Q4 2025 Plexus Corp Earnings Call
And answer session, if you'd like to ask a question. Please raise your hand, if you've dialed in to today's call. Please press star nine to raise your hand and star six to <unk>. Your line I will now hand, the conference over to Shawn Harrison Vice President of Investor Relations. Please go ahead.
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.
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 #1: Ladies and gentlemen , thank you for joining us . And welcome to the Plexus fiscal fourth quarter and fiscal year end 2025 conference call .
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 28, 2024, as supplemented by our Form 10-Q filings with Safe Harbor compare disclosure statements in our press release.
Speaker #1: After today's prepared remarks , we will host a question and answer session . If you would like to ask a question , please raise your hand if you've dialed in to today's call , please press star nine to raise your hand and star six to unmute your line .
Speaker #1: I will now hand the conference over to Shawn Harrison , vice President of Investor Relations . Please go ahead .
We encourage participants on the call. This morning to access the live webcast and supporting materials.
Speaker #2: 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 .
<unk> website at Www Dot flex this dot com clicking on investors at the top of that page.
Joining me today are Todd Kelsey, President and Chief Executive Officer, Oliver Mihm, Executive Vice President and Chief Operating Officer, Pat remain executive Vice President and Chief Financial Officer.
Speaker #2: Forward looking statements are not guarantees since their inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward looking statements .
With todays earnings call Todd will provide summary comments before turning the call over to Oliver and Pat for further details.
With that let me now turn the call over to Todd Kelsey.
Speaker #2: 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 .
Thank you Sean Good morning, everyone. Please advance to slide three.
Fiscal 2025 was an outstanding year for plexus highlighted by.
Speaker #2: Typically , the risk factors in our form 10-K filing for the fiscal year ended September 28th , 2024 is supplemented by our form 10-q filings .
Our ongoing delivery of a differentiated value proposition for our customers that created the opportunity for <unk> to expand customer relationships and gained market share.
Speaker #2: The Safe Harbor and Fair Disclosure Statement in our press release . We encourage participants on the call this morning to access the live webcast and supporting materials .
A robust and well balanced new program win results across our solutions that will support future growth.
Speaker #2: At Plexus website at . Clicking on investors at the top of that page . Joining me today are Todd Kelsey president and Chief Executive Officer , Oliver Mihm Executive Vice president and chief operating officer , Patrick Jermain executive vice president and chief financial officer .
Our team's dedication to innovating responsibly to help create a better world.
And our strong financial performance with a 40 basis point expansion of non-GAAP operating margin, 30% non-GAAP EPS growth.
Speaker #2: With today's earnings call , Todd will provide summary comments before turning the call over to Oliver and Pat for further details . With that , let me now turn the call over to Todd Kelsey .
Another year of tremendous free cash flow generation and robust ROIC.
I am excited that the momentum gained during fiscal 2025 across these areas positions plexus during fiscal 2026 to deliver revenue growth in excess of our end markets through new program ramps inclusive of market share gains.
Speaker #2: Todd .
Speaker #3: Thank you Sean . Good morning everyone . Please advance to slide three . Fiscal 2025 was an outstanding year for Plexus , highlighted by our ongoing delivery of a differentiated value proposition for our customers that created the opportunity for Plexus to expand customer relationships and gain market share .
Accelerated revenue growth positioning flexes towards our 9% to 12% goal.
Strong financial performance with a focus on achieving our goal of a 6% non-GAAP operating margin. While also investing in talent technology facilities and advanced capabilities to support sustained future revenue growth and greater operational efficiency.
Speaker #3: Our robust and well-balanced new program , win results across our solutions that will support future growth . Our team's dedication to innovating responsibly to help create a better world and our strong financial performance with a 40 basis point expansion of non-GAAP operating margin , 30% non-GAAP EPs growth , another year of tremendous free cash flow generation , and robust ROIC .
And robust.
Free cash flow generation that will be deployed to create additional shareholder value.
Please advance to slide four.
Revenue of 1.058 billion approached the high end of our guidance range.
Speaker #3: I'm excited that the momentum gained during fiscal 2025 across these areas . Positions Plexus during fiscal 2026 to deliver revenue growth in excess of our end markets through new program ramps , inclusive of market share gains , accelerated revenue growth , positioning , Plexus toward our 9 to 12% goal , strong financial performance with a focus on achieving our goal of a 6% non-GAAP operating margin , while also investing in talent , technology , facilities and advanced capabilities to support sustained future revenue growth and greater operational efficiency and robust free cash flow generation that will be deployed to create additional shareholder value .
Marking our third consecutive quarter of sequential growth.
Our team's ability to support late quarter demand upside from semi cap and energy customers more than offset minor delays in new program transitions and our aerospace and defense market sector.
non-GAAP EPS of $2 14 substantially exceeded our guidance due to favorable discrete tax items with in line non-GAAP operating margin of five 8%.
We expanded non-GAAP operating margin by 40 basis points and non-GAAP EPS over 30% in fiscal 2025 as compared to fiscal 2024.
Finally, we delivered fiscal fourth quarter free cash flow of $97 million, resulting in fiscal 2025 free cash flow of $154 million an.
Speaker #3: Please advance the slide for revenue of $1.058 billion . Approached the high end of our guidance range , marking our third consecutive quarter of sequential growth .
An amount that substantially exceeded our projections.
We have now generated $495 million of free cash flow for the past two fiscal years, while deploying excess cash to reduce our borrowing and accelerated our share repurchase activity.
Speaker #3: Our team's ability to support late quarter demand upside from semi cap and energy customers more than offset minor delays in new program transitions in our aerospace and defense market sector .
Please advance to slide five.
Speaker #3: Non-GAAP EPS of $2.14 substantially exceeded our guidance due to favorable discrete tax items, with a non-GAAP operating margin of 5.8%. We expanded the non-GAAP operating margin by 40 basis points and non-GAAP EPS over 30% in fiscal 2025, as compared to fiscal 2024.
For the fiscal fourth quarter, we secured 28, new manufacturing programs with $274 million in revenue annually when fully ramped into production.
Included in these wins were expanded relationships with commercial aerospace customers growth in our exposure to unmanned aircraft.
Expansion of share with existing health care life Sciences, and industrial customers.
Speaker #3: Finally , we delivered fiscal fourth quarter free cash flow of $97 million , resulting in fiscal 2025 . Free cash flow of $154 million , an amount that substantially exceeded our projections .
And notable market share gains within semi cap.
For fiscal 2025, our team generated 400, 141 manufacturing wins, representing $941 million in annualized revenue.
