscal third quarter.

Speaker Change: Non-operating expense is anticipated to be in the range of $8.2 to $8.7 million. This would be a sequential improvement as we continue to deploy excess cash to reduce our borrowing and related interest expense.

Speaker Change: Entering fiscal 2025, we anticipate a further reduction to non-operating expense, as we are currently forecasting approximately $8 million per quarter.

Speaker Change: For the fiscal fourth quarter, we are estimating a non-GAAP effective tax rate between 16 and 18 percent and diluted shares outstanding of approximately $27.7 million.

Speaker Change: Even with working capital investments needed to support sequential revenue growth anticipated in the fiscal fourth quarter, our expectation for the balance sheet is to see consistent working capital investments compared to the fiscal third quarter.

Patrick John Jermain: We expect this level of working capital will result in cash cycle days in the range of 78 to 82 days. At the midpoint, this would be a sequential improvement of three days, which is mainly related to reductions in growth in the mid-20s. Given the improvement in cash cycle days, we anticipate another quarter of positive free cash. A couple comments on the full year. We expect capital spending in the range of $90 to $110 million, which would equate to less than 3% of revenue.

Speaker Change: We expect this level of working capital will result in cash cycle days in the range of 78 to 82 days.

Speaker Change: At the midpoint, this would be a sequential improvement of three days, which is mainly related to reductions in gross inventory.

Speaker Change: Given the improvement in cash cycle days, we anticipate another quarter of positive free cash flow.

Speaker Change: A couple comments on the full year. We expect capital spending in the range of 90 to 110 million dollars, which would equate to less than 3% of revenue.

Patrick John Jermain: Last quarter, I mentioned that we could generate up to $100 million in free cash flow for the fiscal year. With our strong performance year-to-date, we are now projecting in excess of $150 million of free cash flow for fiscal 2024. With that, Maria, let's now open the call for questions.

Speaker Change: Last quarter I had mentioned that we could generate up to $100 million in free cash flow for the fiscal year. With our strong performance year to date, we are now projecting in excess of $150 million of free cash flow for fiscal 2024.

Maria: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A raft. Our first question comes from the line of David Williams of The Benchmark Company. Your line is now open.

Speaker Change: With that, Maria, let's now open the call for questions. Thank you. At this time, we will conduct the question and answer session.

Maria: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of David Williams of The Benchmark Company. Your line is now open.

David Neil Williams: Hey, good morning, and thanks for taking my question. First, congrats on the really solid execution here and the continued progress, certainly driving some nice benefits to profitability, but also good to see that revenue.

David Neil Williams: Hey, good morning and thanks for taking my question. First, congrats on the really solid execution here and the continued progress. It's certainly driving some nice benefit on the profitability, but also good to see the revenue.

Todd P. Kelsey: Thank you. Thank you, David.

David Neil Williams: Yeah, so maybe first, Pat, or excuse me, Todd. Just if you can kind of talk through maybe how your customer tone has changed over the last maybe 90 or 180 days. I know it's been, you talked about being a little more positive and certainly seeing better demand, but can you talk about maybe where you're seeing that, maybe what the puts and takes are, and where, if anything, things have turned maybe less. Yeah, I would say...

Speaker Change: Thank you, David.

Speaker Change: Yeah, so, maybe first, Pat, uh, the...

Speaker Change: You're a happy meet-up.

Speaker Change: Just if you can kind of talk through maybe how your customer tone has

Speaker Change: has changed over the last maybe 90 or 180 days. I know it's been, you talked about being a little more positive and certainly seeing better demand, but can you talk around maybe where you're seeing that, maybe what the puts and takes are, and where, if anything, things have turned maybe less favorable?

Todd P. Kelsey: Yeah, I would say, well, from a broad standpoint, the tone is incrementally positive. So we continue to see our customer base in aggregate shift towards a much more positive sentiment. And if we break it down by market sector, I mean, that's where you see a little bit of deviation across the various different sectors. Aerospace and defense, for example, continue to be very bullish. The outlook for the remainder of 24 and into 25 is quite strong, and semi-capital appears to have turned the corner.

Speaker Change: Yeah, I would say, well, from a broad standpoint, the tone is incrementally positive. So we continue to see...

