Q3 2025 Plexus Corp Earnings Call
Operator: Plexus Earnings Conference Call. After today's prepared remarks, we will host a question and answer session.
Operator: If you would like to ask a question, please raise your hand.
Ladies and gentlemen, thank you for joining us and welcome to the Q3 2025 plexus earnings conference call. After today's prepared remarks, we will host a question and answer session.
Operator: If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute.
Shawn Harrison: I will now hand the conference over to Shawn Harrison, Vice President of Investor Relations. Shawn, please go ahead. Good morning and thank you for joining us today.
Speaker Change: If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star, 9 to raise your hand and start 6 to unmute. I will now hand the conference over to Shaun Harrison, vice president of investor relations. Shaun, please go ahead.
Shawn Harrison: 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 guaranteed, since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in a forward-looking statement. or a list of factors that could cause actual results to differ materially from those.
Speaker Change: Good morning, thank you for joining us today. Some of the statements made in information provided during our call. Today will be forward-looking statements including without limitation those regarding Revenue. Gross margin selling administrative expense, operating margin other income, and expense taxes, cash cycle, Capital allocation and future business Outlook.
Speaker Change: We're looking statements are not guarantees since their inherent difficulties are predicting future results and actual results could differ materially from those expressed or implied before looking statements.
Shawn Harrison: 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 28, 2024, as supplemented by our Form 10-Q filings in the Safe Harbor and Fair Disclosure Statement and our Press We encourage participants on the call this morning to access a live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page.
Speaker Change: 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. 10K filing for the fiscal year ended September 28th 2024 this supplemented by our form 10q filings in the safe harbor and fair disclosure statement and our press release.
Shawn Harrison: Joining me today are Todd Kelsey, President and Chief Executive Officer, Oliver Mihm, Executive Vice President and Chief Operating Pat Jermain, Executive Vice President, Chief Financial Officer. With today's earnings call, Todd will provide summary comments before turning the call over to Oliver and Pat.
We encourage participants on the call this morning to access a live webcast, and supporting materials. At plexuses website at www.lexus.com. Clicking on investors at the top of that page.
Todd Kelsey: 20 me a day or Todd, Kelsey president, and chief executive officer all of her MIM Executive Vice President and Chief Operating Officer. Patrick me, Executive Vice President, Chief Financial Officer.
Todd Kelsey: With that, let me now turn the call over to Todd Kelsey. Thank you, Shawn. Good morning, everyone.
Speaker Change: With today's earnings call, I will provide summary comments before, turning the caller to Oliver and Pat for further details.
Speaker Change: With that, let me now turn the call over to Todd Kelsey Todd.
Todd Kelsey: Please advance to slide three. Plexus continues to gain momentum as we design, manufacture, and service some of the world's most transformative products. For the fiscal third quarter, Plexus received national and regional recognition as a top workplace. We grew revenue sequentially. We generated solid new program wins, including opportunities supporting new customers with products aligned to exciting growth technologies. We deliver non-GAAP operating margin of 6%, matching our stated goal. We once again generated better-than-expected free cash flow. And finally, we reduced our debt while accelerating our share repurchase activity and concurrently increasing our share repurchase authorization. Through our commitment to enabling customer success, we are seeing ongoing strength in new program wins and opportunities to gain share in support of delivering growth, outpacing our end market.
Speaker Change: Thank you, Sean. Good morning, everyone.
Speaker Change: Please advance to slide 3.
Speaker Change: Lexus continues to gain momentum as we design manufacture and service. Some of the world's most transformative products.
Speaker Change: For the fiscal, third quarter plexus received National and Regional recognition as a top workplace.
Speaker Change: We grew Revenue sequentially.
Speaker Change: We generated solid new program wins, including opportunities, supporting new customers with products. Aligned to exciting growth Technologies.
Speaker Change: Stated goal.
Speaker Change: We once again generated better than expected. Free cash flow.
Speaker Change: And finally, we reduced our debt. While accelerating our share repurchase activity and concurrently increasing our share repurchase authorization.
Todd Kelsey: In addition, our ongoing strategic investments that drive organizational and operational efficiency are generating strong profitability and free cash flow in support of creating long-term shareholder value.
Speaker Change: Through our commitment to enabling customer success. We are seeing ongoing strength in new program, wins and opportunities to gain share in support of delivering growth outpacing. Our end markets.
Todd Kelsey: Please advance to slide four. Revenue of $1.018 billion met our guidance. As the fiscal third quarter progressed, we saw improved order activity from some industrial and European customers. In addition, we observed early signs of increasing European defense sector activity, a market we are uniquely qualified and positioned to support.
Speaker Change: In addition, our ongoing strategic Investments that drive organizational and operational efficiency are generating strong profitability and free cash flow in support of creating long-term shareholder value.
Speaker Change: Please advance to slide 4.
Speaker Change: Revenue of 1.018 billion dollars met our guidance.
Speaker Change: As the fiscal third quarter progressed, we saw improved order activity from some industrial and European customers.
Todd Kelsey: This offset the impact of evolving program RAM timelines and tariff-related uncertainties on our market sectors. Non-gap operating margin of 6.0% was near the high end of our guidance, increasing 30 basis points sequentially and meeting our stated goal of 6% or greater operating margin. We have now achieved this goal and delivered operating margin at or above 6% for three of the last four quarters. Continued strong performance from our engineering solutions and sustaining services, operational efficiencies, and volume leverage drove the sequential expansion. Non-GAAP EPS of $1.90 exceeded our guidance, benefiting from strong operating performance, lower than anticipated interest expense, and a favorable tax rate.
Speaker Change: In addition, we observed early signs of increasing European Defence sector activity a market. We are uniquely qualified and positioned to support
Speaker Change: This offset, the impact of evolving program, Ram, timelines and tariff related uncertainties on our Market sectors.
Speaker Change: non-gaap operating margin of 6.0% was near the high end of our guidance, increasing 30 basis points sequentially, and meeting our stated goal of 6% or greater operating margin
Speaker Change: We have now achieved this goal and delivered operating margin at or above 6% for 3 of The Last 4 quarters.
Speaker Change: Continued strong performance from our engineering Solutions and sustaining Services. Operational. Efficiencies and volume, leverage, drove, the sequential expansion.
Todd Kelsey: Finally, we deliver $13.2 million of free cash flow, significantly better than our expectations entering the quarter as we continue to drive strong working capital management.
Speaker Change: 9 Gap UPS of 1.90 exceeded. Our guidance benefiting from strong, operating, performance lower than anticipated, interest expense, and a favorable tax rate.
Todd Kelsey: Please advance to slide five. For the fiscal third quarter, we secured 41 new manufacturing programs with $250 million in revenue annually when fully ramped into production. included in these wins, which were well balanced across all of our market sectors, our share gains resulting from our sustained focus and zero defects and perfect delivery.
Speaker Change: Finally we delivered 13.2 million dollars of free cash, flow significantly better than our expectations entering the quarter as we continue to drive. Strong working Capital Management.
Speaker Change: Please advance to slide 5.
Speaker Change: For the fiscal third quarter, we secured 41 new manufacturing programs with 250 million dollars in Revenue annually, when fully ramped into production.
Speaker Change: Included in these winds, which were well, balanced across all of our Market sectors. Our share gains resulting from our sustained focus and zero defects in perfect delivery.
Todd Kelsey: We also added in each of our market sectors, new customers with products aligned to exciting growth technology. Furthermore, similar to last quarter, the revenue contribution and diversification of the wind's performance of our engineering solutions was strong. Finally, our funnel of qualified opportunities expanded sequentially once again with balanced diversification across our market sectors, as well as a strong contribution from our sustaining services.
