Plexus Corp. Aktie

Hello, everyone. Thank you for joining us, and welcome to the Q2 2026 Plexus Earnings Conference Call. I will now hand the conference over to Shawn Harrison, IRO. Shawn, 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.

Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. 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 27, 2025, and 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 at Plexus' website at www.plexus.com, clicking on Investors at the top of that page.

Joining me today are Todd Kelsey, President and Chief Executive Officer; Oliver Mihm, Executive Vice President and Chief Operating Officer; Pat Jermain, Executive Vice President and Chief Financial Officer; and David Abuhl, Senior Vice President, Finance.

With today's earnings call, Todd will provide summary comments before turning the call over to Oliver, Pat and David for further details. Before I turn the call over to Todd, I would first like to express my gratitude to Pat for his partnership, mentorship and friendship and offer my best wishes for an amazing retirement.

Second, I'm excited to announce that Todd will be appearing on CIBC's Fast Money this evening to discuss Plexus and our fantastic results and outlook.

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

Thank you, Shawn. Good morning, everyone. Please advance to Slide 3. Before I begin my prepared remarks regarding the business, I want to celebrate Pat's incredible 12-year tenure as Plexus' CFO and wish him all the best during retirement. He's been an extraordinary business partner to me over the years. I also want to express my deep gratitude for Pat's leadership and integrity, establishing a strong tone from the top. Pat has been instrumental in our growth journey, fostering and cultivating a high-performing finance team that has played a significant role in Plexus' tremendous financial results over the years.

I'm also excited to welcome David Abuhl as our next CFO. Since joining Plexus last fall, David's impact on the organization has already been meaningful. I'm confident that as we continue our growth journey, David's extensive financial expertise, global perspective and strategic mindset will position him to be an exceptional CFO.

Please advance to Slide 4. Plexus' momentum is accelerating broadly. We now expect to deliver mid-teens or greater fiscal 2026 revenue growth from the contribution of numerous program ramps, ongoing market share gains and improving end market demand. Our team generated a record $355 million in new manufacturing program wins with broad-based contributions across our market sectors. Against this tremendous result, we also expanded our funnel of qualified manufacturing opportunities.

We're delivering non-GAAP operating margin expansion, while increasing our already significant investments focused on expanding operational efficiency and capitalizing on continuing revenue growth momentum. Finally, we are sustaining strong financial discipline, delivering better-than-expected working capital performance amid substantial acceleration in revenue growth and tightening supply chain conditions.

Please advance to Slide 5. Fiscal second quarter revenue of $1.164 billion exceeded our guidance range, representing our fifth consecutive quarter of sequential revenue growth and a robust 19% year-over-year increase. While growth was strong throughout all of our market sectors, we experienced specific strength in aerospace and defense as a result of increasing demand for our industry-leading solutions and support of disruptive technologies and in semi-cap, where our ongoing share gains are amplifying surging market demand.

Non-GAAP EPS of $2.05 exceeded guidance. We delivered a robust 6% non-GAAP operating margin, while continuing to heavily invest in program ramps, operational efficiency initiatives and technologies.

Please advance to Slide 6. For the fiscal second quarter, we secured 30 new manufacturing programs with a record $355 million in annualized revenue when fully ramped into production. All market sectors contributed to this tremendous performance, which included broad-based opportunities in aerospace and defense, expanded relationships and share gains in surgical and imaging platforms and new engagement in data center power solutions and continued share gains in semiconductor capital equipment.

Through expanded business development efforts, synergies with our engineering solutions and sustaining services and our focus on providing unmatched quality and delivery, we are also seeing an increasing breadth of customer interest for our industry-leading solutions. As a result, for the second fiscal quarter, our funnel of qualified manufacturing opportunities expanded sequentially and year-over-year. We produced particularly notable growth in our industrial market sector, where we are generating significant interest in automation and robotics, data center and energy solutions and our aerospace and defense market sector.

Please advance to Slide 7. At Plexus, we are committed to advancing sustainability through our value of innovating responsibly as we boldly drive positive change and promote a sustainable future for and through our people, our solutions and our operations, all of which is built on a foundation of trust and transparency. Critical to our success is our people who are at the heart of who we are and what we do.

Our second fiscal quarter was particularly memorable as we celebrated 2 major organizational milestones. First, I was honored to join members of our Plexus leadership team at NASDAQ's market site in Times Square to ring the closing bell in celebration of our 40th anniversary as a publicly listed NASDAQ company. This significant accomplishment was a celebration of the trust we've created with our customers and the unwavering dedication of our people.

Additionally, our Kelso, Scotland site celebrated its 25th anniversary. Since opening in 2001, the Kelso team has evolved from printed circuit board assembly to manufacturing complex life-impacting products, an evolution made possible by our team members, many of whom have been with us since day 1.

Our commitment to delivering excellence and innovating responsibly also continues to earn external recognition. We are proud to be named a finalist for the 2026 Manufacturing Leadership Awards in 2 categories: AI vision and strategy and sustainability in the circular economy. The awards will be presented in June by the Manufacturing Leadership Council, which is part of the National Association of Manufacturers. These awards highlight our emphasis on innovation and delivering a positive environmental impact as we help create the products that build a better world.

Finally, we are excited to announce the upcoming release of our annual sustainability report during our fiscal third quarter. The fiscal 2025 report highlights our continued commitment to innovating responsibly as we've always been driven to do something more for our customers, our team members and the world.

Please advance to Slide 8. For our fiscal third quarter, we are guiding revenue of $1.2 billion to $1.25 billion, representing 5% sequential and 20% year-over-year growth at the midpoint. We are guiding non-GAAP operating margin of 5.9% to 6.3% and non-GAAP EPS of $2.02 to $2.18. We believe we are outgrowing our end markets, many of which are seeing improving demand by leveraging new program ramps, market share gains and our support of disruptive technologies. As a result, we anticipate double-digit revenue growth in each of our market sectors in fiscal 2026 with particularly strong performance in aerospace and defense and industrial, led by significant growth in our semicap subsector.

Accordingly, for fiscal 2026, we now expect to deliver mid-teens or greater revenue growth overall, a substantially increased forecast from our initial expectations last October. We anticipate delivering this revenue growth performance with robust profitability, anticipating a 6% or greater non-GAAP operating margin for fiscal 2026 and continued strong working capital efficiency.

