Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Plexus Corp (PLXS, Financial) delivered outstanding fiscal third-quarter financial results with revenue of $961 million within the guidance range.
- The company achieved a non-GAAP operating margin of 5.8%, exceeding the guidance range and representing a nearly 90 basis point sequential increase.
- Plexus Corp (PLXS) generated $114 million of free cash flow, the second highest quarterly performance in company history.
- The company won 35 manufacturing programs worth $279 million in annual revenue, including a record contribution within healthcare life sciences.
- Plexus Corp (PLXS) received awards for delivery performance and supplier excellence from top customers Honeywell Aerospace and Medtronic.
Negative Points
- Revenue from the industrial sector decreased by 4% sequentially, driven by new product introduction pushouts due to customer design revisions and regulatory issues.
- The aerospace and defense sector's revenue growth was below expectations due to supply constraints related to commercial aerospace program-specific components and customer design changes.
- Healthcare life sciences sector experienced a mid-teens year-over-year revenue decline, impacted by procuring components at above-market prices.
- The company anticipates higher SG&A expenses in fiscal 2025 due to increased incentive compensation tied to revenue growth and return on invested capital.
- Despite strong wins, the healthcare life sciences sector's revenue growth has been hampered by inventory corrections and component cost headwinds.
Q & A Highlights
Q: Can you talk through how your customer tone has changed over the last 90 or 180 days?
A: Todd Kelsey, CEO: The tone is incrementally positive. Aerospace and defense remain very bullish, semi cap appears to have turned the corner with incremental demand uptick, and healthcare is generally seeing more positive sentiment with good potential for revenue increases.
Q: What are the biggest drivers for the operating margin improvement, and is there still room to improve?
A: Patrick Jermain, CFO: Gross margin improvements are driven by manufacturing efficiencies, automation efforts, and increased demand for engineering and sustaining services. SG&A could be higher due to additional incentive compensation tied to revenue growth and return on invested capital.
Q: Are you seeing any significant changes in the competitive landscape?
A: Todd Kelsey, CEO: The competitive market remains rational, and we feel comfortable about our ability to win in this environment.
Q: Can you provide more color on the nuclear energy win and power generation applications?
A: Oliver Mihm, COO: We are seeing increased demand for infrastructure investments driven by AI applications, which is reflected in our funnel and recent wins. These opportunities are expected to impact our fiscal 2025 growth.
Q: Are you seeing any easing of equipment purchasing or inventory digestion in the healthcare life sciences business?
A: Todd Kelsey, CEO: We are about 80% to 90% through the inventory corrections. Growth is largely driven by new program ramps and strong wins performance within the healthcare life sciences sector.
Q: How should we think about the SG&A expense going forward?
A: Patrick Jermain, CFO: We expect stock-based compensation to normalize in fiscal 2025, with variable incentive compensation increasing due to anticipated stronger revenue growth and higher return on invested capital.
Q: What is driving the strong performance in the Americas region?
A: Oliver Mihm, COO: The Americas wins were exceptionally strong, including a new healthcare life sciences sector customer for our Chicago facility and a substantial semi cap program for our Penang, Malaysia campus.
Q: How do you see the aerospace and defense sector's funnel composition?
A: Oliver Mihm, COO: We are seeing good balance across all subsectors within the aerospace and defense sector, with robust demand for engineering solutions as a positive leading indicator.
Q: What are the expectations for gross margin in the future?
A: Patrick Jermain, CFO: A reasonable range for gross margin is 9.8% to 10%, driven by manufacturing efficiencies and increased demand for engineering and sustaining services.
Q: Are there any regional or geographical trends you are seeing, particularly in China?
A: Todd Kelsey, CEO: Our China business is holding steady, primarily targeting in-region, for-region opportunities. The team continues to execute well in this region.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