Speaker Change: We also added in each of our Market sectors. New customers with products aligned to exciting growth Technologies.
Speaker Change: Furthermore, similar to last quarter, the revenue contribution and diversification of the Winds performance of our engineering Solutions was strong.
Finally, our funnel of qualified opportunities. Expanded sequentially once again, with balanced diversification, across our Market sectors, as well, as a strong contribution from our sustaining services.
Todd Kelsey: Please advance to slide six. At Plexus, our commitment to advancing sustainability is aligned to our value of innovating responsibly. We boldly drive positive change and promote a sustainable future for and through our people, our solutions, and our operations.
Speaker Change: Please advance to slide 6.
Speaker Change: At plexus our commitment to advancing sustainability is aligned to our value of innovating responsibly.
Todd Kelsey: all of which is built on a foundation of trust and transparency. Our people are the heart of who we are and what we do. With that in mind, I'm incredibly proud to share that Newsweek listed Plexus as one of America's greatest workplaces in manufacturing 2025. Further, our Chicago site was recognized as one of the 2025 best and brightest companies to work for nationally and regionally. 2025 marks the 18th consecutive year this site has received regional recognition and the third consecutive year receiving national recognition.
Speaker Change: We boldly Drive positive change, and promote a sustainable future for and through our people, our Solutions and our operations.
Speaker Change: All of which is built on a foundation of trust and transparency.
Speaker Change: Our people are the heart of who we are and what we do.
Speaker Change: With that in mind, I'm incredibly proud to share that Newsweek listed plexus as 1 of America's greatest, workplaces and Manufacturing 2025.
Speaker Change: Further our Chicago site was recognized as 1 of the 2025 best and brightest companies to work for nationally and regionally.
Todd Kelsey: Thank you to our incredible team members for living our values and enabling our success. Our people are also at the heart of strengthening our communities. In celebration of Earth Day, our teams around the globe participated in a number of local volunteer activities, including community cleanup and recycling events. Here in Wisconsin, our team members recycled an amazing 8,000 pounds of electronics waste.
2025 marks the 18th consecutive year, the site has received Regional recognition and the third consecutive year, receiving National recognition
Thank you to our incredible team members for living our values and enabling our success.
Speaker Change: Our people are also at the heart of strengthening our communities in celebration of Earth Day. Our teams around the globe participated in a number of local volunteer activities including community cleanup and recycling events.
Speaker Change: Here in Wisconsin, our team members recycled an amazing 8,000 pounds of electronics waste.
Todd Kelsey: In June, we released our 2024 Sustainability Report, building trust through transparency and highlighting the many ways we're committed to doing something more for our customers, our team members, and the world. Finally, our commitment to customer success drove our historically strong customer satisfaction score to a seven-year high in our recently completed Customer Net Promoter Survey. We believe this positive customer sentiment is manifesting into share gains and expanded outsourcing opportunities across our market sector.
Speaker Change: In June, we released our 2024 sustainability report, building trust through transparency and highlighting the many ways, we're committed to doing something more for our customers. Our team members in the world,
Speaker Change: We believe this positive customer sentiment is manifesting into share, gains and expanded Outsourcing opportunities across our Market, sectors.
Todd Kelsey: Please advance to slide seven. For our fiscal fourth quarter, we are forecasting sequential revenue growth and expect to realize another strong quarterly financial performance. We anticipate delivering this revenue expansion through share gains, new program ramps, and growth with new customers.
Speaker Change: Please advance to slide 7.
Speaker Change: For a fiscal fourth quarter. We are forecasting, sequential, Revenue growth and expect to realize another strong quarterly financial performance.
Todd Kelsey: Overcoming modest end market demand, evolving new product ramp timelines, and uncertainties created by tariffs. Our fiscal fourth quarter guidance is for revenue of $1.025 to $1.065 billion. non-GAAP operating margin of 5.7% to 6.1% inclusive of greater incentive compensation and the opening of our new facility in Penang, Malaysia. and Nongap EPS of $1.82 to $1.97. At the midpoint, our fiscal fourth quarter would result in impressive non-gap EPS growth of 26% for fiscal 2018.
Speaker Change: We anticipate delivering this Revenue expansion through shared gains, new program, ramps, and growth with new customers.
Speaker Change: Overcoming modest and market demand of allowing new product ramp time lines and uncertainties created by tariffs.
Speaker Change: Our fiscal fourth quarter guidance, is for revenue of 1.025 to 1.065 billion dollars.
Speaker Change: Non-gaap operating margin a 5.7 to 6.1% inclusive of Greater incentive compensation and the opening of our new facility in Penang Malaysia.
Speaker Change: and non-gaap EPS of $1.82 to $1.97,
Speaker Change: at the midpoint, our fiscal fourth quarter would result in impressive non-gaap, EPS growth of 26% for fiscal 2025,
Todd Kelsey: Additionally, we are now forecasting approximately $100 million of free cash flow for Fiscal 2025, which would represent a cumulative two-year free cash flow generation of nearly $450 million. As previously noted, in recognition of our robust free cash flow performance and our long-term value creation potential, we accelerated our share repurchase activity during the fiscal third quarter, while also engaging with our board of directors to approve a follow-on authorization of $100 million, creating additional shareholder value.
Speaker Change: Additionally, we are now forecasting approximately 100 million dollars of free cash flow for fiscal 2025 which would represent cumulative 2-year free cash flow generation of nearly 450 million.
Speaker Change: As previously noted in recognition of our robust free. Cash flow performance and our long-term value creation potential. We accelerated our share repurchase activity during the fiscal third quarter. While also engaging, with our board of directors to approve a following authorization of 100 million dollars creating additional shareholder value.
Todd Kelsey: Finally, while early, for Fiscal 2026, we currently anticipate delivering healthy year-over-year revenue growth from each of our market sectors, without assuming end-market demand improvements. We also anticipate sustaining our strong operating margin and free cash flow performance.
Speaker Change: Finally, while early for fiscal 2026, we currently anticipate delivering healthy year-over-year Revenue growth from each of our Market sectors without assuming n market demand Improvement.
Todd Kelsey: In closing, we are committed to creating long-term shareholder value. Plexus continues to gain momentum through enabling customer success and through focused initiatives that drive organizational and operational efficiency. We're bullish on the growth opportunities our solutions in our market sectors provide. Our strategy is creating opportunities to sustain strong financial performance and gain share in support of delivering growth outpacing our end market.
Speaker Change: We also anticipate sustaining, our strong, operating margin and free cash flow performance.
Speaker Change: In closing, we are committed to creating long-term shareholder value.
Speaker Change: Lexus continues to gain momentum through enabling customer success and through focused initiatives that drive organizational and operational efficiency.
Oliver Mihm: I will now turn the call to Oliver for additional analysis of the performance of our market sectors.
Speaker Change: We're bullish on the growth opportunities are solutions in our Market sectors. Provide, our strategy is creating opportunities to sustain strong, financial performance, and gain, share, and support of delivering growth outpacing. Our end markets.
Oliver Mihm: Oliver. Thank you, Todd. Good morning. 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 2026. I will also review the EMUI's revenue contribution of our winds performance for each market sector and then provide an overview of our funnel of qualified manufacturers. Starting with our aerospace and defense sector on slide 8, revenue increased 6% sequentially in the fiscal third quarter, meeting our expectation of a mid-single-digit increase. new program Rams contributed to the performance.