In closing, our consistent focus on redefining excellence through our unmatched quality and delivery is shaping our decision-making and sustaining our tremendous momentum. We are expanding and accelerating investments in technology, capabilities and our people to enable customer success, drive greater long-term operational efficiency and increase our revenue growth potential. These efforts will position us to sustain our momentum well beyond fiscal 2026.

I'll now turn the call over to Oliver for additional analysis of the performance of our market sectors. Oliver?

Thank you, Todd. Good morning. I will begin with a review of the fiscal second quarter performance of each of our market sectors, our expectations for each sector for the fiscal third quarter and 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.

Starting with our Aerospace and Defense sector on Slide 9. Revenue increased 19% sequentially in the fiscal second quarter, significantly outperforming our expectation of a mid-single-digit increase. Improved end market demand across all subsectors and our team's efforts to expand component availability drove the result.

For the fiscal third quarter, we expect revenue for the aerospace and defense sector to be up mid-single digits as we see programs scaling up in our space and defense subsectors. Our fiscal second quarter wins for the aerospace and defense sector were $44 million. Our Kelso, Scotland site won a follow-on share gain award from an existing customer in the defense subsector. The customer noted the strength of our partnership and the operational excellence as factors in their decision.

Relationship strength and operational excellence were also factors in a significant follow-on award from an existing unmanned defense customer. This product is built in our Boise, Idaho facility. We anticipate fiscal 2026 revenue growth for the aerospace and defense sector to exceed our 9% to 12% goal with growth expected to be well into the double digits. The sector's growth continues to gain momentum, supported by new and existing customers with strong demand growth in the commercial aerospace and space subsectors and exceptional growth in the defense subsector.

Please advance to Slide 10. Fiscal second quarter revenue in our Healthcare/Life Sciences market sector was up 1% sequentially, aligned to our expectation of flat to up low single-digit performance. For the fiscal third quarter, we expect the Healthcare/Life Sciences market sector to be flat ahead of an anticipated return to sequential revenue growth in our fiscal fourth quarter.

Our fiscal second quarter wins were strong at $116 million. Our team in Xiamen, China won a next-generation point-of-care ultrasound system due to the strength of our new product launch capabilities. Our seamless engineering to production transition capabilities also contributed to a significant award for our Neenah, Wisconsin facility. The products support a robotic surgical platform.

We continue to have a robust fiscal 2026 outlook for the Healthcare/Life Sciences sector, anticipating revenue growth to exceed our 9% to 12% goal, supported by contributions from ongoing and new program ramps, share gains and strong end market demand across our therapeutics and monitoring subsectors.

Advancing to the industrial sector on Slide 11, fiscal second quarter revenue was up 12% sequentially, in line with our forecast. Our industrial sector fiscal third quarter outlook of a low double-digit increase is supported by substantial growth within the semicap subsector and strength in the industrial equipment subsector from new program ramps and strengthening demand.

The industrial market sector had record high wins of $195 million for the fiscal second quarter. Wins included a substantial award from an existing customer that is launching a new product line for data center power solutions. Our long-term strategic partnership and strength of value proposition contributed to the win. The product will be built in our Bangkok, Thailand facility.

We also won a substantial follow-on award from an existing robotics customer. A strength of execution and ability to quickly ramp to fulfill their demand supported the win. This product is assembled in our Guadalajara, Mexico campus. Our Guadalajara, Mexico campus is also welcoming a new customer to Plexus as we are selected to support production of an energy storage system for electric commercial vehicles.

Our outlook for the industrial sector for fiscal 2026 continues to gain momentum. We are now anticipating growth well in excess of our 9% to 12% growth goal. Our growth outlook is supported by new program ramps and robust growth that's in excess of market for our semicap subsector and demand improvement and program ramps offsetting pockets of demand softness within other subsectors.

Please advance to Slide 12 for a review of our funnel of qualified manufacturing opportunities. In recognition of Plexus' industry-leading capabilities and focus on building partnerships, our customers are providing increasing opportunities to capture share and new program wins. As evidence, our funnel of qualified manufacturing opportunities expanded 11% sequentially in the fiscal second quarter and is now $4 billion. This expansion is due in part to record high funnels in our aerospace and defense sector and our industrial sector. The funnel in those 2 sectors has expanded in excess of 45% as compared to the fiscal second quarter of 2025.

In summary, the revenue growth we are experiencing from ongoing and new program ramps, inclusive of share gains and improving end market demand support our revised outlook for Plexus to now deliver mid-teens or greater fiscal 2026 revenue growth.

Before I turn the call over to Pat, I'd also like to wish Pat well in his retirement. You've been an incredible partner and done a lot in support of the success of Plexus and the incredible journey that we are on. Congratulations.

Now over to you. Pat?

Thank you, Oliver, and good morning, everyone. Our fiscal second quarter results are summarized on Slide 13. Gross margin at 10.2% was at the top end of our guidance due to a favorable mix of service offerings and fixed cost leverage. In addition, productivity improvements associated with ongoing operational efficiency initiatives helped to offset the impact from our typical seasonal compensation cost increases.

Selling and administrative expense of $57.3 million was slightly above our guidance due to additional incentive compensation expense driven by our robust revenue growth and strong ROIC performance. In addition, we expanded our technology and automation investments in support of future efficiencies and sustaining revenue growth momentum. The result was a non-GAAP operating margin of 6%, which was at the top end of our guidance.

Non-operating expense of $4 million was favorable to expectations due to foreign exchange gains and lower-than-anticipated interest expense. Non-GAAP diluted EPS of $2.05 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 14. For the fiscal second quarter, we delivered $28.5 million in cash from operations and spent $12.5 million on capital expenditures, generating $16 million of free cash flow, which exceeded our forecast of breakeven to a slight usage of cash. For the fiscal second quarter, we acquired approximately 109,000 shares of our stock for $20.6 million. At the end of the quarter, we had approximately $42 million remaining on the current repurchase authorization.

Similar to last quarter, we ended the fiscal second quarter in a net cash position. We had $137 million outstanding under our revolving credit facility with over $350 million available to borrow. For the fiscal second quarter, we delivered a return on invested capital of 13.8%, which was 480 basis points above our weighted average cost of capital. Despite an increase in invested capital to support robust revenue growth, we continue to generate healthy ROIC given strong operational performance. Cash cycle at the end of the fiscal second quarter was 64 days, which was favorable to expectations and 5 days lower than last quarter.