Speaker Change: our customer base in aggregate.

Speaker Change: shift towards a much more positive sentiment. And if we break it down by market sector, I mean, that's where you see a little bit of deviation across the various different sectors.

Speaker Change: Aerospace and defense continues to be very bullish. The outlook for the remainder of 2024 and into 2025 is quite strong. Semi-cap appears to have turned the corner. We're seeing incremental demand uptick on a quarter-over-quarter basis for the past...

Todd P. Kelsey: We've seen incremental demand uptick on a quarter over quarter basis for the past three or four quarters now, so that seems to be a trend, although it's not hitting the large increase that you'd expect at some point, maybe a little bit later into towards the end of 25. If we look at the rest of industrials, that's probably the once you get beyond communications and test and measurement, that's where you get a little bit of demand weakness right now. And I would say that those markets are probably six to nine months behind where health care is at right now. And within health care, we're generally seeing more positive sentiment kind of at the bottom and trending up. And we're seeing good potential for revenue increases as a result of the strong winds and new program ramps.

Speaker Change: three or four quarters now. So that seems to be a trend, although it's not hitting the large increase that you'd expect at some point, maybe a little bit later into towards the end of 25.

Speaker Change: If we look at the rest of industrial, that's probably the, once you get beyond communications and test and measurement, that's where you get a little bit of demand weakness right now.

Speaker Change: And I would say that those markets are probably six to nine months behind where health care is at right now. And within health care, we're generally seeing more positive sentiment kind of at the bottom and trending up. And we're seeing good

Speaker Change: potential for revenue increases as a result of the strong winds and new program ramps.

David Neil Williams: Great color there, thanks so much. And maybe just thinking about the operating margin line, that's clearly been an area of focus. I know you put a lot of actions in place to drive that, clearly getting the benefits. But can you maybe talk about the puts and takes there? What do you think are the biggest drivers? And where's there still room to squeeze a little more out of that operating margin line?

Speaker Change: Great color there. Thanks so much.

Speaker Change: And maybe just thinking about the operating margin line, that's clearly been an area of focus. I know you've put a lot of actions in place to drive that, clearly getting the benefits. But can you maybe talk about the puts and takes there? What do you think are the biggest drivers? And where is there still room to squeeze a little more on that operating margin line out?

Patrick John Jermain: Yeah, David, this is Pat. Maybe I'll start with gross margin, which has been performing really well for us, and I think going forward, something in the high nines, 9.8 to 10%, would be reasonable. A lot of that's been driven by improvements in our manufacturing efficiencies, some automation efforts, and also our services, more engineering, and sustaining services are benefiting our gross margin. When you start looking at SG&A and going down to operating margin, SG&A could be a little higher, kind of in the mid-fours to lower 4% range, and I'm talking on a gap basis now.

Speaker Change: Yeah, David, this is Pat. Maybe I'll start with gross margin, which has been performing really well for us, and I think going forward, something in the high nines, 9.8 to 10 percent would be reasonable. A lot of that's been driven by improvements with our manufacturing efficiencies.

Speaker Change: Some automation efforts, also our services, more engineering, sustaining services are benefiting our gross margin. When you start looking at SG&A and going down to operating margin, SG&A could be a little higher kind of in the

Speaker Change: mid-fours to lower 4% range and I'm talking on a gap basis now. Part of that as we look to fiscal 25 is additional incentive compensation.

Patrick John Jermain: Part of that, as we look to fiscal 25, is additional incentive compensation that we'll be incurring, which is highly tied to two components, revenue growth, which we expect strong growth next year, and then return on invested capital. The combination of that gross margin in SG&A is what's getting us to that 5.5% gap operating margin. So those are kind of the main drivers. We'll get a full year of efficiencies out of the restructuring actions we're doing this year as well. So that's what gives us confidence in exiting 25 at that gap of 5.5%.

Speaker Change: That will be incurring, which is highly tied to two components, revenue growth, which we expect strong growth next year, and then return on invested capital. The combination of that gross margin and SG&A is what's getting us to that 5.5%.

Speaker Change: gap operating margins. So those are kind of the main drivers. We'll get a full year of efficiencies out of the restructuring actions we're doing this year as well. So that's what gives us confidence in exiting 25 at that gap of 5.5%.