Speaker #3: We have now generated $495 million of free cash flow over the past two fiscal years , while deploying excess cash to reduce our borrowing and accelerate our share repurchase activity .
In addition efforts to diversify our engineering solutions engagements successfully drove increased wins for fiscal 2025%, including a record result in aerospace and defense.
Speaker #3: Please advance the slide five. For the fiscal fourth quarter, we secured 28 new manufacturing programs worth $274 million in revenue annually when fully ramped into production.
Finally, our sustaining services team achieved record wins for the fiscal year positioning the offering for stronger future financial performance.
In addition, while producing the strong wins performance, we expanded our funnel of qualified opportunities versus the prior quarter and year over year.
Speaker #3: Included in these wins were expanded relationships with commercial , aerospace customers . Growth in our exposure to unmanned aircraft , expansion of share with existing healthcare , life sciences , and industrial customers , and notable market share gains within semi cap for fiscal 2025 , our team generated 400 141 manufacturing wins , representing $941 million in annualized revenue .
Please advance to slide six.
At plexus, we're committed to boldly driving positive change and promoting a sustainable future foreign through our people our solutions and our operations all of which is built on a foundation of trust and transparency.
The following our recent highlights of how plexus lives our value of innovating responsibly.
Speaker #3: In addition , efforts to diversify our engineering solutions engagements successfully drove increased wins for fiscal 2025 , including a record result in aerospace and defense .
In September GE, or Nova presented plexus, its supplier innovation award at the gas power supplier conference in Shanghai, China.
This award recognized <unk> strategic engagement and collaboration and supporting a successful program transition to our facility in Xiamen, China, well ahead of <unk> original timeline.
Speaker #3: Finally , our sustaining Services team achieved record wins for the fiscal year , positioning the offering for stronger future financial performance . In addition , while producing the strong Winds performance , we expanded our funnel of qualified opportunities versus the prior quarter and year over year .
Next as we reflect on the accomplishments of fiscal 2025, and our guiding principle that people are the heart of who we are and what we do I'm thrilled to share that our global team members completed over 32000 volunteer hours during the fiscal year.
Speaker #3: Please advance the slide six at Plexus . We are committed to boldly driving positive change and promoting a sustainable future for and through our people .
Speaker #3: Our solutions , and our operations . All of which is built on a foundation of trust and transparency . The following are recent highlights of how Plexus lives our value of innovating responsibly .
This incredible achievement as a 47% increase compared to fiscal 2024 and serves as a powerful testament to how our team members live our vision of building a better world.
Additionally, in fiscal 2025, we granted $1 $4 million to global nonprofits through our <unk> community Foundation deepening our connections to causes in organizations and the communities, where we live and work.
Speaker #3: In September , GE Ivanova presented Plexus . Its supplier Innovation award , at the Gas power Supplier Conference in Shanghai , China . This award recognized Plexus strategic engagement in collaboration in supporting a successful program transition to our facility in China well ahead of GE Ivanova's original timeline .
Further through a focused effort across our operations, we reduced our waste to landfill by over 30% globally in fiscal 2025 far exceeding our goal.
Speaker #3: Next , as we reflect on the accomplishments of fiscal 2025 and our guiding principle that people are the heart of who we are and what we do .
This achievement is underscored by a remarkable eight sites, reaching zero waste to landfill status, which accounts for over 40% of our manufacturing sites.
Speaker #3: I'm thrilled to share that our global team members completed over 32,000 volunteer hours during the fiscal year . This incredible achievement is a 47% increase compared to fiscal 2024 , and serves as a powerful testament to how our team members live .
Finally, we reduced absolute scope, one and two emissions by over 10% across our global manufacturing sites versus our fiscal 2023 baseline.
This reduction represents the second consecutive year of exceeding our emissions reduction goal.
Speaker #3: Our vision of building a better world . Additionally , in fiscal 2025 , we granted $1.4 million to global nonprofits through our Plexus community Foundation , deepening our connections to causes and organizations in the communities where we live and work .
I'm incredibly proud of and grateful for the contributions of our global team members as they deliver a consequential environmental and social impact and supportive of our vision of building a better world.
Please advance to slide seven.
Speaker #3: Further , through a focused effort across our operations , we reduced our waste to landfill by over 30% globally in fiscal 2025 , far exceeding our goal this achievement is underscored by a remarkable eight sites reaching zero waste to landfill status , which accounts for over 40% of our manufacturing sites .
For our fiscal first quarter, we are guiding revenue of 1.05 to $1.0 billion to $9 billion.
non-GAAP operating margin of five 6% to 6.0% and.
And non-GAAP EPS of $1 66 to $1 81.
With modest end market growth across the majority of our sectors, we expect to deliver revenue growth through ongoing new program ramps inclusive of market share gains.
Speaker #3: Finally , we reduced absolute scope one and two emissions by over 10% across our global manufacturing sites versus our fiscal 2023 baseline . This reduction represents the second consecutive year of exceeding our emissions reduction goal .
In addition, during the fiscal first quarter, we will continue to invest in talent technology facilities and advanced capabilities to expand our industry, leading solutions drive greater long term operational efficiency and prepare for accelerated fiscal 2026 revenue growth.
Speaker #3: I'm incredibly proud of and grateful for the contributions of our global team members as they deliver a consequential environmental and social impact in support of our vision of building a better world .
For fiscal 2026, we anticipate another year of strong operational and financial performance.
Speaker #3: Please advance the slide seven for our fiscal first quarter . We are guiding revenue of 1.05 to $1.09 billion . non-GAAP operating margin of 5.6 to 6.0% .
Currently we expect to deliver revenue growth in excess of our end markets realizing year over year growth in each of our market sectors, while accelerating momentum toward our 9% to 12% revenue growth goal.
Speaker #3: And non-GAAP EPs of $1 . $0.66 to $1.81 , with modest end market growth across the majority of our sectors , we expect to deliver revenue growth through ongoing new program ramps , inclusive of market share gains .
We also anticipate delivering another strong year of operating margin and free cash flow performance, even as we continue to make significant investments to increase our long term competitiveness.
In closing thank you to our global team for making fiscal 2025 outstanding through your support of our customers communities and each other.
Speaker #3: In addition , during the fiscal first quarter , we will continue to invest in talent , technology , facilities and advanced capabilities to expand our industry leading solutions , drive greater long term operational efficiency and prepare for accelerated fiscal 2026 revenue growth for fiscal 2026 , we anticipate another year of strong operational and financial performance .
We're excited to leverage this momentum during fiscal 2026 into generating growth in excess of our end markets.