Please turn to Slide 15 for additional details regarding this positive result. Sequentially, days in receivables improved 3 days due to exceptional collection efforts by our team. Days in inventory sequentially improved 4 days from continued progress on working capital initiatives and increased revenue. Accounts payable days increased 3 days due to the timing of supplier payments and procuring inventory in anticipation of a significant revenue growth. Last, our days in advanced payments experienced a 6-day reduction with a net $15 million being returned to customers during the quarter.

Before I hand the call to David, I'd like to make a few closing comments. It has been an absolute pleasure and honor to serve as CFO for Plexus under Todd's leadership and guided by our outstanding Board of Directors. I want to thank Todd, our Board and everyone at Plexus for your support and trust over the last 12 years. I especially want to thank our finance organization for maintaining the highest standards and integrity, something I'm confident will endure. The company is in great hands with David moving into the CFO role, and I know the transition will be seamless over the coming months. It has been a true privilege to be part of this fantastic organization.

I will now turn the call over to David to discuss additional details regarding our fiscal third quarter expectations as well as some commentary regarding fiscal 2026. David?

Thank you, Pat, and good morning, everyone. Let me begin by offering my congratulations to Pat and wishing him all the best in this next chapter. I'm excited to step in and lead a tremendous team and carry on the legacy of a really strong finance organization. I'm also optimistic about Plexus's growth journey and confident that our consistent strategy will sustain our momentum as we help create the products that build a better world.

Now let me turn to our guidance for the fiscal third quarter, summarized on Slide 16. As Todd has already provided the revenue and EPS guidance, I will review some additional details. Fiscal third quarter gross margin is expected to be in the range of 9.9% to 10.2%. At the midpoint, gross margin would be slightly below last quarter, impacted by the timing of program ramps, capability investments and ongoing higher incentive compensation given our robust revenue growth and strong financial returns. We anticipate ongoing productivity improvements and additional fixed cost leverage will serve as offsets.

Our outlook for selling and administrative expense for the fiscal third quarter is in the range of $69 million to $70 million, including our typical stock-based compensation expense and additional stock-based compensation expense as a result of executive retirement. Excluding these expenses, we expect to gain leverage sequentially on higher revenue.

Fiscal third quarter non-GAAP operating margin is expected to be in the range of 5.9% to 6.3%, exclusive of stock-based compensation expense. At the midpoint, this would demonstrate sequential improvement and good progress toward our goal of consistently delivering at or above a 6% non-GAAP operating margin. Non-operating expense is anticipated to be approximately $5.4 million in the fiscal third quarter, up sequentially primarily due to higher interest expense and foreign exchange comparisons. We are estimating a non-GAAP effective tax rate of between 16% and 18% for the fiscal third quarter and the same range for fiscal 2026, unchanged from our previous outlook for the year.

Now turning to the balance sheet. For the fiscal third quarter, we are expecting higher investments in working capital to support the accelerating revenue growth outlook. We anticipate cash cycle days will be in the range of 67 to 71 days. As a result, we expect a usage of cash of free cash flow for the fiscal third quarter. In support of our accelerating revenue momentum, we are strategically increasing our working capital investments in fiscal 2026. Yet through our focus on working capital efficiency, we continue to expect to end the fiscal year with cash cycle days in the low 60s.

We also continue to expect fiscal 2026 capital expenditures in the range of $100 million to $120 million. Our focus on operational efficiency is creating tangible benefits by generating higher throughput on existing production lines, which is deferring new equipment purchases while also increasing site revenue capacity.

We are now forecasting fiscal 2026 free cash flow of $50 million to $75 million. Over the longer term, we remain confident that by leveraging our focus on working capital efficiency and our significant investments in operational efficiency, we will capitalize upon our substantial revenue growth opportunities and generate robust free cash flow.

With that, Ben, let's now open the call for questions.

[Operator Instructions]. Your first question comes from the line of Melissa Fairbanks with Raymond James.

Congratulations on the quarter. Of course, congratulations to Pat. We're going to miss you, but Dave, I look forward to working with you more in the future. I would be remiss if I didn't ask Pat about cash cycle days one more time. I know I'm a little bit focused on it. Dave, thanks for additional color looking into cash cycle days exiting the year. We're obviously seeing a really strong acceleration in growth in the near term. I know they're going to trend higher next quarter. It sounds like they're going to trend slightly lower exiting the year.

Just wondering how to think about working capital investment longer term to support this level of growth, whether it's through CapEx, through new site investments or just working capital investments.

Yes, I can start and then maybe David can add on to it. I'd say 2 things, Melissa. I think from a days perspective, I think we're in a really good spot in this low to mid-60s going forward. I think that would carry into fiscal '27. I think the other thing to look at is with revenue growth, we're probably around 10% to 15% additional working capital dollars associated with any growth in revenue. I think that's a good barometer if you're looking at from a dollars perspective. From a days perspective, I think low to mid-60s is a good range for us.

Melissa, maybe I'd build the other part of your question was about investing in even capital in the long term. We just reconfirmed our $100 million to $120 million of capital investment Recently, in the last 6 months, our teams have actually improved the throughput of some of our assets by 10%, which has avoided in the neighborhood of $20 million of capital investments. We're able to grow revenue on a very similar capital base. Those types of efficiencies are not only happening in CapEx, but also there's the same type of efficiencies in our working capital environment as well. Hence, that gives us confidence in the long term.

Just one more question that's maybe for Oliver because he kind of touched on some of this in his commentary. I wanted to ask about some trends in industrial. We focus on semi cap and test equipment so much, but it sounds as though one of your customers, I think you do some energy storage solutions for them. They raised their full year outlook for this year, almost doubling the growth rate. In part, because of strength in power supply. I know you kind of touched on you've got some new wins in industrial for these types of applications. You've been winning in there for a long time. Just wondering how you're looking at some more near-term demand, assuming that some of these new wins are going to be longer term in scope.

Thanks, Melissa. Happy to talk about that. Yes. We are excited about our customers in the energy infrastructure space. We've talked about some wins there over the past few quarters. We also referencing back a few quarters ago, we talked about a specific regulatory compliance standard that we have for our Boise facility that enables us to do control systems for nuclear power. We think that gives us a bit of competitive differentiation, which enables some of this growth that we're seeing in this subsector.