Oliver: I will now turn the call to Oliver for additional analysis of the performance of our Market, sectors. Oliver.
Oliver: Thank you, Todd.
Oliver: Good morning.
Oliver: I will begin with a review of the fiscal third quarter performance of each of our Market sectors. Our expectation is for each sector, for the fiscal fourth quarter, and some directional sector, commentary for fiscal 2026.
Oliver: I will also review the annualized revenue contribution of our wins performance for each market sector and then provide an overview of our funnel of qualified manufacturers.
Oliver: Starting with our Aerospace and Defence sector on slide 8.
Oliver: Revenue. Increased 6%, sequentially in the fiscal third quarter meeting our expectations of a mid single digit increase.
Oliver Mihm: We expect revenue for the aerospace and defense sector to be flat in the fiscal fourth quarter as improving defense sub-sector demand and new program ramp revenue balances muted performance from the other sub-sectors. Our wins for the fiscal third quarter for the aerospace and defense sector were $51 million, the best in more than two years and nearly a record result. Our reputation for customer service excellence and our highly collaborative engagement yielded a substantial award with a new customer in the space. for our facility in Kelso, Scotland. Strength of execution yielded the number of follow on awards and new programs with existing customers and our defense and space subs.
Oliver: New program. Ramps contributed to the performance.
Oliver: We expect revenue for the Aerospace and Defence sector to be flat. In the fiscal fourth quarter as improving defense sub sector demand and new program ramp Revenue balances muted performance from the other sub sectors.
Oliver: Our wins for the fiscal third quarter for the Aerospace and Defence sector where 51 million the best and more than 2 years and nearly a record result.
Oliver: Our reputation for customer service excellence and our highly collaborative engagement yielded, a substantial Award with a new customer in the space sub sector.
Oliver: For our facility in Kelso Scotland.
Oliver: Strength of execution, yielded, a number of follow-on awards and new programs with existing customers and our defense and space sub sectors.
Oliver Mihm: Our robust growth outlook for fiscal 2026 is supported by a combination of new program ramps, new customer additions, and modest market growth that collectively drives strong defense sector growth and a return to growth and commercial aerospace.
Oliver: Our robust growth outlook for fiscal 2026 is supported by a combination of new programming. New customer additions and modest market growth. The collectively Drive, strong defense, sector growth, and a return to growth and Commercial Aerospace.
Oliver Mihm: Please advance the slides now. Revenue in our healthcare life sciences market sector was up 2% sequentially for the fiscal third quarter, below our expectation of a mid-single-digit increase. This variance was due to a customer design update that resulted in a temporary production delay for their program. For the fiscal fourth quarter, we expect the healthcare life sciences market sector to be up low single digits, driven by multiple ongoing programs. Fiscal third quarter healthcare life sciences sector wins of $116 million, included a substantial follow-on award from an existing. for the global rollout of a platform that treats atrial fibrillation.
Oliver: Please advance to slide 9.
Oliver: Revenue in our Healthcare Life Sciences Market sector was up, 2% sequentially for the fiscal third quarter.
Oliver: The lower expectation of a mid single-digit, increase.
Oliver: this variance was due to a customer design update that resulted in a temporary production delay for their program,
Oliver: For the fiscal fourth quarter, we expect the healthcare Life Sciences Market sector to be up low, single digits, driven by multiple ongoing program ramps.
Oliver Mihm: Our historical strength of execution, with both new product launches and ongoing production of the device for its U.S. rollout, enabled the win.
Fiscal third, quarter Healthcare, Life Sciences sector wins of 116 million included a substantial following award from an existing customer with a global rollout of a platform that treats atrial fibrillation.
Oliver: Our historical strength of execution with both new product, launches and ongoing production for the device of the device for its us rollout, enabled the win.
Oliver Mihm: This program will be built in our Chicago facility.
Oliver: This program will be built in our Chicago facility.
Oliver Mihm: We also want to work with a new customer for a sustaining services organization. Our work will support a cardiovascular platform and be performed in our Guadalajara, Mexico.
Oliver: We also want to work with a new customer for assisting services or organization.
Oliver Mihm: Our Neenah, Wisconsin facility won a substantial award with a new customer for a surgical generator product used in a novel new cancer. Our ability to effectively collaborate and develop trust during the quoting process contributed to the win. As we look to the next fiscal year, revenue contributions from both ongoing and new program ramps support our strong growth.
Oliver: Our work will support our cardiovascular platform and be performed and our guadal Lara Mexico facility.
Oliver: Our Neenah Wisconsin facility. Want a substantial Award with a new customer for a surgical generator product used in a novel new cancer treatment.
Oliver: Our ability to effectively collaborate and develop trust during the quoting process contributed to the win.
Oliver: As we look to the next fiscal year, Revenue contributions from both ongoing and new program ramps support, our strong growth Outlook.
Oliver Mihm: Advancing to the industrial sector on slide 10, revenue was up 4% sequentially in the fiscal third quarter. The result was in line with our expectation of a low single-digit increase. Inside the Quarter Demand Increases and the Broadband Communications and Energy Markets Offset Demand Pushouts and our Semi-Capped Subsidies.
Oliver: Advancing to the industrial sector on slide. 10 Revenue was up. 4% sequentially in the fiscal third quarter.
Oliver: The result was in line with our expectation of a low single-digit, increase.
Oliver: Inside the quarter, demand increases and the Broadband Communications and energy markets offset demand, push outs and our semi cap sub sector.
Oliver Mihm: Our fiscal fourth quarter outlook for the industrial sector of a low single-digit increase is supported by strength of orders for legacy equipment and the broadband communication and New Program Ramp Revenue in both the Semi-Cap and Energy Subtotal.
Oliver: Our fiscal fourth quarter outlook for the industrial sector of a low. Single digit increase is supported by strength of orders for legacy equipment, and the Broadband communication sub sector.
Oliver Mihm: The industrial market sector wins for the fiscal third quarter. We're strong at $83 million. This marks a five-quarter high for the second...
Oliver: And new program ramp revenue and both a semi cap and energy sub sector.
Oliver: The industrial Market sector wins for the fiscal third quarter. We're strong at 83 million
Oliver Mihm: continued strength of execution and our ability to redesign for cost reduction yielded wins with three of our top These products will be built in our Penang, Malaysia and Guadalajara, Mexico campus. WINS also included a substantial award from a new customer for an automated vehicle inspection. This product will be assembled in our Guadalajara, Mexico facility.
Oliver: This marks a 5 quarter high for the sector.
Oliver: Continued strength of execution and our ability to redesign for cost reduction yielded wins with 3 of our top semi cap customers.
Speaker Change: These products will be built and our pen name Malaysia and guadalahara, Mexico campuses.
Speaker Change: Wings also include a substantial award from a new customer for an automated vehicle infection system.
Speaker Change: This product would be assembled and our guadalahara Mexico facility.
Oliver Mihm: Our positive fiscal 2026 growth outlook is supported by the better-than-market growth rates we anticipate in the energy and semi-cap subsectors as a result of continued share gains and new program funding.
Speaker Change: Our positive fiscal 2026. Growth Outlook is supported by the better than market growth rate.
Speaker Change: We anticipate in the energy and semi cap sub sectors. As a result of continued, share gains and new program ramps.
Oliver Mihm: Please advance to slide 11 for a view of our funnel of qualified manufacturing. The funnel of qualified manufacturing opportunities is up 4% sequentially and robust at $3.6 billion. I'm pleased with the increasing breadth of opportunities we are seeing in our funnel across engineering, manufacturing, and sustaining services.