David Neil Williams: Thank you there. One last one from me, if I may. Anything regionally or geographically that you're seeing in terms of, maybe, China specifically?

Speaker Change: Okay, thank you there. One last one from me, if I may. Anything regionally or geographically that you're seeing in terms of maybe China specifically?

Todd P. Kelsey: From a demand standpoint, our China business is kind of holding steady, is what I would say. And we continue to target China for China primarily within that, that region. So the team over there just does a wonderful job of executing as well too. So it's a good region for us from an operational performance standpoint. Right, thanks.

David Neil Williams: Thanks again. I appreciate the help.

Speaker Change: From a demand standpoint our China business is kind of holding steady is what I would say and we continue to target in China for China primarily within that

Speaker Change: That region. So the team over there just does a wonderful job of executing as well, too. So it's a good region for us from an operational performance standpoint.

Speaker Change: Hello.

Speaker Change: Hello?

Maria: We have Maria. Thank you. Our next question comes from the line of Steven Fox from Fox Advisors LLC. Your line is now open. Hi, good morning, guys. I guess first off, I was curious about the progression of margins in Europe in particular. It sounds like you're adding more and more new programs into Aradia. Margins were depressed last year, but seem to be coming back. What do we think about that region's profitability?

Speaker Change: Thank you. Our next question comes from the line of Steven Fox from Fox Advisors LLC. Your line is now open.

Steven Bryant Fox: Hi, good morning guys. I guess first off...

Steven Bryant Fox: I was curious about the progression of margins in Europe in particular. It sounds like you're adding more and more new programs into Aradia. Margins were depressed last year, seem to be coming back. How do we think about that region's profitability? And then I had a follow-up.

Steven Bryant Fox: Yeah, Steve, this is Pat. Obviously, we've been really pleased with the performance over the last year. I think there's still opportunity; there's still some capacity to fill up in Aradia, and some of the additional wins we've got coming into our Livingston and Scotland facilities will continue to benefit margins. So I think that can be a driver for us of getting to the 5.5 gap operating margin exiting 25. That will be a key component for us.

Steven Bryant Fox: Yeah, Steve, this is Pat. Obviously, we've been really pleased with the performance over the last year. I think there's still opportunity, there's still some capacity.

Speaker Change: to fill up in Aradia.

Speaker Change: and some of the additional wins we've got coming into our Livingston and Scotland facilities will continue to benefit margins. So I think that can be a driver for us of getting to the 5.5%.

Steven Bryant Fox: That's helpful, and then in terms of just market share gains you've talked about previously, but I'm just curious, like over the last 90 days when you when you're mentioning some new share gains, is there any way you could generalize why you're having that success? How much is sort of taking business from competitors, how much is just new OEM penetration, and, like I said, why is that happening?

Speaker Change: Gap Operating Margin exiting 25. That will be a key component for us.

Speaker Change: That's helpful. And then in terms of just

Speaker Change: Market share gains you've talked about previously, but I'm just curious like over the last 90 days when you when you're mentioning now some new share gains like is there any way you could generalize Why you're having that success?

Speaker Change: how much is sort of taking business from competitors, how much is just new OEM penetration, and like I said, why is that happening? Thanks.

Oliver K. Mihm: Yeah, I think this is Oliver. Thanks for the question. I try to emphasize in the script that we continue to really focus on customer service excellence and perfect delivery on time, and our customers value that. And so what you see is we talked about a number of market share gains that we had in some of our sectors during the quarter here, and then continued wins from existing customers. We talked about on the NENA campus. The majority of those wins come from either continuing on programs or next generation programs with existing customers. And really, the focus on operational excellence and customer service excellence is what provides it.

Speaker Change: Yeah, I think, this is Oliver, thanks for the question.

Speaker Change: Try to underscore in the script that we continue to really focus on customer service excellence, perfect delivery, on time.

Speaker Change: And our customers value that, and so what you see is, we talked about a number of market share gains that we had inside some of our sectors inside the quarter here, and then continued wins from existing customers. We talked about the NENA campus.