Yes. I would lead that through to saying our excitement there also extends into the adjacencies that we're seeing here relative to data centers. We talked about a win here this quarter specific to a power platform solution, but just the funnel that we have related to items in the data center, whether that's power management and storage, thermal cooling, thermal density, fluidics, really well aligned to our value proposition and capabilities.

Then again, the energy distribution and infrastructure, we just talked about storage control systems, we're also seeing companies push AI out to what has been referred to as at the edge. On equipment, on devices, these are often ruggedized applications, and so the redesign to put that -- those solutions in place, the manufacturing and then the need to sustain those and service those, we view as being really well aligned to our capabilities and strength, and we have a very strong and active funnel in that space..

Your next question comes from the line of Ruben Roy with Stifel.

Congratulations to all, but especially Pat, thanks for all the help, Pat. David, obviously, congratulations, too. Pat, before you go, maybe we'll start with you. Todd, in his prepared remarks, mentioned sustained momentum well beyond fiscal '26. I'm wondering if we can just maybe think a little bit about the operating margin structure of the company as you sort of line up a funnel of new wins, etc. It's probably premature and you're probably not going to give us a longer-term target above what above 6 means.

Just in terms of some of the wins that are coming into the funnel, etc., maybe you could walk us through the puts and takes across the different segments on how we should think about that operating margin? I have a follow-up, which is sort of similar for Oliver after we talk about this a bit.

Sure. Yes, and I'll start if others want to join in. Ruben, the margin differential between market sectors is not that different nowadays with the markets we're serving. With the additional wins, there is some ramping costs that's involved. That's a little bit of a drag on our margins, but the fixed cost leverage we're gaining both on our fixed costs and SG&A definitely overrides that and provides that target of 6% or above.

As we look to F '27, yes, we're not going to make any new commitments at this point, but seeing a consistency in that margin performance. Going back a few years ago, when we saw that consistency is when we started to think about what is that next target. I think we'll be in that position, but obviously not wanting to commit to anything at this point. I think there's definite opportunity with the fixed cost leverage, some of the services we're providing around sustaining services and engineering that carry higher margins. Then probably around the automation efforts, David talked about some of that with capital spending, the impact that has on margin is pretty pronounced. I think you'll see benefits there as well.

Yes. One of the things that I would add is with the -- what we would expect is improving or increasing margins as we continue to move out, and that's because of the leverage that we'll be gaining as well as the operational efficiency initiatives. We're probably not too far from establishing a new target. Pat's been working on it with David and the finance team, and we'll let David get comfortable in the chair for a couple of quarters perhaps before coming out with a new target here.

If I pull that sort of discussion and maybe pull in working capital near term, Oliver, you called out some tightening supply chain conditions, and that's been a consistent sort of theme across a lot of calls so far in earnings season. Wondering if you could maybe give us a little more detail on what you're seeing around supply and whether or not that's acting as a little bit of a gating factor as you think about some of the program ramps embedded in your Q3 or fiscal year guidance here. Obviously, the raise is great to see, but what are the puts and takes against supply and sort of the demand improvement you're seeing across the end markets?

Yes. Maybe I'll start with this, Ruben, and Oliver can jump in and provide additional color. I think as we set our forecast, we certainly have taken into account the realities of the supply chain. I think I don't feel like we have undue risk as a result of supply chain within our forecast right now. Now there's certainly more upside that exists should things go in the right direction for us. The other thing that we're doing is we're working very proactively with our customers around, call it, the golden screws to make sure that we get supply for those tough to obtain parts.

Yes. More specifically there, the specific commodities that we are seeing allocation or tightening, Ruben, portions of semiconductor, portions of passives, memory, no surprise for anybody, raw PCB fabs, Behind that, lead times extending, but not allocation yet around extended lead times around high-performance passes, magnetics and some portions of microcontrollers.

As Todd noted, a lot of proactive work here, asking our sourcing teams to identify risk early that enables a consultative engagement with our customers, asking them to extend forecast visibility, expand alternates, enable some advanced materials planning from our side, for instance, early PO placement, extended PO horizon. Then I would just generally say that the interconnection between those teams and the processes around that were well honed during the constrained market post-COVID, and so we're seeing that bring to bear today, including some AI tools that we had developed to help interrogate the open market and find supply for us.

Your next question comes from the line of David Williams with Needham.

Pat, let me say congratulations, and we will certainly miss you very much. I hate to see you go. David, welcome, and I look forward to working with you.

Maybe first on the capacity side, you've talked about that $100 million to $120 million this year. Just kind of curious, do you think that you can keep up some of the automation efforts and some of these efficiencies? Can you keep up with the type of demand that you're seeing in front of you? Or should we think maybe next year, you'll need some additional greenfield capacity expansion that you haven't considered or haven't thought in the past that you would need just given the strength of the demand?

Yes. Thanks, Dave. That's a good question. We're really pleased with the results our teams are delivering with those efficiencies and throughput we talked about. At this point, if we think about our capacity around the world, it's really well balanced. We think we can service well in excess of $5 billion in annualized revenue, but then as the growth continues, we're going to just going to continue to reassess how our sites are doing, where we might need to invest in capacity. At the moment, we're feeling pretty good about what we have.

With the growth, it depends on the type of product and the location, but at the moment, we're sticking to that guidance, and we're going to continue to drive efficiency with our footprint. We have a lot of initiatives that are increasing the utilization within our current sites. That progress is going to continue. So far, so good, David, but we're constantly assessing the situation for sure.

One of the things I'd also note is with -- David, with our newer building deployments that we do, the way we put those into play enable us to add incremental capacity without substantial CapEx. That enables us to add some additional bricks-and-mortar footprint when we need to.

Yes, I thought that was an important point to add.

Then maybe secondly, just you talked about the exceptional strength of defense and the semicap. I guess in this environment, as we think about this demand, how much of this do you think is demand driven from the efforts you put in previously versus just the backdrop is so heavy in terms of that demand that you're just seeing more shifting to you. I guess I'm trying to ask how much is share gains because of your operational excellence versus what do you think just the market overall is being pushed towards you?

Yes. There's large components from both, David. We've got significant share gain in semiconductor capital equipment that's going on right now and continues even through this quarter. We also are gaining share within aerospace and defense on several of the subsectors with defense being a significant one, but those markets are good, too. We're getting a double benefit, I would say, in that we're taking share in a really strong market. We expect some excellent growth within those markets that far exceeds market growth.