Speaker Change: Please advance to slide 11 for a review of our funnel of qualified manufacturing opportunities.
Speaker Change: The Funnel of qualified manufacturing opportunities is up, 4% sequentially and robust at 3.6 billion dollars.
Speaker Change: I'm pleased with the increasing breadth of opportunities. We are seeing in our funnel across engineering manufacturing and sustaining services.
Oliver Mihm: In summary, our focus on delivering excellence and creating customer success continues to contribute to strong wins per customer. Our new program ramps, share gains, and new customer additions are contributing to a healthy outlook for our growth in the coming fiscal year. As Todd previously noted, this sentiment is without assuming improvements in the current end-market environment.
Speaker Change: In summary our focus on delivering excellence and creating customer success.
Speaker Change: Continues to contribute to strong winds performance.
Speaker Change: Our new program ramps, share games and new customer editions, our contributing to A Healthy Outlook for our growth in the coming fiscal year.
Pat Jermain: I will now turn the call over to Pat. Thank you, Oliver, and good morning, everyone. Our fiscal third quarter results are summarized on slide 12. While revenue was at the midpoint of our guidance, gross margin at 10.1%, was slightly above the midpoint due to a favorable mix of service offerings and better fixed cost leverage. Productivity improvements associated with our operational efficiency initiatives continue to benefit our manufacturing site. Selling an administrative expense of $50 million was at the low end of our guidance and consistent with expectations as a percentage of revenue. Non-gap operating margin of 6% was toward the top end of our guidance due to strength and gross margin.
Todd Kelsey: As Todd previously noted, this sentiment is without assuming improvements and the current and Market environments.
Pat: I will now turn the call over to Pat.
Speaker Change: Pat.
Pat: Thank you, Oliver and good morning everyone. Our fiscal third quarter results are summarized on slide 12.
Pat: While Revenue was at the midpoint of our guidance, gross margin at 10.1% with slightly above the midpoint due to a favorable mix of service offerings. And but better fixed cost Leverage.
Pat: Productivity improvements associate with our operational efficiency initiatives continue to benefit our manufacturing sites.
Pat: Selling and administrative expense of fifty million dollars was at the low end of our guidance and consistent with expectations as a percentage of Revenue.
Pat Jermain: Non-operating expense of $3.8 million was favorable to expectations due to lower-than-anticipated interest expense. Non-GAAP diluted EPS of $1.90 exceeded our guidance due to the items mentioned in a favorable. The lower tax rate was primarily attributed to a state tax law change that allowed for the release of a valuation allowance against deferred tax assets.
Pat: Non-gaap operating margin is 6% was toward the top end of our guidance due to strength and gross margin.
Now, an operating expense a 3.8 million was favorable to expectations due to lower than anticipated interest expense.
Pat: Non-gaap diluted EPS of a 1.90 exceeded, our guidance, due to the items mentioned, and a favorable tax rate.
Pat: The lower tax rate was primarily attributed to a state tax law change and allowed for the release of evaluation allowance against deferred tax assets.
Pat Jermain: Turning to our cash flow and balance sheet on slide 13. As shown across these financial metrics, we continue to improve our performance and liquidity. As a result, we delivered $27 million in cash from operations and spent $14 million on capital expenditure. generating free cash flow of approximately $13 million. This performance exceeded expectations and positions us well to meet our increased fiscal 2025 free cash flow projection of approximately $100 million. During the quarter, we continued to return cash to shareholders through our share repurchase program by acquiring approximately 143,000 shares of our stock for $18.4 million. As of today, we have completed the fiscal 2025 authorization of $50 million and have now begun executing upon the $100 million authorization approved by our board last quarter.
Pat: According to our cash flow and balance sheet on slide 13.
Pat: As shown across these Financial metrics, we continue to improve our performance and liquidity.
Pat: Cash from operations and spend $14 million on Capital expenditures generating free cash flow of approximately 13 million.
Pat: This performance exceeded expectations and positions as well to meet our increased fiscal, 2025 free cash flow, projection of approximately a hundred million dollars.
Pat: During the quarter, we continued to return cash to shareholders through our share repurchase program by acquiring approximately 143,000 shares of our stock for 18.4 million.
Pat Jermain: Similar to the prior quarter, we ended the fiscal third quarter in the net cash position. We had $45 million outstanding under our revolving credit facility with $455 million available to borrow. As we had anticipated, our strong balance sheet position allowed us to use excess cash and minimal borrowing under the revolver to repay the $100 million of private placement notes which matured last month. For the fiscal third quarter, we delivered return on invested capital of 14.1%, which was 520 basis points above our weighted average. Our invested capital base is significantly lower than the prior year due to our efforts to drive sustained improvement in working capital.
Pat: As of today, we have completed the fiscal 2025 authorization of 50 million and have now begun executing upon the hundred million dollar authorization approved by our board last quarter.
Pat: Similar to the prior quarter, we ended the fiscal third quarter and the net cash position. We had 45 million dollars outstanding under our revolving credit facility with 455 million available tomorrow.
Pat: As we had anticipated, our strong balance sheet position, allowed us, to use excess, cash and minimal borrowing under the revolver. Repay the hundred million dollars of private placement notes which matured last month.
Pat: We're the fiscal third quarter, we delivered return on invested capital of 14.1%, which was 520 basis points above our way, to average cost of capital.
Pat Jermain: This combined with improved operating performance drove the expansion of ROIC over the prior year and represents the highest ROIC in nearly four years. The cash cycle at the end of the fiscal third quarter was 69 days, consistent with expectations, and one day higher than the fiscal second quarter.
Pat: Our invested Capital base is significantly lower than the prior year due to our efforts to drive sustained Improvement in working capital.
Pat: This combined with improved operating performance drove the expansion of roic over the prior year and represents the highest roic in nearly 4 years.
Pat Jermain: Please turn to slide 14 for details on our cash cycle. Along with the six consecutive quarterly reduction in gross inventory dollars, we experienced a four-day improvement in inventory days. This is another quarter of our team demonstrating the relentless focus on driving working capital.
Pat: As cycle, at the end of the fiscal, third quarter was 69 days consistent with expectations and 1 day higher than the fiscal second quarter.
Pat: Please turn to slide 14 for details on our cash cycle.
Pat: Along with a 6 consecutive quarterly reduction in Gross inventory. Dollars, we experienced a 4-day Improvement in inventory days.
Pat Jermain: For days in advance payments, we experienced a four-day reduction with a net of $19 million being returned to customers during the quarter.
Pat: This is another quarter of our team demonstrating, the Relentless focus on driving working capital initiatives.
For days in advance payments. We experienced a 4-day reduction with a net of 19 million being returned to customers during the quarter.
Pat Jermain: 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 15. Fiscal fourth quarter gross margin is expected to be in the range of 9.8 to 10.1%. At the midpoint, gross margin would be slightly lower than last quarter.
Pat: As Todd has already provide the revenue and EPS guidance for the fiscal fourth quarter, I'll review some additional details which are summarized on 515.
Pat: Fiscal fourth quarter, gross margin is expected to be in the range of 9.8 to 10.1%.
Pat Jermain: While gaining fixed cost leverage on anticipated sequential revenue growth, some additional variable incentive compensation expense is expected, along with a slight margin drag from the startup of our new Malaysian facility. We expect selling and administrative expense in the range of $50 to $51 million, which is fairly consistent with the prior quarter. Note that this estimate is inclusive of approximately $6.3 million, a stock-based compensation expense. Fiscal fourth quarter non-GAAP operating margin is expected to be in the range of 5.7% to 6.1%, exclusive of stock-based compensation expense.