Delivering strong financial performance and creating long term shareholder value.
I will now turn the call over to Oliver for additional analysis of the performance of our market sectors Oliver.
Speaker #3: Currently , we expect to deliver revenue growth in excess of our end markets , realizing year over year growth in each of our market sectors .
Thank you Todd.
Good morning.
I will begin with a review of the fiscal fourth quarter performance of each of our market sectors.
Speaker #3: While accelerating momentum toward our 9 to 12% revenue growth goal . We also anticipate delivering another strong year of operating margin and free cash flow performance , even as we continue to make significant investments to increase our long term competitiveness .
Our expectations for each sector for the fiscal first quarter and directional sector commentary for fiscal 2026.
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 manufacturing opportunities.
Speaker #3: In closing , thank you to our global team for making fiscal 2025 outstanding through your support of our customers , communities and each other .
Starting with our aerospace and defense sector on slide eight revenue decreased 6% sequentially in the fiscal fourth quarter below our expectations of flat revenue.
Speaker #3: We're excited to leverage this momentum during fiscal 2026 into generating growth in excess of our end markets , delivering strong financial performance , and creating long term shareholder value .
Minor delays in the timing of new program ramps contributed to the performance.
Fiscal 2025 saw essentially flat revenue for the aerospace and defense sector as variance new product launch delays and inventory adjustments in the commercial aerospace supply chain more than offset double digit growth in the defense and space sub sectors.
Speaker #3: I'll now turn the call over to Oliver for additional analysis of the performance of our market sectors . Oliver . Thank you . Todd .
Speaker #4: Good morning . I will begin with a review of the fiscal fourth quarter performance of each of our market sectors . Our expectations for each sector , for the fiscal first quarter and directional sector commentary for fiscal 2026 .
For the fiscal first quarter, we expect revenue for the aerospace and defense sector to be up mid single digits from strength and new program ramps within the commercial aerospace defense and unmanned aircraft Subsectors.
Speaker #4: 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 manufacturing opportunities .
Our wins for the fiscal fourth quarter for the aerospace and defense sector were $54 million.
Speaker #4: Starting with our aerospace and defense sector on slide eight , revenue decreased 6% sequentially in the fiscal fourth quarter , below our expectation of flat revenue .
This is the strongest wins performance for this sector since the fiscal first quarter of 2021.
Our Boise, Idaho site, one a follow on award from an existing customer and our unmanned aircrafts sub sector based on the strength of the partnership that we've built with this customer.
Speaker #4: Minor delays in the timing of new program ramps contributed to the performance. Fiscal 2025 saw essentially flat revenue for the aerospace and defense sector, as various new product launch delays and inventory adjustments in the commercial aerospace supply chain more than offset double-digit growth in the defense and space subsectors.
We also captured share gain through two new programs in the commercial aerospace sub sector that were awarded to our team in Penang Malaysia.
Our robust growth outlook for fiscal 2026 and supported by <unk>.
Speaker #4: For the fiscal first quarter , we expect revenue for the aerospace and defense sector to be up mid-single digits from strength and new program ramps within the commercial aerospace , defense , and unmanned aircraft subsectors .
Strong defense sector growth.
New program ramps and unmanned aircraft sub sector.
And our return to growth in commercial aerospace associated with new program ramps and the expectation of modest market growth.
Speaker #4: Our wins for the fiscal fourth quarter for the aerospace and defense sector were $54 million. This is the strongest wins performance for the sector since the fiscal first quarter of 2021.
Please advance to slide nine.
Revenue in our health care life Sciences market sector was up 1% sequentially for the fiscal fourth quarter aligned to our expectation of a low single digit increase.
Speaker #4: Our Boise , Idaho , site won a follow on award from an existing customer , and our unmanned aircraft subsector based on the strength of the partnership that we built with this customer .
Fiscal 2025 for our health care life Sciences sector saw a 5% revenue increase based on strength from the imaging and monitoring sub sectors.
Speaker #4: We also captured share gains through two new programs and the commercial aerospace subsector that were awarded to our team in Penang , Malaysia .
New program ramp revenue and customer customer demand increases with previously ramp products contributed to the result.
Speaker #4: Our robust growth outlook for fiscal 2026 is supported by strong defense sector growth , new program ramps , and unmanned aircraft subsector , and a return to growth and commercial aerospace associated with new program ramps and the expectation of modest market growth .
For the fiscal first quarter, we expect the health care life Sciences market sector to be up high single to low double digits, driven by multiple ongoing program ramps and strengthening customer and the customer demand and the monitoring and imaging sub sectors.
Fiscal fourth quarter Health care life Sciences sector wins of $55 million included a follow on award for the remediation and repair of a therapeutics product.
Speaker #4: Please advance the slide nine . Revenue in our healthcare life sciences market sector was up 1% sequentially for the fiscal fourth quarter , aligned to our expectation of a low single digit increase .
Our wawa in Mexico campus.
Our sustaining services teams exceptional quality and delivery performance drove the win.
Speaker #4: Fiscal 2025 for our healthcare , life sciences sector saw a 5% revenue increase based on strength from the imaging and monitoring subsectors . New program ramp revenue and customer customer demand increases with previously ramped products contributed to the result .
Our variety of Romania facility is welcoming a new customer duplexes as we were awarded the assembly for an AI powered digital cell analysis platform.
Our proactive flexible and collaborative engagement through the quoting process as.
As well as the strong cultural alignment between the two organizations contributed to the win.
Speaker #4: For the fiscal first quarter , we expect the healthcare life sciences market sector to be up high , single to low , double digits , driven by multiple ongoing program ramps and strengthening customer customer demand .
As we look to the next fiscal year revenue contributions from ongoing and new program ramps as well as improved end market demand support our robust growth outlook.
Speaker #4: And the monitoring and imaging subsectors . Fiscal fourth quarter healthcare , life sciences sector wins of $55 million included a follow on award for the remediation and repair of a therapeutics product for our Guadalajara , Mexico campus .
Advancing to the industrial sector on slide 10 revenue was up 11% sequentially in the fiscal fourth quarter.
The result exceeded our guidance for up low single digits.
Increased end market demand for specific customers in the semi cap broadband communications and energy sub sectors more than offset various other demand changes.
Speaker #4: Our sustaining services teams exceptional quality and delivery performance drove the win . Our Irradia Romania facility is welcoming a new customer to Plexus .
Speaker #4: As we were awarded the assembly for an AI powered digital cell analysis platform . Our proactive , flexible and collaborative engagement through the coating process , as well as a strong cultural alignment between the two organizations , contributed to the win .