[Operator Instructions]. Your next question comes from the line of Steven Fox with Fox Advisors LLC.

First of all, Pat, thanks very much for all your help over the years. Always a pleasure to work with you. I guess, first of all, just maybe following up on that operating margin question. Can you give us a sense for how operating leverage is developing numerically? Obviously, not an exact number, but qualitatively from the sense you have some puts and takes in there. You're seeing margin expansion. How do we think about sort of the drop-through in this type of environment? Is it similar to what you've seen in prior up cycles? Or is there more investment going on that we should maybe consider a little less margin expansion? I was curious if you can provide more perspective there. Then I have a follow-up.

Yes, Steven, this is David. As we think through the leverage and drop-through, typically, we can see maybe a 10% to 12% drop-through on revenue growth. Obviously, as we're driving our efficiency initiatives, we can see not only that leverage, but also some drop-through of other improvements, but we're also investing in capabilities. For example, we've got the next generation of cybersecurity maturity models we're investing in to help us win new revenue, and so we need to balance what we're doing with the efficiency, whether it's dropping to the bottom line, but or enabling the next level of revenue growth. We're confident that we're going to see that leverage come through and it's fairly typical to what we've seen before, and we're in a great period of driving efficiency and balancing that with investment. So yes, that 10% to 12% drop-through is probably what you should keep in mind.

Then in terms of the aerospace market, you guys threw a lot at us just now? I know last quarter, you also had a huge amount of wins in that space. Can you give us a little more sense on sort of ranking the drivers here? How much is just some of these new markets like space really accelerating? How much is your own market share gains or new wins or new capabilities? There's a lot to unpack there. I was wondering if you could just sort of give us a sense for what's most important.

Yes. Steven, this is Oliver. I'll take that. If I break that sector down within -- and this is going to build a little bit on what Todd just talked about a second ago or a minute ago. Within defense and space, we see both the benefit of new program wins as well as end market demand driving the growth there. Within commercial aerospace, that's largely just organic growth. Then within commercial aerospace, I'll also note that similar to prior quarters, our message that we really haven't seen a significant pull-through of additional end market demand due to recovery at the primes and how they're doing the production, right, or the OEMs and how they're doing their production. We still have upside to bring to bear there as their production rates increase. Does that give you the insight you're looking for?

Pretty much. I mean just to follow up real quick, like the new programs that you won last quarter, I guess, can you talk about how that influences maybe the growth in coming quarters? When would we start to see it and whether it fits within all those buckets like you described? Or is there's something different going on that we should think about as an inflection?

Yes. Certainly, it fits within those buckets. I recognize the answer it depends, isn't going to be super helpful, Steven, but let me add some more words there. As we look at new program ramps, based on sectors, based on customers, we can get quite a bit of variation in terms of how long that we can hit that revenue rate. If we're starting from scratch, say, it's a new customer win, and we've got to ramp up the supply chain, potentially the customer, they have some end market regulatory work that they got to do if it's in, say, healthcare, life sciences, that can be a 6- to 8-quarter ramp for us to get into production and start hitting some volumes.

We try to note in our comments this morning, if it's an existing customer, an add-on product or even with an existing customer, if it's a new product, you've got some supply chain work already there and our ability to ramp into production is faster.

Steve, it's Shawn. Just to get a bit more acute for you, some of the wins we had in aerospace and defense in our first fiscal quarter will contribute to the latter part of this fiscal year. Capacity is already coming online, and so that is a little bit of a help this year, but it's actually a greater contributor to fiscal 2027 and beyond. A lot of the growth we're seeing right now is based either upon programs or market share gains that we had over the course of the past couple of years. This sustains the momentum as Todd talked about into '27 and beyond.

Your next question comes from the line of Anja Soderstrom with Sidoti.

Congratulations on the great quarter and guidance and on the retirement path and appointment, David. Looking forward to be working with you. A lot of my questions have been addressed already. In terms of -- I just want to check with the Malaysia facility. You mentioned last quarter that you expected that to break even in terms of margins in the second quarter. How is that tracking?

It was a little bit behind breakeven this past quarter and the reason being that the revenue is actually ramping faster there. We're making additional investments early on, but we're still on track to exit the fiscal year with having strong profitability.

Then just with the targets that you set for the Healthcare and Life Sciences for the full-year and the third quarter, how should we think about the growth there going forward? It seems like that's going to be slowing down a bit or coming down.

Yes. I would say that we see -- I talked about the sequential growth we're looking at in Q4. We also talked about the wins here this quarter, historical wins from F '25, quite strong, which will help to create some sustained growth as we look to F '27.

Just one last question on the competitive environment. Have you seen any sort of changes there at all in the...

Yes. I'm reflecting, Anja. I don't think we've seen any significant changes from the competitive environment. In fact, we have noted that in this past quarter, the number of large opportunities that we've won had a slight uptick, which we view as positive both for how we're conveying ourselves in the marketplace and our ability to differentiate.

There are no further questions at this time. I will now turn the call back to Todd Kelsey for closing remarks. Todd, please go ahead.

Thank you, Ben. I'd like to thank our shareholders, investors, analysts and our Plexus team members who joined the call this morning. In closing, we're generating significant momentum, and I anticipate that fiscal 2026 will be a great year for Plexus and set us up for a strong fiscal 2027. Thank you again to our team members, our customers and our shareholders. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Q1 2026 Plexus Earnings Conference Call. [Operator Instructions] I will now hand the call 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, teacher business outlook. .

Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. 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 27, 2025, on 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 at Plexus' website at www.plexus.com, clicking on Investors site 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; and Pat Jermain, Executive Vice President and Chief Financial Officer. 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. Todd?

Thank you, Shawn. Good morning, everyone. Please advance to Slide 3. Plexus has achieved significant momentum. Our consistent strategy and focus on delivering customer success continues to enable share gains and is facilitating our leadership in growth markets. We've seen strong year-over-year revenue growth to begin our fiscal 2026 as we ramp programs across all of our market sectors. In addition, we are now seeing pockets of stronger end market demand. Our ongoing market share gains are amplifying this revenue growth tailwind. As a result, Plexus now has the potential to meet or exceed the high end of our 9% to 12% revenue growth goal for fiscal 2026.