Pat: At the midpoint gross margin would be slightly lower than last quarter.
Pat: While gaining fixed cost, leverage on anticipated. Sequential Revenue growth. Some additional variable incentive compensation expense is expected along with a slight margin drag from the startup of our new Malaysian facility.
Pat: We expect selling and administrative expense in the range of 50 to 51 million which is fairly consistent with the prior quarter.
Pat: Note that this estimate is inclusive of approximately 6.3 million a stock based compensation expense.
Pat: Fiscal fourth quarter, non-gaap operating margin is expected to be in the range of 5.7 to 6.1% exclusive. A stock based compensation expense.
Pat Jermain: Non-operating expense is anticipated to be approximately $4.5 million, a reduction of nearly 50% from the prior year of fiscal fourth quarter. As we have shared before, our strong cash flow has resulted in much lower debt levels and associated interest expense. Since last year's fiscal third quarter, we have reduced our total debt by over $200 million.
Pat: Non-operating expense is anticipated to be approximately 4.5 million dollars. A reduction of nearly 50% from the prior year, fiscal fourth quarter,
Pat: As we have shared before our strong cash flow has resulted in a much lower debt levels and Associated interest expense.
Pat Jermain: For the fiscal fourth quarter, we are expecting to release additional tax reserves following the closure of the statute of limitations for certain tax years. As such, we are estimating an effective tax rate between 8 and 10 percent. While our fiscal 2025 effective tax rate will be lower due to reserve releases, a more normalized rate for us moving forward is in the upper teens. Diluted shares outstanding are expected to be $27.5 million.
Pat: Since last year's fiscal third quarter, we have reduced our total debt by over 200 million dollars.
Pat: For the fiscal fourth quarter, we are expecting to release additional tax reserves following the closure of the statute of limitations for certain tax years.
Pat: As such, we are estimating an effective tax rate between 8 and 10%.
Pat: While our fiscal 2025 effective tax rate will be lower due to reserve releases a more normalized rate for us. Moving forward, is in the upper teams.
Pat Jermain: Our expectation for the balance sheet is that working capital investments will slightly reduce compared to the fiscal third quarter. With this improvement, combined with our anticipated sequential revenue growth, we expect our cash cycle days to improve compared to the fiscal third quarter. Hence, we are guiding a cash cycle range of 64 to 68 days.
Pat: The looted shares outstanding are expected to be 27.5 million.
Pat: Our expectation for the balance sheet is that working capital investments will slightly reduce compared to the fiscal third quarter.
Pat: With this Improvement combined with our anticipated sequential Revenue growth.
Pat: We expect our cash cycle days to improve compared to the fiscal third quarter.
Pat Jermain: Fiscal 2025 capital spending is expected to be in the range of $80-$100 million, lower than our previous guidance as certain payments related to our new facility in Malaysia will now be made early in Fiscal 2026. Once again, given our improved performance through the first three quarters of the fiscal year, we now anticipate generating approximately $100 million of free cash flow for fiscal 2025.
Pat: Hence, we are guiding a cash cycle range of 64 to 68 days.
Pat: 25 Capital spending is expected to be in the range of 80 to 100 million dollars lower than our previous guidance. As certain payments, relate related to our new facility in Malaysia will now be made early in fiscal 2026.
Pat: Once again, given our improved performance through the first 3 quarters of the fiscal year. We now anticipate generating approximately a hundred million dollars of free cash flow for fiscal 2025.
Operator: With that, Nicole, let's now open the call for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. Please stand by while we compile the Q&A roster.
Pat: With that Nicole. Let's now open the call for questions.
We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please raise your hand. Now, if you have dialed into today's call, please press star 9, to raise your hand and star, 6 to unmute
Pat: Please stand by while we compile the Q&A roster.
David Williams: Your first question comes from the line of David Williams with The Benchmark Company. Your line is open. Please go ahead. Good morning, everyone. Can you hear me okay? We can, David. Good morning. Good. Good morning. Thank you. So, you know, maybe first, you know, the execution has been very strong financially.
Speaker Change: Your first question comes from the line of David Williams with the Benchmark company. Your line is open. Please go ahead.
David Williams: Hey, good morning everyone. Can you hear me, okay?
Oliver Mihm: But I guess my question is on the semi-cap. You talked about some of those push outs there. And can you provide maybe a little more color there? Is that more on maybe a demand side or forecast changes? Or is that more driven by maybe changes to that product ramp or the product itself?
Speaker Change: We can David. Good morning, good. Good morning. Thank you. So uh, you know, maybe first uh, you know, the execution has been very strong financially but but I guess my my question is on the the semi cap you talked about some of those push-ups there and uh, can you provide maybe a little more color there? Is that more on uh, maybe a demand side or forecast?
Speaker Change: Changes or is that more driven by maybe changes um, to that that product ramp, or that the product itself?
Oliver Mihm: Hey David, this is Oliver. I'll take that. That had to do with just some idiosyncrasies specific to those programs. And I think it's important to note that that push out is just moving the revenue to the right. It's not perishable. And so from an overall...
Oliver: And David, this is Oliver. I'll take that.
Oliver: If I had to do with just some idiosyncrasies specific to those programs and I think it's important to note that that push out.
Oliver: Uh, is just moving the revenue to the right. It's not perishable demand.
Oliver Mihm: Subsector perspective, we also noted that our Q4 is buoyed by a number of new program ramps in the SemiCap subsector. That's how we do that. Great. Thanks so much.
Oliver: and so, from an overall, um,
Oliver: sub sector perspective. We all know that our Q4 is buoyed by a number of of new program ramps in the semi cap sub sector.
Oliver: That's how we do that.
David Williams: And then maybe just on the aerospace and defense side, you know, typically when you see the semi-captain has you pushing pulls, you're able to offset that through the strength and other segments.
Oliver Mihm: Just kind of curious what you're seeing on the defense side, excuse me, the aerospace side, and are you seeing the pull in from those aerospace customers as you would have anticipated? Yeah, we're still not seeing, David, the pull in from Boeing or Airbus for the increased production ramps. So we'd expect that to happen at some point as we move forward, but the demand just hasn't flown through yet to us. We are seeing strong demand within our defense and our space subsectors, though, and particularly defense.
Oliver: Great. Thanks so much. And then maybe just on the the Aerospace and defense side, you know, typically when you see this semi cap, it has these push and pulls. You're able to offset that through the strength and other segments. Just kind of curious what you're seeing on the, the the defense side, excuse me, the Aerospace side and are you seeing the, the pool in, from from those of the airspace customers, as you would have anticipated?
Oliver Mihm: And as I mentioned in the prepared comments as well, too, we're starting to see signs of increased European defense demand as well, which we view as a great opportunity.
Speaker Change: Yeah, we're we're still not seeing David, the pull in from Boeing or Airbus uh, for the increase production ramps. So we'd expect that to happen at some point as we move forward, but um, the demand just hasn't flown through yet to us. Um, we are seeing strong demand within our defense and our space sub sectors though and and particularly defense. And as I mentioned in,
Shawn Harrison: David, it's Shawn. Just one thing to be clear, you know, our preliminary outlook into fiscal 26 does not include a recovery in production from current rates from Boeing and Airbus and the impact to our end customers, so it's steady So if that were to change, that would be... Appreciate the color there. Thanks so much. I'll get back in the queue.