Revenue was flat for fiscal 2025, low double digit growth in our semi cap sub sector offset reductions in industrial equipment and vehicle electrification.
Our fiscal first quarter outlook for the industrial sector of a high single digit decrease is driven by seasonality within our energy sub sector and generally muted near term demand.
Speaker #4: As we look to the next fiscal year , revenue contributions from ongoing and new program ramps , as well as improved end market demand support , our robust growth outlook .
The industrial market sector wins for the fiscal fourth quarter were strong at $165 million.
Speaker #4: Advancing to the industrial sector on slide ten , revenue was up 11% sequentially in the fiscal fourth quarter . The result exceeded our guidance for up low single digits , increased end market demand for specific customers in the semi cap , broadband communications and energy subsectors more than offset various other demand changes .
This marks a nine quarter high for the sector.
Our semi cap wins were robust, including an award for two substantial programs from an existing customer for our Bangkok, Thailand facility.
Continued operational excellence contributed to the awards, which included share gains on our growth platform.
Our Appleton, Wisconsin facility was awarded the Assembly of a high voltage complex products supporting the global rail industry.
Speaker #4: Revenue was flat for fiscal 2025 , low double digit growth in the semi cap subsector offset reductions in industrial equipment and vehicle electrification .
The flexibility of our engagement and supply chain solutions contributed to the award from this new customer.
Speaker #4: Our fiscal first quarter outlook for the industrial sector of a high single digit decrease is driven by seasonality within our energy subsector and generally muted near-term demand .
Our modest growth outlook for the industrial sector for fiscal 2026 and supported by strength in both the semi cap and energy sub sectors offsetting otherwise muted demand.
Please advance to slide 11 for a review of our funnel of qualified manufacturing opportunities.
Speaker #4: The industrial market sector wins for the fiscal fourth quarter were strong at $165 million. This marks a nine-quarter high for the sector.
The funnel of qualified opportunities is up 2% sequentially positive performance given the strength of quarterly wins.
Speaker #4: Our semi cap wins were robust , including an award for two substantial programs from an existing customer for our Bangkok , Thailand facility .
And robust at $3 7 billion.
<unk> of our record high value of aerospace and defense sector opportunities.
Speaker #4: Continued operational excellence contributed to the awards , which included share gains on a growth platform . Our Appleton , Wisconsin facility was awarded the assembly of a high voltage Complex product supporting the global rail industry .
The sector's momentum is further supported by our record high Aerospace and defense funnel for engineering solutions, reflecting the continued progress of our diversification efforts.
In summary, our continued focus on delivering excellence and creating customer success is being recognized by our customers.
Speaker #4: The flexibility of our engagement and supply chain solutions contributed to the award . From this new customer . Our modest growth outlook for the industrial sector for fiscal 2026 is supported by strength in both the semi cap and energy subsectors , offsetting otherwise muted demand .
Ongoing and new program ramps market share gains in specific sub sector end market growth supports our view that we will deliver revenue growth in excess of our end markets and accelerate growth for fiscal 2026 toward our 9% to 12% goal.
Speaker #4: We've advanced the slide 11 for a review of our funnel of qualified manufacturing opportunities . The funnel of qualified opportunities is up 2% sequentially .
I'll now turn the call over to Pat.
Thank you Oliver and good morning, everyone. Our fiscal fourth quarter results are summarized on slide 12.
Speaker #4: Positive performance given the strength of quarterly wins and robust at $3.7 billion , inclusive of a record high value of aerospace and defense sector opportunities .
Gross margin of nine 9% was consistent with our guidance as anticipated gross margin was slightly lower than the fiscal third quarter due to mix and additional incentive compensation expense.
Speaker #4: The sector's momentum is further supported by a record-high aerospace and defense funnel for engineering solutions, reflecting the continued progress of our diversification efforts.
At the same time, we experienced improved fixed cost leverage from higher revenue and continued productivity gains realized across our manufacturing sites.
Speaker #4: In summary, our continued focus on delivering excellence and creating customer success is being recognized by our customers. Ongoing a new program ramps market share gains and specific subsector end market growth.
Selling and administrative expense of $51 7 million was slightly above our guidance due to the additional incentive compensation expense, mainly driven by our strong performance.
Speaker #4: Supports our view that we will deliver revenue growth in excess of our end markets and accelerate growth for fiscal 2026 toward our 9% to 12% goal.
As a percentage of revenue SG&A was consistent with the fiscal third quarter.
non-GAAP operating margin of five 8% was within our guidance range.
Speaker #4: I'll now turn the call over to Pat. Pat.
Speaker #5: Thank you , Oliver , and good morning , everyone . Our fiscal fourth quarter results are summarized on slide 12 . Gross margin of 9.9% was consistent with our guidance .
Non operating expense of $3 $4 million was favorable to expectations due to lower than anticipated interest expense and foreign exchange losses.
Speaker #5: As anticipated , gross margin was slightly lower than the fiscal third quarter due to mix and additional incentive compensation expense . At the same time , we experienced improved fixed cost leverage from higher revenue and continued productivity gains realized across our manufacturing sites .
non-GAAP diluted EPS of $2 14.
Exceeded the top end of our guidance due to the items mentioned and a favorable tax rate.
Turning to our cash flow and balance sheet on slide 13.
As shown across these financial metrics, we continue to improve our performance and our liquidity.
Speaker #5: Selling and administrative expense of $51.7 million was slightly above our guidance due to additional incentive compensation expense , mainly driven by our strong performance as a percentage of revenue was consistent with fiscal third quarter non-GAAP operating margin of 5.8% was within our guidance range .
We were extremely pleased with our free cash flow performance as we wrapped up the fiscal year.
For the fiscal fourth quarter, we delivered $132 million in cash from operations and spent $35 million on capital expenditures generating free cash flow of approximately $97 million.
Over the past two years, we have generated close to $5 billion in free cash flow an outstanding result.
Speaker #5: Non-operating expense of $3.4 million was favorable to expectations due to lower than anticipated interest expense and foreign exchange losses . non-GAAP diluted EPs of $2.14 exceeded the top end of our guidance due to the items mentioned and a favorable tax rate .
For fiscal 2025, we reduced our debt by over $100 million, while continuing to return cash to shareholders through our expanded share repurchase program.
For the fiscal fourth quarter, we acquired approximately 161000 shares of our stock for $21 $5 million.
Speaker #5: 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 .
At the end of the fiscal year, we had approximately $85 million remaining on the current repurchase authorization.