Speaker Change: The majority of those wins all come from either continuing on programs or next-generation programs with existing customers, and really the focus on operational excellence and customer service excellence is what provides that for us.

Todd P. Kelsey: Yeah, I think some, you know, a good example of how this is occurring, Steve, is what I reflected in the prepared remarks around the customer awards that we've received, and recently, they were from Honeywell Aerospace and Medtronic, two of our most significant customers that we have. So when you win awards like that as a top supplier, you have the ability to be able to take incremental share and consolidate some certain businesses and things like that.

Speaker Change: Yeah, I think some, you know, a good example of how this is occurring.

Steven Bryant Fox: Steve is what I reflected in the prepared remarks around the customer awards that we've received and Recently, it's been from Honeywell Aerospace and Medtronic two of our our most significant customers that we have. So when you

Steven Bryant Fox: Win awards like that as a top supplier, you have an ability to be able to take incremental share and consolidate some certain businesses and things like that.

Steven Bryant Fox: Great. That's very helpful. Thank you.

Steven Bryant Fox: Great, that's helpful. Thank you.

Speaker Change: Great, that's helpful. Thank you.

Speaker Change: You're welcome.

Maria: Our next question comes from the line of Matt Sheerin of Stiefel. Matt, your line is now open.

Speaker Change: Our next question comes from the line of Matt Sheerin of Stiefel. Matt, your line is now open.

Matthew John Sheerin: Yes, thanks. Good morning, everyone.

Matthew John Sheerin: Yes, thanks. Good morning, everyone. Just following up on Steve's

Matthew John Sheerin: question regarding program wins.

Matthew John Sheerin: I know you've talked in the past about...

Speaker Change: opportunities for reshoring, particularly like in SEMICAP as customers move to new programs that they're looking to move outside of China, Asia, and other other regions.

Matthew John Sheerin: Just following up on Steve's question regarding program wins, I know you've talked in the past about opportunities for reshoring, particularly in SEMICAP as customers move to new programs that they're looking to move outside of China, Asia, and other regions. Are you continuing to see that in that new program win or that share win that you talked about? Did that also move locations?

Speaker Change: Are you continuing to see that in that new program WIN or that SHARE WIN that you talked about? Did that also move locations?

Todd P. Kelsey: Yeah, I would say the big trend that we see, Matt, is in next-generation products. There's a general trend toward in-region, for-region, particularly when you get to larger form factor type products. So when you talk about semi-capitalization, it's maybe a little bit early to start to see that starting to move to the Americas, but it wouldn't surprise me as we move forward if that was a trend that we would see.

Speaker Change: Yeah, I would say the big trend that we see, Matt, is in next generation products. There's a general trend toward in-region, for-region.

Speaker Change: particularly when you get to larger form-factor type products, so when you talk about semi-cap, it's maybe a little bit early to start to see that starting to move to the Americas, but it wouldn't surprise me as we move forward if that was a trend that we would see.

Patrick John Jermain: Okay, thank you. And then, on healthcare life sciences, which has been down significantly, I know part of that has been, as you talked about, the pass-through of the lower component costs as those premium costs have gone away. Could you remind us, like, what that headwind has been in the last couple quarters, year over year, and at what point do we get really true apples-to-apples comps in terms of real organic revenue growth?

Speaker Change: Okay, thank you. And then on the health care life sciences, which has been down...

Speaker Change: significantly. I know part of that has, as you talked about, the the pass-through of the lower component costs as those premium costs have have gone away. Could you remind us like that what what that headwind has been the last couple quarters, year-over-year, and at what point do we get really true apples-to- apples comps in terms of real organic revenue growth?

Patrick John Jermain: The headwind from purchasing components at inflated prices year over year, 24 to 23, for health care life sciences was a mid-single-digit impact in terms of revenue. As we look forward to fiscal 25, we really see that normalizing to something that's essentially, you know, very, very low single-digit or income.

Speaker Change: Yes.

Speaker Change: The headwind from purchasing components at inflated prices.

Speaker Change: Year-over-year 24 to 23 for healthcare life sciences was a mid Mid single-digit impact in terms of revenue headwind as we look forward at fiscal 25. We really see that normalizing To something that's essentially, you know, very very low single-digit or inconsequential

Shawn Matthew Harrison: Matt, it's Shawn. On a sequential basis, it's essentially negligible in terms of the impact on our revenue right now. OK.