In addition, we see significant opportunities to sustain our revenue growth momentum. Our funnel of qualified manufacturing opportunities remains diverse and robust while our Engineering Solutions funnel of qualified opportunities is the third largest in Plexus' history. We continue to forecast strong operating performance for our fiscal 2026. We anticipate robust growth in operating profit and remain focused on achieving our goal of a 6% non-GAAP operating margin while continuing to invest in talent, technology, facilities and advanced capabilities to support sustained future revenue growth and greater operational efficiency. Finally, although we are investing in support of substantially stronger than previously anticipated revenue growth, we continue to forecast approximately $100 million of free cash flow for the fiscal year highlighting our ongoing efforts to drive working capital efficiency. We will continue to deploy all excess cash to create additional shareholder value.

Please advance to Slide 4. Revenue of $1.07 billion met the midpoint of our guidance range as we delivered our fourth consecutive quarter of sequential growth, representing a robust 10% increase year-over-year. A significant expansion in our Healthcare/Life Sciences and Aerospace and Defense market sectors associated with multiple program ramps and stronger-than-anticipated demand from semi cap and energy drove our performance. Non-GAAP EPS of $1.78 met the high end of our guidance range, reflecting very strong operating performance in light of significant near-term investments we are making in support of additional capacity, program ramps and technology.

Please advance to Slide 5. For the fiscal first quarter, we secured 22 new manufacturing programs worth $283 million in annualized revenue when fully ramped into production. Included in these wins was a record quarterly performance from our Aerospace and Defense market sector estimated at $220 million in annualized revenue. Our fantastic Aerospace and Defense wins performance underscore strong interest in Plexus' industry-leading solutions as evidenced by expanded relationships with numerous existing customers, significant expansion in our leadership in commercial space and the addition of new and exciting partners deploying disruptive technologies. Finally, I would note we continue to see significant opportunities to drive market share gain and sustained revenue growth from our Aerospace and Defense market sector. Our funnel of qualified Aerospace and Defense manufacturing opportunities is up significantly year-over-year while our total funnel of Aerospace and Defense Engineering Solutions opportunities sits at an all-time high.

Please advance to Slide 6. At Plexus, we continue to demonstrate our commitment to innovating responsibly as we boldly drive positive change and promote a sustainable future for and through our people, our solutions and our operations. All of which is built on the foundation of trust and transparency. Therefore, I'm pleased to share that our team in Penang, Malaysia was once again recognized as one of HR Asia's Best Companies to Work For. This represents the fourth consecutive year receiving this recognition. Along with this honor, the team also accepted HR Asia's Sustainable Workplace Award for the second straight year and the Tech Empowerment Award for the first time. At Plexus, people are the heart of who we are and what we do, and I'm incredibly proud of what these awards represent for our team members and our vision of building a better world.

Our commitment to delivering excellence includes reducing our environmental impact throughout our operations. At the end of our fiscal 2025, we partnered with TNB, a utility provider in Malaysia, and joined its green electricity tariff program. This partnership provides 100% renewably sourced electricity to our largest global campus in Penang, Malaysia. Through our fiscal first quarter of 2026, we have dramatically reduced our emissions, leveraging this partnership and the continued focus on emission reductions across all of our global locations. Finally, last quarter, we communicated the results of our volunteer time off charitable giving program. Through this program, during the fiscal first quarter, we made financial donations to 24 global charities voted on by our team members. We extend appreciation to our incredible team members, partners and local communities whose contributions have been vital to our ongoing success.

Please advance to Slide 7. For our fiscal second quarter, we are guiding revenue of $1.11 billion to $1.15 billion, representing 6% sequential and 15% year-over-year revenue growth at the midpoint. We are also guiding non-GAAP operating margin of 5.6% to 6.0% and non-GAAP EPS of $1.80 to $1.95. We are experiencing robust demand globally for our industry-leading solutions in support of numerous program ramps, inclusive of ongoing market share gains. In addition, we have seen recent strengthening in health care related to surgical and monitoring technologies within semi cap in industrial equipment, and across multiple subsectors of our Aerospace and Defense market sector.

We also anticipate delivering strong operating performance for the fiscal second quarter. We expect to leverage this robust revenue forecast and the benefits from our ongoing operational efficiency initiatives to offset sizable headwinds from typical seasonal cost increases, increased variable compensation expense and growth and efficiency investments. Finally, for fiscal 2026, we now see the potential to meet or exceed the high end of our 9% to 12% revenue growth goal. This reflects the positive momentum anticipated for our fiscal second quarter and signs of stronger end market demand. We expect to leverage this improved revenue outlook and our ongoing investments in operational efficiency to drive significant operating profit expansion and robust free cash flow for fiscal 2026.

In closing, Plexus is generating significant positive momentum. This is a result of our consistent strategy, which is enabling share gains and leadership in growth markets and from our ongoing investments to further our industry-leading solutions and drive greater long-term operational efficiency.

I will now turn the call to Oliver for additional analysis of the performance of our market sectors. Oliver.

Thank you, Todd. Good morning. I will begin with a review of the fiscal first quarter performance of each of our market sectors. Our expectations for each sector for the fiscal second 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.

Starting with our aerospace and defense sector on Slide 8. Revenue increased 3% sequentially in the fiscal first quarter, slightly below our expectation of a mid-single-digit increase on customer end of year inventory management. For the fiscal second quarter, we expect revenue for the Aerospace and Defense sector to be up mid-single digits from demand improvement in our commercial Aerospace and Defense subsectors as well as new program ramps within our commercial aerospace, defense and space subsectors.

Our fiscal first quarter wins for the Aerospace and Defense sector were $220 million. This extraordinary quarterly performance nearly matches prior record annual wins performance in F '19 and F '21 of $222 million and $258 million, respectively. Broadly, our customers reference our operational excellence and depth of technical expertise as contributing factors for increasing interest in partnering with Plexus and our continued program awards. For the quarter, our Neenah, Wisconsin site won a substantial program that further expands our leadership in the space subsector. In our security subsector, our Guadalajara and Chicago sites will respectively assemble and service an innovative security detection technology product. This new customer cited our consultative engagement and ability to minimize total product cost with a combined production and services solution as contributing factors for this win. And our Boise, Idaho team is welcoming a new customer with disruptive technology in the unmanned subsector.

We anticipate fiscal 2026 revenue growth for the Aerospace and Defense sector to now exceed our 9% to 12% goal. Our continued robust growth outlook is supported by new program ramps with multiple customers and subsectors, strong defense subsector growth and modest growth in our commercial aerospace subsector.