Speaker #5: We were extremely pleased with our free cash flow performance as we wrapped up the fiscal year for the fiscal fourth quarter , we delivered $132 million in cash from operations and spent $35 million on capital expenditures generating free cash flow of approximately $97 million over the past two years , we have generated close to a half billion dollars in free cash flow and outstanding result for fiscal 2025 , we reduced our debt by over $100 million while continuing to return cash to shareholders through our expanded share repurchase program .
Okay.
Similar to last quarter, we ended the fiscal year and a net cash position we.
We had $40 million outstanding under our revolving credit facility with $460 million available to borrow.
For fiscal 2025, we delivered a return on invested capital of 14, 6%, which was 570 basis points above our weighted average cost of capital.
Our invested capital base is significantly lower than the prior year due to our efforts to drive sustained improvement in working capital.
This combined with improved operating performance drove the expansion in ROIC over the prior year and represents the highest ROIC and four years.
Speaker #5: For the fiscal fourth quarter , we acquired approximately 161,000 shares of our stock for $21.5 million . At the end of the fiscal year , we had approximately $85 million remaining on the current repurchase authorization .
Cash cycle at the end of the fiscal year was 63 days favorable to expectations and six days lower than the fiscal third quarter and one day lower than last year.
Speaker #5: Similar to last quarter , we ended the fiscal year in a net cash position . We had $40 million outstanding under our revolving credit facility with $460 million available to borrow for fiscal 2025 .
This level of cash cycle was the best result delivered in the past five years.
Please turn to slide 14 for details on this exceptional performance.
Along with the seventh consecutive quarterly reduction in gross inventory dollars, we experienced a 10 day sequential improvement in inventory days.
Speaker #5: We delivered a return on invested capital of 14.6% , which was 570 basis points above our weighted average cost of capital . Our invested capital base is significantly lower than the prior year due to our efforts to drive sustained improvement in working capital .
Increased revenue and continued progress on working capital initiatives contributed to the sizeable reduction in inventory days.
Our teams have delivered a year over year reduction in gross inventory of $82 million and a reduction of over $330 million when.
Speaker #5: This, combined with improved operating performance, drove the expansion in ROIC over the prior year and represents the highest ROIC in four years.
Third to the fiscal 2023 year end balance.
Speaker #5: Cash cycle . At the end of the fiscal year was 63 days favorable to expectations and six days lower than the fiscal third quarter .
For days in advance payments, we experienced a four day reduction with a net of $17 million being returned to customers during the quarter.
Speaker #5: And one day lower than last year . This level of cash cycle was the best result delivered in the past five years . Please turn to slide 14 for details on this exceptional performance , along with the seventh consecutive quarterly reduction in gross inventory dollars .
As Todd has already provided the revenue and EPS guidance for the fiscal first quarter I'll review some additional details which are summarized on slide 15.
Fiscal first quarter gross margin is expected to be in the range of nine 8% to 10, 1% at.
Speaker #5: We experienced a ten day sequential improvement in inventory days , increased revenue , and continued progress on working capital initiatives contributed to the sizable reduction in inventory days .
At the midpoint gross margin would be slightly above last quarter. Despite additional investments in talent technology facilities and advanced capabilities to support future revenue growth and greater operational efficiency.
Speaker #5: Our team has delivered a year-over-year reduction in gross inventory of $82 million and a reduction of over $330 million when compared to the fiscal 2023 year-end balance.
We expect selling and administrative expense in the range of 51, 5% to $52 $5 million, which is fairly consistent with the prior quarter.
Note that this estimate is inclusive of approximately $6 6 million of stock based compensation expense.
Speaker #5: For days in advance payments , we experienced a four day reduction with a net of $17 million being returned to customers during the quarter , as Todd has already provided the revenue and EPs guidance for the fiscal first quarter .
Fiscal first quarter non-GAAP operating margin is expected to be in the range of five 6% to 6% exclusive of stock based compensation expense.
Speaker #5: I'll review some additional details , which are summarized on slide 15 . Fiscal first quarter gross margin is expected to be in the range of 9.8 to 10.1% at the midpoint , gross margin would be slightly above last quarter , despite additional investments in talent , technology , facilities and advanced capabilities to support future revenue growth and greater operational efficiency , we expect selling and administrative expense in the range of 51.5 to $52.5 million , which is fairly consistent with the prior quarter .
Looking towards the fiscal second quarter, we expect to maintain margins at a similar level with an opportunity to meet or exceed our 6% margin target as the year progresses.
Nonoperating expense is anticipated to be approximately $4 6 million, which is sequentially higher primarily due to an increase in interest expense.
Prior quarters had benefited from the capitalization of interest expense associated with site additions.
Consistent with our expectations, we are anticipating an increase to our effective tax rate with the impact of global minimum tax taking effect in certain jurisdictions.
Speaker #5: Note that this estimate is inclusive of approximately $6.6 million of stock based compensation expense . Fiscal first quarter non-GAAP operating margin is expected to be in the range of 5.6 to 6% , exclusive of stock based compensation expense .
As such we are estimating an effective tax rate between 16 and 18% for both the fiscal first quarter and for fiscal 2026.
Speaker #5: Looking towards the fiscal second quarter , we expect to maintain margins at a similar level with an opportunity to meet or exceed our 6% margin target as a year progresses .
Diluted shares outstanding are expected to be approximately $27 3 million.
Our expectation for the balance sheet as at working capital investments will increase compared to the fiscal fourth quarter.
Based on our revenue forecast, we expect this level of working capital will result in cash cycle days in the range of 66% to 70 days.
We anticipate improvements in our cash cycle as we progressed through the year and would expect to end the fiscal year at a similar level to fiscal 2025, despite greater investments in working capital to support revenue growth.
With these higher investments in working capital, we expect a usage of cash for the fiscal first quarter a trend we have experienced the last several court last several years.
While our usage this quarter, we expect to follow up fiscal 2025 with robust free cash flow of approximately $100 million for fiscal 2026.
We plan to continue to deploy any excess cash to create additional shareholder value.
One final comment on fiscal 2026, we expect capital spending to be in the range of $90 million to $110 million, which would be consistent with our fiscal 2025 spending.
With that John Let's now open the call for questions.
Yes.
Thank you.
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've dialed in to today's call. Please press star nine to raise your hand and star six to on mute. Please standby, while we compile the Q&A roster.
Okay.
Your first question comes from David Williams with the Benchmark Company. Your line is open. Please go ahead.
Hey, good morning, everyone. Congrats on the solid results and thank you for letting me ask a question here.