Matthew John Sheerin: Matt, it's Shawn. On a sequential basis it's essentially negligible in terms of the the impact to our revenue right now within health care licensing.

Matthew John Sheerin: Okay, so it's the bottom of that. Okay, great. All right, thanks so much. I'm good. You're welcome.

Matthew John Sheerin: Thank you for joining us. Thank you. Thank you.

Speaker Change: Okay, so it's bottom of that. Okay, great. All right, thanks so much. I'm good. You're welcome.

Maria: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Anja Soderstrom from Sidoti. Your line is now open.

Speaker Change: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.

Speaker Change: Our next question...

Speaker Change: comes from the line of Anja Soderstrom from Sidoti. Your line is now open.

Anja Marie Theresa Soderstrom: Hi, and thank you for taking my questions, and congrats on the retirement, Steve. In terms of growth, there have been good developments there. How should we think about that going in the next quarters? Do you think you can get north of 10% there eventually when you get more absorption on the overhead?

Anja Marie Theresa Soderstrom: Hi and thank you for taking my questions and congrats on the retirement Steve.

Patrick John Jermain: Yeah, Anja, I think as we're leaning to 25, a good range is probably 9.8 to 10. Going beyond that, could we get north of 10%, possibly with leverage from additional revenue? I think the better opportunity is probably on SG&A because it will gain more leverage there to drive maybe above the 5.5% cap operating margin. That, I think, will be our opportunity as we look past fiscal 25 for our next goal and how to get to that goal.

Speaker Change: Yeah, Anja, I think as we're leaning to 25, a good range is probably 9, 8 to 10. Going beyond that, could we get north of 10% possibly with leverage?

Speaker Change: from additional revenue. I think the better opportunity is probably on SG&A that will gain more leverage there to drive maybe above the 5.5% gap operating margin. That I think will be our opportunity as we look past fiscal 25.

Speaker Change: for our next goal and how to get to that goal.

Anja Marie Theresa Soderstrom: Okay, and in terms of the FG&A, you know, do you expect stock-based compensation to be higher next year, helped by improved results? But how should we think about the restructurings you've been taking and sort of the true SG&A expense there versus that?

Patrick John Jermain: Well, we're calling that out separately. So the guide I'm providing is just purely SG&A, and that will continue. I think there are opportunities for us with automation to lower that SG&A as a percentage of revenue on a gap basis to 4.5 or below. And again, combining that with gross margin close to 10%, we can hit that 5.5% gap. So Anja, from a stock-based compensation expense perspective, we'd expect that to go back to more normal ranges for fiscal 2025 on a quarterly basis. What we will see incrementally higher is variable incentive compensation, and that's because of the anticipated much stronger revenue growth next year as well as the higher return on invested capital that we'll generate.

Speaker Change: Well, we're calling that out separately, so the guide I'm providing is just purely SG&A that will continue. I think there are opportunities for us with automation to lower that SG&A as a percentage of revenue on a gap basis.

Speaker Change: 4.5 or below.

Speaker Change: for fiscal 2025 on a quarterly basis. What we will see incrementally higher is variable incentive compensation, and that's because of the anticipated much stronger revenue growth next year, as well as higher return on invested capital that we'll generate.

Anja Marie Theresa Soderstrom: Okay, thanks for that clarification. And then, in terms of the competitive landscape, have you seen any major changes there? And I think over the past quarter or so, you've been saying that your competitors have still been rational in terms of pricing. Do you still see that?

Speaker Change: Okay, thanks for that clarification. And then in terms of the competitive landscape,

Speaker Change: Have you seen any major changes there, and I think over the past quarter or so you've been saying that your competitors have still been rational in terms of pricing. Do you still see that?

Todd P. Kelsey: Yeah, it's much the same. I mean, it's a good, good competitive market right now. I think it's always competitive, but it's certainly rational. And it's certainly a market that we feel really comfortable about our ability to win in. Okay, thank you.