Please advance to Slide 9. This first -- fiscal first quarter revenue in our Healthcare/Life Sciences market sector increased 10% sequentially aligned to our expectation of a high single to low double-digit increase. For the fiscal second quarter, we expect the Healthcare/Life Sciences market sector to be flat to up low single digits sequentially, reflecting modest growth in our therapeutic subsector. Fiscal first quarter Healthcare/Life Sciences sector wins of $40 million and included an award for our next-generation imaging product for our [ Haining ], China location. Our historical operational excellence agile new product introduction performance and partnership to the quoting process contributed to the win. Our team in Oradea, Romania was awarded mechanical cabinet subassemblies for an imaging product for an existing top medical OEM customer. This share gain award strategically expands our support for this customer to include another region.

We continue to have a robust fiscal 2026 outlook for the Healthcare/Life Sciences sector, anticipating revenue growth to now exceed our 9% to 12% goal, supported by contributions from ongoing and new program ramps and improved end market demand across our therapeutics and monitoring subsectors.

Advancing to the industrial sector on Slide 10. Fiscal first quarter revenue declined 8% sequentially in line with our forecast. Our industrial sector fiscal second quarter outlook of a high single to low double-digit increase is driven by demand strength and program ramps within our semi cap subsector and program ramps and near-term demand improvements within our industrial equipment subsector. Industrial market sector wins for the fiscal second quarter of $23 million included an award from an existing semi customer for our Neenah, Wisconsin facility. This award covers product launch volumes for a next-generation product. Our team in Oradea, Romania was awarded the assembly of a robotics solution that supports material handling and indoor logistics. This transition from our customers' internal manufacturing operations was awarded in part due to the strength of our advanced engineering and manufacturing capabilities.

Our improved fiscal 2026 industrial sector revenue growth outlook is supported by new program ramps and robust growth that's well into the double digits for our semi cap subsector and program AMS in our industrial equipment subsector offsetting demand softness within other subsectors. As a result, we now anticipate fiscal 2026 revenue growth for the industrial sector to approach our 9% to 12% growth goal.

Please advance to Slide 11 for a review of our funnel of qualified manufacturing opportunities. The funnel of qualified opportunities remains robust at $3.6 billion. Notably, our Aerospace and Defense sector momentum continues to build. Even with the extraordinary wins performance this quarter, our funnel of Aerospace and Defense qualified manufacturing opportunities only saw a modest sequential decrease, reflecting a strong backfill of opportunities. Further, the Aerospace and Defense sector's total funnel for our Engineering Solutions achieved a record high in the fiscal first quarter.

In summary, Plexus has significant momentum as evidenced by our improved revenue growth outlook. Our passion for delivering excellence and creating customer success supported by our focus on partnership and technical and operational expertise continues to be rewarded through customer recognition, market share gains and new customer partnerships. Ongoing and new program ramps, inclusive of share gains and improved end market demand, all support Plexus meeting or exceeding the high end of our 9% to 12% revenue growth goal for fiscal 2026.

The I'll now turn the call over to Pat. Pat?

Thank you, Oliver, and good morning, everyone. Our fiscal first quarter results are summarized on Slide 12. Gross margin of 9.9% was consistent with our guidance and consistent with the last quarter, despite a slight margin impact from the opening of our new Malaysia facility. Selling and administrative expense of $51.7 million net guidance and was consistent with last quarter. As a percentage of revenue, SG&A sequentially declined given revenue leverage. Non-GAAP operating margin of 5.8% also met our guidance. Nonoperating 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 $1.78 was towards the top end of our guidance.

Turning to our cash flow and balance sheet on Slide 13. For the fiscal first quarter, cash from operations consumed approximately $16 million to support significant program ramps planned this year. We also spent $35 million on capital expenditures with a large portion of this related to carryover payments for our new Malaysia facility. The result was a cash outflow of approximately $51 million. For the fiscal first quarter, we acquired approximately 153,000 shares of our stock for $22.4 million. At the end of the quarter, we had approximately $63 million remaining on the current repurchase authorization. Similar to last quarter, we ended the fiscal first quarter in a net cash position. We had $60 million outstanding under our revolving credit facility with $440 million available to borrow. For the fiscal first quarter, we delivered a return on invested capital of 13.2%, which was 420 basis points above our weighted average cost of capital and a strong result to be in fiscal 2026. Cash cycle at the end of the fiscal first quarter was 69 days, which was within our guidance range and 6 days higher than last quarter.

Please turn to Slide 14 for additional details. The sequential change in our cash cycle was primarily due to the 6-day increase in inventory days tied to investments to support sizable anticipated revenue growth. As Todd mentioned, Plexus now has the potential to meet or exceed the high end of our 9% to 12% revenue target this year, which is requiring greater investments in working capital. While these investments have increased our cash cycle, I'm pleased to see our net cash cycle remain in the 60s.

As Todd has already provided the revenue and EPS guidance for the fiscal second quarter, I'll review some additional details, which are summarized on Slide 15. Fiscal second quarter gross margin is expected to be in the range of 9.9% to 10.2%. At the midpoint, gross margin would be slightly above last quarter despite seasonal compensation cost increases and the reset of payroll taxes for U.S. employees. We expect to offset these cost impacts through productivity improvements and additional fixed cost leverage from the anticipated robust sequential revenue growth. We anticipate selling and administrative expense in the range of $54 million to $55 million. This includes more than $1 million of seasonal compensation headwinds, and additional variable incentive compensation expense linked to our strong performance. Note that the SG&A estimate is inclusive of approximately $6.8 million of stock-based compensation expense.

For the second quarter -- fiscal second quarter non-GAAP operating margin is expected to be in the range of 5.6% to 6%, exclusive of stock-based compensation expense. As the year progresses, we believe there will be an opportunity to meet or exceed our 6% non-GAAP margin target. Nonoperating expense is anticipated to be approximately $5.3 million which is sequentially higher primarily due to greater interest expense. Prior quarters have benefited from the capitalization of interest expense associated with site additions. We are estimating an effective tax rate between 16% and 18% for both the fiscal second quarter and for fiscal 2026. Diluted shares outstanding are expected to be approximately $27.2 million. Our expectation for the balance sheet is that working capital investments will increase compared to the fiscal first quarter. However, based on our robust revenue forecast, we expect this level of working capital will result in a sequential improvement to cash cycle days.