Yes, Thanks, David I appreciate it.
Yes, I guess maybe first.
This quarter it seemed like there was a lot of discussion around the investments.
Youre, making across the business and it feels like.
You really pointed to that two four.
To support their future growth it sounds to me like Youre getting at least a little more confident in that kind of growth trajectory in and I guess first question is that fair to say and then secondly, what gives you that confidence I guess as you look out into this year in terms of the growth opportunities.
Yes, so David yes, it does imply that we're getting more confident in the future growth potential. So we think we are.
On a nice growth trajectory in creating substantial momentum as we go into fiscal 2026.
Well with regards to investments, we do and we've talked about our new Penang facility coming online, which is a bit of a near term impact, but amazingly in one quarter that that site will breakeven in two quarters and then it will be close to corporate profitability. So there'll be a very near term drag.
For us hence pass.
Projection that Q2 will recover nicely in <unk>.
Be better than a typical quarter, which is usually down for us but.
Back to the confidence in the growth trajectory a lot of it comes back to the new program ramps. So we have a number of substantial new program ramps and play Oliver highlighted a few substantial share takeaways in the semi cap market.
This quarter, which are certainly play into this there's others that are well underway. In addition, I would say from an end market standpoint on aggregate I would say, we're seeing a modest improvement in end markets. As we look forward, which is really nice to see although we still havent factored factored in any substantial aerospace.
Rebounds, so that could be additional upside for us as we look to fiscal 'twenty six.
Great Great color there. Thanks, so much for that and then maybe secondly here just kind of curious.
Know that.
On the AI side there hasnt.
Been a lot of discussion at least in terms of your participation there and the potential opportunities it sounds like.
Give me if I'm wrong here, but it sounds like you said, Romania, you picked up a new AI platform. There just kind of curious if you could give us a little more color around that and maybe what your what the opportunities are in the AI space overall thanks.
Yes, that's what I was talking about there was a new product and the product itself. It has AI technology in it to help with that cell analysis.
What I would add David is we're seeing a lot of opportunity within power generation and thermal management within AI, we're still as we've talked about in the past. We believe the compute market is not the right space for us to be and we believe thats going to commoditize quite heavily.
But we're focused on power and <unk>.
Thermal in addition, we participate via the semi cap business and also.
Oliver pointed out an example within health care, but a number of the technologies that we're engaged with our leveraging AI and I would say healthcare as a real leader in leveraging AI. So we have a number of programs in play or the product itself is leveraging AI.
Great. Thanks, so much best of luck on the quarter gentlemen, thanks.
Thank you.
Next question comes from Jim Ricchiuti with Needham <unk> Company. Your line is open. Please go ahead.
Okay.
You may need to Unmeet yourself via zoom Jim.
Okay.
Sorry about that.
First question is.
I was wondering are you anticipating.
Any fallout.
Any of the major market verticals from the government shutdown, particularly.
The defense area or maybe some of the other markets.
Any sense of that yet.
<unk> continues.
Yes, well so far we're not seeing any indications of slowdown as a result of the government shutdown I mean, we're certainly keeping our eyes open on that I don't know Oliver if you have any additional color you want to add on that front.
Yes ill just corroborate what Todd said, so no indication of any change from our customers.
Yes.
Broadly just in terms of continued government regulatory changes, we keep watching from a supply chain perspective, partnering with our customers and ensuring that we have good diversification of supply. So we can ensure we have components to build the products.
Got it.
The second question I have here is I was hoping to drill down into your comments.
Good morning.
Ranked in semi cap and the growth in energy I'm wondering has your view of semi cap.
For fiscal 2006 changed at all versus a few months ago, just given the modest expectations for <unk> in 2026, and then on the energy side.
You highlighted I think powertrain is how big a driver is that in terms of what we're hearing.
And the data center build out.
Yes, I'll start with the.
With the semi cap and Oliver can jump into the power generation.
With regards to semi cap or at this point we're viewing.
<unk> 25, and 26 to be pretty similar I mean, the forecasts, we're seeing our wf fee growth in the low single digits.
I think overall that kind of cooperates where the.
The sweet spot of our customer forecasts are but we do expect some pretty significant share gain and if you look at fiscal 'twenty five we ended as we had been.
Targeting during the our commentary over the course of the past year in the low double digits. So in the low teens within semi cap growth and we'd expect to do something fairly similar as we look to fiscal 2026 on the back of share gains.
And then from an energy perspective, I'll jump in there a couple of things that we're seeing one is more specifically what we're seeing is customer revenue growth inside infrastructure and power generation as well as electrification.
We talked about the fact program wins are helping to accelerate that revenue growth throughout 2006, and we're also seeing increased opportunity in EMEA and energy.
Got it thank you.
Your next question from Melissa Fairbanks with Raymond James Your line is open. Please go ahead.
Hi, guys.
Give me not sure if you can hear me.
I had a question okay, great great. Good morning, good morning, good to hear from you guys.
I had a question probably for Oliver.
Health care life Sciences business.
Finally, seeing some strength in imaging and some of the monitoring stuff. This was an area over the past year or couple of years, where there was a lot of inventory overhang.
Limiting your growth opportunities there just kind of wondering how much of the strength in this area is from maybe we finally mitigated that inventory overhang or if it's new program ramps that are driving that revenue.
Okay.
Yes, Melissa good morning, I'll say, it's a bit of both so we are certainly as we are.
Gave directional guidance here for fiscal 'twenty six of robust growth that does include strength of new program ramps, but in general I think the inventory overhang has worked itself through the system. So we also noted that some modest market growth as expected and that was intended.
The fact that inventories Miller.
Okay great.
Another one for you Oliver.
So in industrial it's pretty clear that semi cap is pretty strong you did also highlight broadband communications, which had been a driver over this past fiscal year, I know that business tends to be kind of lumpy.
Driven around.
Geographic.
Upgrade cycles, just wondering what youre seeing going forward in that business.
Yeah, I think we previously used the term non linear I think lumpy is a good term.
Yes.
The industry are working through.
I'd say testing solutions and figure out what theyre going to where theyre going to go with that.
Did you did highlight that as part of our Q4.
Was from some strength in that specific sub sector as we got some orders for legacy product from our customers.
Yeah, and then just looking about 26, I mean difficult to call exactly when is that going to become more linear I generally lump that into the broader or the recognition that broader industrial was muted.
Okay, great. Thank you haven't covered that space for a while I would say, it's probably never going to be linear.
Thank you very much guys that's it.
For me.
Yeah.
As a reminder to ask a question. Please raise your hand, if you've dialed in to today's call. Please press star nine to raise your hand and star six to on mute.