Speaker Change: Yeah, it's much the same. I mean, it's a good competitive market right now. I think it's always competitive, but it's certainly rational, and it's certainly a market that we feel really comfortable about our ability to win in.

Anja Marie Theresa Soderstrom: Okay, thank you. That was all for me.

Speaker Change: Okay, thank you. That was all for me.

Maria: Our next question comes from the line of Chris Grenga from Needham. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Chris Grenga from Needham. Your line is now open.

Christopher Grenga: Hi, good morning. This is Chris Grenga on behalf of Jim Ricchuti.

Speaker Change: Hi, good morning. This is Chris Grenga on for Jim Ricchuti. Thank you for taking my questions.

Christopher Grenga: Thank you for taking my question. You called out the nuclear energy win, and I was just curious if you could provide any more color on what you're seeing in general with respect to power generation applications. You've recently also spoken about power opportunities related to data centers driven by AI applications. Just curious if you can add any more color on those two with respect to power generation and how you see them contributing to growth in the near term. Yeah, sure. Chris, thanks.

Christopher Grenga: It called out the nuclear energy win and just curious if you could provide any more color on what you're seeing in general with respect to power generation applications. You've recently also spoken about

Speaker Change: Power opportunities related to data centers driven by AI applications. Just curious if you can add any more color on those two with respect to how you see them contributing to growth in the near term.

Oliver K. Mihm: Sure. Chris, thanks for the question. This is Oliver.

Oliver K. Mihm: Yeah, absolutely. So we highlighted a win relative to power generation last quarter. We highlighted the nuclear energy win this quarter, and certainly I think in terms of what we see in our funnel, as well as the winds that we're pulling through, absolutely reinforce the fact that the demands of AI on the infrastructure are requiring investment from utility companies and infrastructure. And so we're seeing that trickle through for us. And as I think we've talked about in the past, with new awards, they can take some time to materialize. So that's something we would expect to impact our fiscal fiscal year 25.

Oliver: Yeah, sure. Chris, thanks for the question. This is Oliver. Yeah, absolutely. So we highlighted a win relative to power generation last quarter. We highlighted the nuclear energy win this quarter. And certainly, I think in terms of what we see in our funnel.

Oliver: As well as the winds that we're pulling through, absolutely reinforce the fact that the

Oliver: Demands of AI on the infrastructure are requiring investment.

Oliver: from utility companies and infrastructure. And so we're seeing that trickle through for us.

Oliver: And as I think we've talked about in the past, with new awards, they can take some time to materialize, so that's something we would expect to impact our fiscal 25 growth.

Oliver K. Mihm: And with respect to the A&D funnel, just with respect to the growth there that you saw and as well just the general composition of the funnel, is that evenly split between commercial and defense, or is there any skew towards one versus the other?

Speaker Change: Got it.

Speaker Change: And with respect to the A&D funnel, just with respect to the growth there that you saw, and as well just the general composition of the funnel, is that evenly split between commercial and defense, or is there any skew towards one versus the other?

Oliver K. Mihm: Yeah, from a final perspective for Andy, we're seeing good balance across all of our subsectors. And so, you know, I think it's quite encouraging in terms of the balance. I would also think Chris and Shawn Harrison.

Speaker Change: Yeah, from from a final perspective for A&E, we're seeing good balance across all of our subsectors.

Speaker Change: And so, you know, I think quite encouraging in terms of the balance there.

Shawn Matthew Harrison: I would also be Chris. It's Shawn Harrison. The other thing I would add is we're seeing an increasing amount of demand for engineering solutions within the aerospace and defense market sector, as you know, and most folks on the call know that's a very good leading indicator, but we're just seeing really robust demand within the aerospace and defense market.

Speaker Change: I would also thank Chris and Shawn Harrison. The other thing I would add is we're seeing an increasing amount of demand for engineering solutions within the aerospace and defense

Speaker Change: [inaudible]

Speaker Change: and other organizations within the aerospace and defense market sector.

Speaker Change: Great, thank you very much.

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

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Melissa Fairbanks of Raymond James & Associates. Your line is now open.

Melissa Ann Dailey Fairbanks: Hey guys, thanks so much. I'd love to see the progress on the working capital and the free cash flow. Congratulations.