Speaker Change: The prepared comments as well too. We're starting to see signs of increased European Defence demand as well which we view as a great opportunity for us moving forward.
Speaker Change: And David and Sean just 1 thing to be clear. You know, our preliminary Outlook into physical 26 does not include a recovery in production from current rates from Boeing and Airbus and the impact to our end customers. So it's steady state. So if that were to change, uh, that would, you know, positively affect our view into 2026,
Speaker Change: Right, appreciate the color there. Thanks so much. I'll get back in the queue.
Jim Ricchuti: Your next question comes from the line of Jim Ricchuti with Needham & Company. Your line is open. Please go ahead. Can you hear me okay? Yeah, now we can hear you, Jim. Terrific, thanks. Thanks a lot.
Your next question comes from the line of Jim rashidi with nidam and Company. Your line is open, please go ahead.
Jim Rashidi: I can you hear me, okay?
Speaker Change: yeah, now we can hear you, Jim
Jim Ricchuti: A couple of questions. Just as we think about the industrial business, you know, it sounds like, at least as we went through most of the first nine months of the year, you were seeing pretty healthy demand in SEMICAP. So, I'm curious, your implied guidance for Q4, what does that kind of assume for SEMICAP in fiscal 25, just given that that is a big part of the industrial businesses? It is a big part. It's it's close to half of our industrial business. Now we have seen the forecast weaken a bit from a quarter ago. So while we had been talking about revenue growth in the mid-teens for for semi-cap for fiscal 25, it's looking like it'll be low double digits, call it right now.
Speaker Change: Terrific. Thanks. Thanks a lot. Um, a couple of questions. Um, just as we think about, uh, the industrial business. Um, you know, it sounds like at least as we went through, um, the the most of the, the uh, first 9 months of the year, you were seeing pretty healthy demand.
In, uh, in Sanic cap. So um, you know, I'm curious your implied guidance for Q4. What is that kind of assumed for semi cap and physical 25? Just given that. That is a big part of the industrial business, isn't it?
Todd Kelsey: So we had some of the push outs that Oliver had talked about in some of the semi-cap business that we have. Now within the broader industrial goal, we are starting to see some signs of demand recovery in certain subsectors. Energy is one that we've highlighted in particular, and we've got a real strong position there and good growth prospects as we move forward. Got it. That's helpful, Todd. Thanks.
Speaker Change: Semi cap for fiscal 25. It's looking like, it'll be, um, low double digits call it right now. So um, we had some of the push outs that Oliver had talked about in in some of the semi cap business that we have now within the broader industrial though we are starting to see some signs of demand recovery in certain sub sectors. Um, energy is 1 that we've highlighted in particular and we've got a a real strong position there in good growth prospects as we move forward.
Pat Jermain: Hey, Pat, maybe I wanted to just turn to Malaysia. You talked about some of the startup expense, the potential for some of that to be a drag in Q4. I'm wondering if you can give us a sense or help us size that and how you see that going forward in the early part of fiscal 26. Yeah, it's, it's going to be a pretty minimal drag in Q4. And what we've seen in the past, when we started up facilities, especially in Malaysia, is how quickly we can bring those sites to profitability. Part of it is campus environment, we've got where we can move programs pretty easily into new sites.
Speaker Change: Got it, that's that's helpful. Uh, Todd. Thanks. Um, hey Pat, maybe I I wanted to just turn to to Malaysia. You, you talked about a, some of the startup expense, uh, the potential for, you know, some of that to be a drag in uh, Q4 I'm wondering if you, if you can give us a sense or, you know, help us size that and how you see that uh, going forward in the early part of fiscal 206
Pat Jermain: So I think it's, you know, a four quarter period to get us to profitability and closer to our corporate average. Yeah, just to add a little bit of additional color to that, Jim, we have it, we have that site seated with a significant amount of new business already. So the ramp to profitability will be quick. I think it in terms of a small number of quarters and, and even to get to corporate targeted profitability levels, wouldn't expect it to take very long.
Speaker Change: Yeah, it it's it's going to be a pretty minimal drag and Q4 um, and what we've seen in the past, when we started up facilities, especially in Malaysia is how quickly we can bring those sites to profitability. Part of it is the campus environment. We've got where we can move programs pretty easily into new sites. Um, so I I think it's, you know, a 4 quarter period to get us, um, to profitability and and
Todd Kelsey: And maybe you could just remind us what the focus if there's a sector focus, market sector focus for this site. Yeah, well, the initial focus is going to be SEMICAP, but it'll be broad-based, though, and we'll quickly move on to healthcare within that site, and in the future, it could take on other sectors as well. Thank you.
Jim Rashidi: Closer to our corporate average. Yeah, just to add a little bit of additional color to that gym. We have it. We have that site seated with uh a significant amount of new business already. So the ramp to profitability will be quick. Um I think it in, in terms of a small number of quarters and and even to get to corporate, uh, targeted profitability levels, um, wouldn't expect it to take very long.
Jim Rashidi: And maybe you could just remind us what the focus if there's a a a sector Focus uh Market sector Focus for this site.
Jim Rashidi: Yeah. Well the initial focus is going to be semi cap but it'll be broad-based though and we'll quickly move on to healthcare within that site. And um in the in the future it could take on other sectors as well.
Jim Rashidi: Thank you.
Jacob Moore: As a reminder, if you would like to ask a question, please raise your hand or press star 9. Your next question comes from the line of Steve Barger with KeyBank Capital Markets. Your line is open. Please go ahead. Hi, good morning. This is Jacob Moore. I'm for Steve Barger today. Thanks for taking the question. Thank you, Jacob.
Speaker Change: As a reminder, if you would like to ask a question, please raise your hand or press star 9.
Speaker Change: Your next question comes from the line of Steve Barger with keybanc capital markets. Your line is open. Please go ahead.
Speaker Change: Hi, good morning. This is Jacob Moore on for Steve barter today. Thanks for taking the questions.
Jacob Moore: Hey, just first from us, knowing that you're ramping that new facility in Malaysia, can you just comment on current capacity and utilization across the business? You know, where does utilization stand today and roughly what sort of revenue run rate could you hit if you're at your target ute? Yeah, sure. From an overall utilization perspective, the way we look at our capacity is that if we fill that up, we will be able to execute in excess of $5 billion. And I would say that utilization rate relative to where we are at today is pretty consistent across all of our Understood.
Speaker Change: Thank you. Jacob.
Speaker Change: Hey, uh, just first from us knowing that you're ramping that new facility in Malaysia. Can you just comment on current capacity and utilization across the business? We, you know, where does utilization stand today and roughly what sort of Revenue run rate? Could you hit if you are at your target, you
Speaker Change: Yeah, sure.
Speaker Change: I'm an overall utilization perspective. The, the way we look at our capacity is that, uh, if we fill that up, we will be able to execute and access a 5 billion dollars. And I would say that utilization rate relative to where we are at today, is pretty consistent across all of our regions.
Jacob Moore: That's helpful.
Jacob Moore: Thank you.
Jacob Moore: And then the second one from us, you know, you mentioned that engineering solutions did well in the quarter.
Todd Kelsey: Can you just sort of expand on your strategy for that part of your business and maybe provide a little bit of basic info for it? You know, like, what size is it today? Where do you want it to be? And what's the relative margin profile look like? Sure. So where I'd start with engineering is the first thing I'd say is we view it as one of the most significant differentiators for Plexus. I mean, we've historically, we've had engineering and product development and been well-versed in it throughout our history. In fact, I even started in our engineering over 30 years ago.