Your next question comes from the line of Ruben Roy with Stifel. Your line is open. Please go ahead.
Hey, guys. Thanks for letting me ask a question Todd I wanted to ask a maybe.
Thanks for your question on sort of customer conversations there was a lot of kind of.
Volatility earlier, this year with tariffs and otherwise inventories moving around some customers maybe.
Not ramping as quickly as we thought they might and I'm wondering as you kind of get towards the end of the year here calendar year.
The customer conversations are going in terms of.
I know tariffs as maybe not discussed as much but.
How are you feeling about sort of visibility that you're getting from your customers. As you think about I guess calendar 'twenty fiscal 'twenty. Six however, you want to sort of talk about that topic. Thank you.
Yes, well I think in general visibility seems okay right now.
Markets have stabilized and are trending up a bit.
The programs that we have underway that are ramping are generally progressing well. So we feel good about that.
And a lot of focus on making sure that they.
They continue in that direction, when we think about I mean, you mentioned tariffs.
Tariffs as the situation is fairly similar internally than what as to what we've talked about not really any movement of existing products.
Just given.
The uncertainty of the end state as well as the cost that's associated with moving and moving the supply chain, but a lot of thought about.
Where to source next generation programs.
Next programs and a lot of efforts from our trade compliance team just around.
Mitigating challenges that come up on a regular basis and our U S MCA being one but.
Certainly others around various components and what have you that needs to be worked through.
That's helpful. Thanks, Todd and then I've got a follow up on the energy.
Discussion.
There's been a lot of discussion even last week and a trade event conference on.
Sort of.
Going forward.
Power generation and to data centers and around data centers et cetera is that something that you would characterize as I think you just.
Kind of mentioned, how youre going in sourcing new programs etcetera is that something that you would put more focus or emphasis to Todd just given how much activity. There is around power and data center and obviously NII.
Yes, we are definitely putting more focus around their ruben and I mean, we talked about.
An award we got from a pretty substantial player within that space.
Got some other customers in that space as well so we're positioned well, we believe to capitalize on that demand.
Perfect and then last question for Pat.
Pat you mentioned that as the year progresses fiscal 2006, you potentially have the ability to meet or exceed the operating margin target and I'm wondering if you could maybe just walk through some puts and takes is that.
Based on getting towards that 9% to 12% revenue goal or.
Are there other factors that might impact the operating margin. Thank you.
Yes, sure definitely revenue growth will benefit us from a fixed cost leverage perspective, although I would point out we do expect higher incentive compensation. This year given that a key component of that program is based on revenue growth. So we do have to overcome that headwind, which we expect to.
Do.
But Todd had mentioned how quickly we're ramping the Malaysia facility. The other one I'm really pleased about is Thailand, Oliver had mentioned new programs going into Thailand.
And year over year, we expect a nice margin improvement.
Within that facility that will benefit us overall, and then I talked about some of the productivity and automation efforts that we're investing in we've seen some of that take hold in fiscal 'twenty five with a 40 basis point improvement in operating margin from 24% to 25, we expect that to continue in 2006.
So yes.
As Todd pointed out.
We're looking at pretty similar margins for Q2, and then that ability to improve.
Improve as the year goes on with automation continuous improvement efforts.
Great. Thanks, guys.
Thank you.
Your next question comes from Anja Soderstrom with Sidoti.
Your line is open. Please go ahead.
Okay.
Alright, Thank you for taking my questions.
All right a lot of ground here already.
Yes.
With that quick ramp of Malaysia.
Reached full capacity pretty quickly then how should we think about the <unk> and.
And Capex.
No we will reach full capacity in fact, there's enormous amount of expansion capacity within that facility, but it's just the efficiency with which our sites run it in Malaysia. So.
There'll be at a fraction of their full capacity, but still be at corporate margins just because.
The way that the facilities are run there.
Excuse me, it's Sean one of the things, we're doing with our automation and efficiency efforts.
Really looking to create more revenue capacity within our existing sites and so whether it's warehouse automation whether it's the.
Machines within our facilities utilizing them more efficiently.
Driving down Capex long term by being more efficient within the sites, we have to drive more revenue out of each as well as more profitability.
Just to add just a hair more to that as well too I think given our current footprint and the efforts that are underway and we feel pretty comfortable that were set for a bit barring any major changes in the geopolitical landscape that would make one one location significantly more desirable.
Well then it is today, but right now we have good capacity in each of our locations.
Okay. Thank you so you mentioned that.
Targets for this year in revenue.
<unk> does not come for a return of the commercial aerospace what are you seeing there.
Yes.
You want to jump in Oliver why don't you take it yeah. So we are when as we noted earlier, we're expecting some commercial aerospace tailwind here as we look at the broader fiscal year.
<unk> F 'twenty, six I should say, but thats not contemplating any boeing or Airbus.
Demand change that it speaks of the recent news just last week regulatory.
Our regulatory bodies, allowing them to increase their demand.
Our production rates I should say that has not trickled through to a demand signal change for us yet.
Okay, and you do not have any sort of indication on when you expect that to happen.
We expect to happen this year.
It could happen this year I mean is it needs to happen at some point as the as Boeing and Airbus run through the inventory that they have.
At their facilities and through the gliders in other situations. So it just remains to be seen there just isn't visibility to us as to when that's going to happen.
Okay.
The announcement was made last Friday.
If we see a change in the demand signal, we can pick that up typically within 90 days.
So it flows through to the customers we support.
That would begin to potentially help us out.
Sometime in calendar 2026.
Okay, great. Thank you and I will talk with you.
<unk>.
Alright. Thanks.
Your next question comes from Steven Fox with Fox Advisors. Your line is open. Please go ahead.
Okay.
You may need a mute with star six.
Hi, good morning, sorry.
Sorry about that a couple of clarifications, if I could first.
On the.
A comment that you could accelerate towards like 9% to 12% revenue growth.
Is that an indication that maybe exiting the year second half of the year you can get there and like what are the biggest sort of wildcards to sort of getting to that pace of growth.
Overtime.
Yeah, I don't think it's necessarily we're not we're not thinking of a hockey stick kind of revenue ramp through the year, it's more of a call. It a linear ramp as the way that we're looking at it right now.
I think I think the things to getting in the 9% to 12 is.
<unk> continued steadiness to modest improvement in end market.
And then just continued.
Focus on.
New program ramps that are underway.
Okay. That's helpful. And then secondly, just another clarification in terms of the investments because you mentioned it several times.
Should we consider.
The level of investments.