Melissa Ann Dailey Fairbanks: Hey guys, thanks so much. Love to see the progress on the working capital and the free cash flow. Congratulations, I know you've been working hard on that throughout the organization. I just wanted, I had a quick follow-up on the healthcare life sciences business.

Melissa Ann Dailey Fairbanks: I know you've been working hard on this throughout the organization. I just wanted to do a quick follow up on the healthcare life sciences business. You've got some really good announcements on the Medtronic, the ultrasound front. In the near term, though, are you starting to see some easing of the equipment purchasing or inventory digestion that's been a little bit of a headwind for the existing programs, or is the growth next quarter driven by the new programs? Yes,

Speaker Change: You've got some really good announcements on the Medtronic, the ultrasound front. In the near term, though, are you starting to see some easing of the equipment purchasing or inventory digestion that's been a little bit of a headwind for the existing programs? Or is the growth next quarter driven by the new programs?

Todd P. Kelsey: Yeah, so we'd say Melissa, we're about 80% to 90% of the way through the inventory corrections right now, and so we're starting to see some positive signs as they move further out. But the growth is largely driven by the new program ramps and the strong wins performance that we've had within the healthcare life sciences sector. And one stat I'd like to just point out before, while we're talking about it as well, is that our wins over the trailing four quarters within healthcare life sciences are over $500 million, that is, $523 million. So it sets us up really well to get some strong growth within that sector as well.

Speaker Change: Yeah, so we'd say, Melissa, we're about 80 to 90 percent of the way through the inventory corrections right now, so we're starting to see some positive signs as they move further out, but the growth is largely driven by the new program ramps and the

Speaker Change: The strong women's performance that we've had within the healthcare life sciences.

Speaker Change: One stat I'd like to just point out before we get started is that

Speaker Change: While we're talking about it as well, is that our wins over the trailing four quarters within Healthcare Life Sciences is over $500 million, that $523 million, so it sets us up really well to get some strong growth within that sector as we looked at $25 million.

Melissa Ann Dailey Fairbanks: That's all I have. I think you guys covered pretty much everything. Thank you.

Speaker Change: and beyond.

Speaker Change: Great. That's all I have. I think you guys covered pretty much everything. Thank you. Thanks.

Maria: Thank you. Thank you. Thank you. I am showing no further questions at this time. I would now like to turn back to Mr. Todd Kelsey, President and CEO. Thank you, Maria.

Speaker Change: Thank you.

Speaker Change: Bye.

Speaker Change: I am showing no further questions at this time. I would now like to turn back to Mr. Todd Kelsey, President and CEO .

Todd P. Kelsey: I'd like to thank shareholders, investors, analysts, and our Plexus team members who joined the call this morning. To reiterate the key themes of today's call, we anticipate delivering a strong finish to our fiscal 2024 with sequential expansion in revenue, robust operating margin, and sequential growth in EPS with continued free cash flow generation. Looking further forward, we expect sustained revenue growth momentum into fiscal 2025, capitalizing upon aerospace and defense market sector strength, increasing healthcare and life sciences customer forecasts, and improved semiconductor capital equipment and broadband communications demand.

Todd P. Kelsey: Thank you, Maria.

Todd P. Kelsey: I'd like to thank shareholders, investors, analysts, and our Plexus team members that joined the call this morning.

Speaker Change: To reiterate the key themes of today's call, we anticipate delivering a strong finish to our fiscal 2024 with sequential expansion in revenue, robust operating margin, and sequential growth in EPS with continued free cash flow generation.

Todd P. Kelsey: We anticipate with this revenue growth momentum, the benefits from optimizing our business for greater efficiency during fiscal 2024 and ongoing free cash deployment toward debt reduction and share repurchases will create meaningful EPS growth in fiscal 2025.

Todd P. Kelsey: We anticipate with this revenue growth momentum, the benefits from optimizing our business for greater efficiency during fiscal 2024, and ongoing free cash deployment toward debt reduction and share repurchases, will create meaningful EPS growth in fiscal 2025.

Todd P. Kelsey: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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

Todd P. Kelsey: Yeah.

Todd P. Kelsey: Okay.

Todd P. Kelsey: [music].

Todd P. Kelsey: Yes.