Speaker Change: Understood, that's helpful. Thank you. And then the second 1 from us, you, you know, you mentioned the engineering Solutions did well in the quarter. Can you just sort of expand on your strategy for that part of your business? And maybe provide a little bit of basic info for it? You know, like what size is it today? Where do you want it to be? And what's the relative margin profile look like?
Todd Kelsey: So it gives you an idea of the longevity of that business, something that we consider strategically important. About a third of the revenue that we have in manufacturing, we've had a direct impact on through our engineering services. Right now, that business is in excess of a hundred million dollars. We don't give a lot of specifics about it, but excess of a hundred million dollars having a real excellent year from a standpoint of both growth and profitability within the business. One of the other real keys to our engineering business that's been exciting over the course of this past fiscal year in particular has been the diversification we've achieved throughout the business.
Speaker Change: Sure. So, where where at start with engineering is the first thing I'd say is we view it as 1 of the uh most significant differentiators uh for plexus. I mean, we have historically, we've had engineering and product development and been well-versed in this throughout our history. And in fact, I even started in our our engineering is over 30 years ago. So it gives you an idea of the longevity of that business, something that we can
Speaker Change: Consider strategically important, um, about a third of the revenue that we have in manufacturing. We've had a direct impact on
Todd Kelsey: Historically, we've had a strong focus within our healthcare business in particular. We've seen this expand into aerospace and defense, industrial semi-cap, as well as life sciences over the course of the past year. Diversification is particularly exciting. Yeah, from a margin standpoint, we can typically see double the manufacturing margin. So very profitable business for us. Understood.
Speaker Change: Focus within on our Healthcare uh business in particular, we've seen this expand into Aerospace and defense industrial semi- cap um as well as Life Sciences over the course of the past year and more meaningful ways. So the diversification particularly exciting
Speaker Change: Yeah and from a margin standpoint, we can typically see double the manufacturing margins. So very profitable business for us.
Todd Kelsey: Thank you very much.
Speaker Change: Understood, thank you very much.
Todd Kelsey: Thank you.
Anja Söderström: Your next question comes from the line of Anja Soderstrom with CIDITY.
Speaker Change: Thank you.
Speaker Change: Here, next question comes.
Anja Söderström: Your line is open. Please go ahead. Anja, just as a reminder to unmute, you can press star six. Yes, we can now, Anja. Okay, sorry. It's a new system here that I'm not used to.
Speaker Change: Mine is open. Please go ahead.
Speaker Change: Anna. Just as a reminder to unmute you can press star 6.
Todd Kelsey: So I'm just curious with Malaysia, when that's fully ramped, the margins there, is that above corporate average? Or how does the margins compare to the rest of the business? Yeah, generally our Malaysia sites perform quite well. Yeah.
Speaker Change: Yes, we can now on you. Okay. Sorry. It's a new system head. I'm not used to. Uh, so I'm just curious with the Malaysia when that's fully ramped the, the margins there is not above corporate average, or
Speaker Change: How, how does the margins compared to to the rest of the business?
Speaker Change: Yeah. Generally our Malaysia sites. Perform quite well. Yeah.
Oliver Mihm: Okay, and you haven't really touched on the tariffs. What are you sort of seeing there, or have you seen any sort of headwinds to orders, or what can we expect? Yeah, there hasn't been a lot of change from the previous call or the previous quarter with respect to tariffs. We're still seeing customers in a wait-and-see mode. Again, just to remind everybody on the call, we passed tariff costs onto our customers, and we haven't gotten pushback on that front. We think we're really well-positioned to help our customers. There's a lot of strength in our trade compliance organization.
Speaker Change: Yep.
Oliver Mihm: We've invested heavily in there in people and process and tools. From a standpoint of demand, we've only seen maybe one customer pull in any demand, and we've seen pretty limited push-outs of demand, so demand isn't really moving much because of the tariffs as of this point.
Speaker Change: Okay, and I love it. Um, we haven't really touched on the tariffs. What are you sort of seeing there or have you seen any sort of headwinds to to, to, um, to orders or what can we expect? Yeah, there's that there hasn't been a lot of of change from the previous call or the previous quarter with respect to tariffs. We're still seeing customers in a wait and see mode. Um, again just to remind everybody on the call, we, we passed tariff costs on the our customers and, um, we haven't gotten pushed back on that front. We, we think we're really well, positioned to help our customers. A lot of strength in our trade compliance organization, we've invested heavily in there and people and and process and tools. Um, and from a standpoint of demand we've uh We've we've only seen maybe 1 customer pull in any demand and we've seen pretty limited push outs of demand. So, um, so demand isn't really.
Oliver Mihm: One of the things that we have done is within our Mexico operations, there's been a big push to drive for USMCA compliance for our customers' products, and we're north of 80% right now, which we think is really an excellent number that we have on that front.
Speaker Change: Um, moving much because of the tariffs, as of this point, um, 1 of the things that we we have done is within our, our Mexico operations. There's been a big push to drive for usmca compliance within our or for our customers products and we're north of 80% right now. Um, which we think is really an excellent number that we we have within that on that front.
Pat Jermain: Okay, I'm just gonna squeeze in one more about the cash cycle, Dave, are you still expecting to come down to the low 60s eventually? Yeah, yeah, well, that's kind of where we're guiding Q4 mid-60s. I think there's opportunity as we move into fiscal 26 with efforts we're doing around inventory. We'll see gross inventory days, I think, still come down. There will be a return of deposits associated with some of those reductions. But I think Anja being in the mid to low 60s is very realistic for us. Okay, thank you.
Speaker Change: Okay, I'm just going to squeeze in 1. More about the cash cycle days. Are you still experienced after to, to come down to the low 60s eventually?
Speaker Change: Yeah, yeah. Well that's kind of where we're um, guiding Q4 with mid-60s. I think there's opportunity as we move into fiscal 26 with efforts. We're doing around um inventory. Uh, we'll we'll see gross inventory days. I think still come down, there will be a return of deposits associated with some of those reductions but I think Anna being in the the mid to low 60s. Is um, very realistic for us.
Anja Söderström: I'll get back in the queue.
Speaker Change: Thank you, I'll get back.
Operator: If you would like to ask a follow-up question at this time, please raise your hand or press star 9.
Speaker Change: You would like to ask.
Speaker Change: Follow-up. Question at this time, please raise your hand or press star 9.
David Williams: We have a follow-up question from David Williams at the Benchmark Company. David, your line is open. Please go ahead.
Speaker Change: We have a follow-up question. From David Williams at The Benchmark company. David your line is open. Please go ahead.
David Williams: Let me jump back in here.
Pat Jermain: Maybe, Todd, just wanted to ask on, or Pat, on the new tax legislation. Is there anything there that changes your point of view on maybe the CapEx? I know you're pushing some of that, sounds like more for timing on Malaysia, but does that change anything from maybe on the tax side of things in terms of CapEx or the way you're thinking about the business in any way?
David Williams: Hey thanks for letting me jump back in here. Um maybe Todd just wanted to ask on or pat on the the the new tax legislation is there anything there? That changes your point of view on maybe the capex. I know you're pushing some of that sounds like more for timing on Malaysia, but does that change anything from maybe the on the tax side of things in terms of of capex, or the way you're thinking about the business in any way?