To be mainly focused around Penang or.
It's not just to NAND can you sort of call out what the next biggest.
Against items are and how this okay the investments relate to like.
The fiscal year, just complete I'm trying to understand like if theres any unusual drag on margins for.
The investment level.
Yes.
Thanks, Steven This is Oliver I'll start by saying Pat noted that our Capex guide for the year is $90 million to $110 million. So that encompasses all of that and that's fairly consistent to prior year.
And so what we're looking at is less about bricks and mortar and more about specific investments to help either improve operational efficiency or enable further revenue growth. So some examples would be.
One we're investing in it infrastructure to support CMC compliance, which enables further defense opportunity.
We continue to invest in a number of different tools and technology. We previously talked about automating our warehouse and based on our initial pilot that we did in fiscal 'twenty. Four we saw a 300% increase in pick rate a 60% reduction in space and similar reduction in labor and so we rolled that out with two additional.
All sites in fiscal 'twenty five we're looking at doing another.
Four ish sites in fiscal 'twenty, six and by the end of fiscal 'twenty six will probably have captured about half of our opportunity across our sites there.
Based on where that would be applicable other tools that we have Sean mentioned earlier, there's tools that we're using to essentially optimize machine performance. So if you think about our surface Mount technology line, we've decommissioned and turned off a number of lines. So that creates improved operating cost for us and then with less capex as we continue to grow in <unk>.
<unk> those in the future, we're deploying automated material robots across the organization that has quite a fast ROI and we're looking at having that deployed in all of our sites by spring of 2020 states. So that's the kind of stuff that we're investing in tools advanced capabilities to drive operational efficiency and the one thing I'd add to Steve is that.
It's not <unk>.
Long term drag that we're anticipating on margins, we have a near term drag mostly driven by bridge view.
The new site that we have in Penang, Malaysia, but that will quickly be overcome and in the meantime in the background. We continue to invest in these other technologies, but we believe we will we will overcome them.
Very quickly and then.
They will start to provide additional productivity improvements as we go forward.
Great. That's all very helpful. Thank you.
Sure.
As a reminder, if you have any additional questions. Please raise your hand to join the queue.
Okay.
Okay.
Your next question comes from the line of Steve Barger with Keybanc capital markets. Your line is open. Please go ahead.
Hey, good morning, guys.
Hey, Steve.
Just a longer term question you drove about 40 basis points of annual margin expansion over the past three years to the five 9% in FY 'twenty five.
And thats on revenue that really didn't grow much since 2022, our FY 'twenty two.
Looking forward.
This is an investment year, but after this do you expect you can get back onto a margin expansion plan similar to that or how are you kind of thinking about long term ability to drive operating margin expansion given the current investments youre, making in the mix you see going forward.
Yes, Steve This is Pat as you know a few years ago, we have reevaluated, our operating margin target and said it at 6% or above and Youre right. The last several quarters, we've been able to hit that 6%.
What I'd like to see is kind of getting through fiscal 'twenty, six and our performance and our ability to hit that 6%, but I could see us sitting here a year from now reevaluating.
That margin target.
But what gives me some confidence in that is something I said earlier about this year, we do have to overcome the incentive compensation headwind once we do that.
I think we have that ability to see better fixed cost leverage with revenue growth.
And as Oliver pointed out a lot of the automation efforts that we're investing in now I think we'll we will drive productivity improvements for us in the future again, one less thing Sean mentioned was just improving capacity within our existing sites to cut down on.
<unk> footprint expansion as quickly as we would normally have had.
To put up new sites. So I think all of that combined could it could have a sitting here next year looking at what's our next target to go after.
Understood and I guess kind of a related question I know engineering and sustaining services are a small part of the mix, but what they are good for margin are the wins, there, causing you to think differently about your pricing strategy broadly.
I wouldn't say, they're causing us to think broadly different about our pricing strategy, but we certainly feel optimistic about our ability to be able to grow those businesses, which.
Engineering is already well above.
Corporate target margins and sustaining we believe has the potential to get there as it scales.
Got it thanks.
Sure.
Okay.
We have a follow up question from Jim Ricchiuti with Needham <unk> Company. Your line is open. Please go ahead.
You may need unmet on zoom Jim.
Sorry, I thought I was on mute.
Just on the program ramp timing issue for Q4 was that mainly in the defense area that you alluded to.
Yeah, sorry, I thought there was maybe some comment on your question there.
Yes, so Q4 timing as yet minor delays in defense is what is the big contributor to the quarter's results.
And that is behind you looking into Q1 Q2, and then maybe just a follow up on the NIM.
Andy wins that you talked about.
Again is that mainly coming from defense and to what extent is going to be a bigger driver for you just given all the activity we're hearing in that market. Thank you.
Yeah. So that is behind us we arent as I noted previously guiding Q1 up mid single for aerospace and defense for the sector as a whole.
I want to make sure I catch all your components of your question that you talked about unmanned aircraft yet so we do see that being a bigger factor going forward.
That market as we've been watching and has evolved we saw good fit we see a strong opportunity for us to be a value added player there and so thats what warranted the explicit focus and the commentary today around that specific sub sector also talked about the fact that we had additional follow on win there. So that's just further corroborate our ability to grow that sub sector.
As we go forward here in F 'twenty six.
Did I catch all the components of your question.
Morning, Jim.
Thank you Jim it charges.
We do expect a really strong growth year in defense in fiscal 2026.
We picked up new wins expanded engagements over the past.
A couple of quarters as well as a couple of years.
Todd.
Oliver I mentioned investments, we're doing some particularly.
Technology, and cyber security investments to make us an even more relevant player in that market as we see future growth opportunities expanding our competitive mode.
And then we are investing and looking to gain additional business as we expect to see over time additional military spending in both the U S and Europe, So really strong outlook for defense really strongly position there to capture new business win market share.
Thank you guys.
There are no further questions at this time I will now turn the call back to Todd Kelsey for closing remarks.
Alright, Thank you John I'd like to thank shareholders investors analysts and all of our plexus team members, who joined the call. This morning.
In summary, I would like to reiterate that we're pleased with our strong finish to fiscal 2025 with three quarters of sequential revenue growth strong wins across all of our services, a 40 basis point expansion to our non-GAAP operating margin.
30%, non-GAAP EPS growth and greater than a $150 million of free cash flow generation.
We believe we're well positioned to carry this momentum into fiscal 2026, and anticipate accelerating revenue growth and strong financial performance.
Thank you again and have a nice day.
Yes.
This concludes today's call. Thank you for attending you may now disconnect.