Todd Kelsey: Not from a CapEx standpoint, obviously there's a lot of strategies we're looking at to minimize the effect of the global minimum tax, but not necessarily anything we're seeing around capital spending at this point. One of the things, David, that we are looking at more from a market standpoint, or maybe a couple of things, is with the expensing of R&D, there may be some potential that could have some positive pull through for our engineering solutions, we believe. There's also some some components of the bill that are around rural health and providing rural health, as well as potentially some pull forward of clean energy demand, given some of those credits going away in the future, and not to mention that the increase There's some reasonable market inputs that could be positive.
David Williams: Not from a capex standpoint. Obviously there's a lot of strategies we're looking at um to minimize the effect of the global minimum tax um but not necessarily anything. We're seeing around Capital spending at this point.
Todd Kelsey: We haven't seen any of that flow through as of yet, though.
David Williams: As well as potentially some pull forward of clean energy demand, given some of those credits going away in the future and not to mention, is it? The increased defense budget is that still out there? So there's some reasonable Market um, inputs that that could be positive. So we haven't seen any of that flow through as of yet though.
David Williams: Great, thanks so much for the help.
David Williams: Great. Thanks so much for the help.
Jim Ricchuti: We have a follow-up question from Jim Ricchuti with Needham & Company. Jim, your line is open, please go ahead. Thanks. Just a question on the healthcare life science part of the business. It sounds like you're looking at fiscal 26, you're optimistic of a pickup and growth. That's been a more difficult part of the business to forecast, hasn't it been?
David Williams: We have a follow-up question from Jim, Rudy with Native & Company. Jim. Your line is open. Please go ahead.
David Williams: Yep.
Oliver Mihm: And it's not just you, we're hearing this from other players as well, including the OEMs. I'm trying to get a sense as to what gives you the confidence about fiscal 26. Yeah, Jim, I'll offer and refer back to my prepared marks that the strength of ongoing and new program ramps gives us A contributes to our Q4 outlook. Also, that carries in to F26. Two other things I'll mention is two new customers added this quarter, so that's expected to provide us some additional tailwind as we work through F-26.
Jim Rashidi: Thanks. Uh, just a question on the uh, the healthcare life science. Uh, part of the business. It sounds like you. You're looking at fiscal 26, your optimistic of a, a pickup in growth, that's been a more difficult. Um, part of the business to forecast, hasn't it been, it seems and and this is not just you. We're hearing this from other players as well, including the oems just giving. I'm trying to get a sense as to what what gives you the confidence about fiscal 26.
Jim Rashidi: Yeah, Jim. I I I'll offer and refer back to my prepared marks that the strength of ongoing and new program ramps gives us uh a contributes to our Q4 Outlook. Also that carries in to f26.
Oliver Mihm: And then the other thing I'll talk about is we talked earlier about our Engineering Design Service. and they typically act as a leading indicator for us. And while we had seen, if I reference back to a few quarters ago and the inventory correction that that sector went through, healthcare kind of got out ahead of life sciences. And then more recently, we've seen an increase in activity and discussion with both new customers and existing with our engineering design services relative to life sciences. So given that the leading indicator that gives us further optimism as we. Anticipate strong growth in F20.
Jim Rashidi: Uh, 2 other things I mentioned is 2, new customers, added this quarter. So that's expected to provide us some additional um, Tailwind as we work through f-26.
Jim Rashidi: And then the other thing I'll talk about is we talked earlier about our engineering design services.
Jim Rashidi: And they typically act as a leading indicator for us.
Jim Rashidi: And while we had seen, if I reference back to a few quarters ago in the inventory correction that that sector went through Healthcare kind of got out of head of Life Sciences and then, more recently, we've seen increase in activity and discussion with both new customers and existing customers with our engineering design services.
Jim Rashidi: Relative to Life Sciences. So given that the leading indicator that gives us further optimism as we
Jim Rashidi: anticipate strong growth in f26.
Jim Ricchuti: Thanks, Oliver. That's helpful.
Oliver Mihm: And just maybe one quick follow up. You alluded to the potential for stronger defense in Europe. What are you seeing there? And you know, is that how big is that in terms of the defense business overall? And as you look at fiscal 26, do you see that as a bigger driver?
Jim Rashidi: X all over that's helpful. And just maybe 1 quick follow-up. Um, you alluded to um uh the potential for uh Stronger Defence in Europe. Um, what are you seeing there? And you know, is that how how big is that in terms of the uh the the defense business overall? And as you look at fiscal 26, do you see that as a a bigger driver
Oliver Mihm: Yeah, I'll just start by what we're seeing there is certainly an increase in activity and interest. And then also highlight back to the fact that we just added a new sector or sorry, a new customer in that in that sector, I guess, although specifically space whenever I was talking earlier, and contributing to our optimism that we're going to see additional activity in Europe.
Shawn Harrison: Jim, it's Shawn. A couple things, you know, we do, you know, defense and aggregate is maybe a little more than a third of that sector. European defense is a smaller component of the mix. But we do forecast in 2026, really robust growth overall for our defense exposure. Our team just came back from the Paris Air Show a couple weeks ago, significantly more conversations about how we can support with our strong footprint in region. As we mentioned, some good initial gains here. We think there's a significant amount of opportunity. You know, there's there's different TAMs out there that have been discussed.
Jim Rashidi: Yeah, I'll just start by what we're seeing. There is is certainly an increase in activity and interest and then also highlight back to the fact that we just added a new sector or sorry. A new customer in that uh, in that sector, I guess all those specifically space whenever I was talking earlier. Um, and contributing to our optimism that we're going to see additional activity in Europe and defense.
Shawn Harrison: But, you know, given how we play and where our footprint is in that market, we think we're strongly positioned. will capture market share and support the upside potential.
Jim Rashidi: Yeah, Jim and Sean um a couple things you know, we do you know, defense and aggregate is maybe a little more than a third of that sector. Um, European Defense is a is a smaller component, um, of the mix. Um, but we do forecast in 2026 really robust growth overall for our defense exposure. Um, our team just came back from the Paris air show a couple of weeks ago. Um significantly more conversations about how we can support your European Defence companies um with our strong footprint in region as we mentioned. Some you know it's good initial gains here. We think there's a significant amount of opportunities. You know, there's there's different Tams out there that have been discussed. Um, but you know, given how how we play and where our footprint is in that market, uh we think we have, we're strongly positioned to, you know, capture market, share, and support the upside potential out there.
Operator: Thank you. There are no further questions at this time.
Jim Rashidi: Yeah, thank you.
Todd Kelsey: I will now hand the call back over to Todd Kelsey, President and CEO, for closing remarks. All right, thank you, Nicole. I'd like to thank the shareholders, investors, analysts, and our Plexus team members who joined the call this morning.
Kelsey: There are no further questions at this time. I will now hand the call back over to Todd, Kelsey president, and CEO for closing remarks.
Todd Kelsey: In closing, I'd like to reiterate that we're poised for a solid finish to fiscal 2025 with quarterly sequential revenue growth in the back half of the year, strong operating and free cashflow performance, as well as exceptional EPS growth. We're positioned to carry this momentum into fiscal 2026 and anticipate another good year.
Todd Kelsey: All right. Thank you Nicole. Um I'd like to thank the shareholders investors analysts and our plexus team team members who joined the call this morning.
Todd Kelsey: In closing, I'd like to reiterate that we're poised for a solid finish to fiscal 20125. With quarterly sequential Revenue growth in the back, half of the Year Strong operating in free cash flow performance as well as exceptional EPS growth.
Thank you again and have a nice day.
Todd Kelsey: We're positioned to carry this momentum into fiscal 2026 and anticipate another good year.
Todd Kelsey: Thank you again and have a nice day.