As such, we are estimating cash cycle days in the range of 65 to 69 days which represents a 2-day sequential improvement at the midpoint. With higher investments in working capital, we expect breakeven to a slight usage of cash for the fiscal second quarter. Despite the first half usage of cash to support anticipated revenue growth, we reconfirm our fiscal 2026 expectation for free cash flow of approximately $100 million. One final comment on fiscal 2026 in support of our revenue growth, we now expect capital spending to be in the range of $100 million to $120 million, which is slightly higher than the previous estimate.

With that, Shaley, let's now open the call for questions.

[Operator Instructions] Your first question comes from the line of David Williams with Benchmark.

Congratulations on the really strong performance and outlook here.

Thank you, David.

I guess my first question for you, Todd, is what's changed do you think over the last 3 to 6 months? And obviously, this is -- the quarter is really strong in your outlook as well, but now you're talking about exceeding or meeting that 9% to 12% target. It feels like things have materially changed. And I'm just wondering if that's more market driven or more of the program wins that you're seeing. Just any color on what you think is the major driver of your success here?

Yes, David, I would call it a combination of both. We're certainly getting some very strong program wins, and you may have noticed the dollar value this quarter, the wins as is substantially higher than typical for us as well, too, which is suggesting some larger programs coming in. Those ramps are going well in the new program ramps that we have underway right now which is helping, particularly I think health care is being driven in a big way from program ramps, but somewhat in industrial with semi cap but then we're also seeing end markets improve. We're seeing major changes in the semi cap market right now.

I would say we're in the early stages of seeing demand improvement right now, though, we started to see things come through about a month ago, and we're seeing some bullish news out there even as of today. So it remains to be seen if that continues to improve in the future. But we're also seeing upticks in health care, although a little bit more modest and in certain subsectors of Aerospace and Defense. But one thing I'd also note, though, with regards to Aerospace and Defense is we're not seeing the full pull-through from Boeing yet. So while we're seeing some modest improvement we're not seeing the full pull-through from their increasing volumes.

Great. Nice commentary there. And I guess maybe secondly, just kind of thinking about that semi cap equipment, as you mentioned and just seeing early demand. How long does that typically take to translate into revenue or when you'll see those design win ramps if we talk about CapEx being added today and having those discussions, is that 1 year? Is it 2 years? How long should we think about for the SME cap to kind of show up in your revenue?

Well, David, demand increases will show up significantly faster. So that's in the quarter to 2 quarter range. It's really just a matter of getting the proper materials pipeline. And in many cases, with many of our customers, we have buffer stock inventory so we can respond fairly rapidly. So that will be quick. I mean if it becomes capital or footprint or things like that, then we're talking the year-plus time arrangement. We have ample available capacity right now.

Our next question comes from the line of Jim Ricchiuti with Needham & Company.

So I was hoping to drill into that Aerospace and Defense demand and the wins you're seeing. First, is the demand -- it sounds like it's coming from traditional defense. It looks like you're still anticipating some of the commercial aerospace strengthen maybe going forward. I'm also wondering if you're seeing any momentum in some of the more -- the emerging areas and are obviously has been a lot of attention on drones or I think you highlighted commercial space. So I wonder if you could just elaborate on what you're seeing in that market.

Yes. Sure, Jim. This is Oliver. So hitting it from a couple of different angles, I'd say that new program ramps across all of the subsectors within that sector continue to contribute to our outlook here and our forgoing momentum. So that's certainly a big piece of it. In terms of just underlying demand certainly seeing some underlying demand strength in defense. We talked about some incremental growth in commercial aerospace. But as Todd just highlighted, specifically within commercial aerospace, seeing Boeing or Airbus increase their production rates is currently not contemplated in our outlook.

From a defense perspective, I'd say also that -- can of the implied spending from news headlines has not trickled through in any substantial way for us here yet in terms of demand signal from our end customers. So there's also a potential upside going forward in that particular subsector. The other thing I think we're just excited about is, as you highlighted or hinted at, our leadership in the space subsector continues to build and create momentum for us. We've had some substantial wins there recently and again this quarter. And then also, we talked about in our prepared remarks, the disruptive technology and the opportunity for those particular programs to create additional revenue growth here in the out quarters as we ramp those programs.

Yes. That's helpful. Follow-up question. Maybe, Pat, for you. I'm wondering, you may have given it, but can you quantify the headwind on gross margins in the quarter from Malaysia to Malaysia facility? And does that ease or will it continue in Q2?

Yes. It was fairly minimal in Q1. It was a little less than 10 basis points of a headwind overall to margins. We'll see in Q2 very close to breakeven but then encouraging the back half of this year, we're actually going to be approaching our -- close to our corporate average for margins within that site and probably even more encouraging is what the tailwinds we're seeing from our new Thailand facility, which was profitable in fiscal '25, but the improvement in F '26 is looking to benefit margins by about 25 to 30 basis points overall margin. So really positive the back half of this year with Thailand. And part of the reason why I think we can get to our 6% or above back half of this year.

Jim, it's Shawn. Just as a little bit of a follow-up. We had a ribbon cutting a few weeks ago with one of our key customers at that new site in Malaysia. Extremely excited about that. And I know we've had other key customers into that site recently, and feedback has been fantastic. So to Pat's comments, really expect some strong contributions from our newer facilities in Asia as we move throughout fiscal 2026.

Your next question is from Melissa Fairbanks with Raymond James.

Congratulations on the great quarter and guide. Excited to see you put that stronger full year guide into print. I appreciate all the commentary about working capital investment to support a lot faster growth. We've heard from a number of your suppliers this week suggesting they're seeing increasing lead times across a wider range of components now. I'm wondering if you're starting to see that already, and if this is either impacting customer plans for program ramps and/or your own internal working capital investments, specifically related to shortening or tightening lead times.

Yes. Melissa, this is Oliver. We are certainly seeing some of our supply-based commodities ticking up in terms of lead time. So more specifically, our semiconductor commodity space, printed circuit board, specifically out of the APAC region also increasing a bit in lead time. But as we hinted out or talked to earlier here in some of the Q&A, really working to get ahead of that. So with customers, we are prepositioning inventory, we're being thoughtful about what specific aspects of the bill of material would warrant prepositioning to mitigate risk and ensure supply for instance, within memory. That's something that we've extended out. Our PO coverage to our suppliers, working with customers to ensure we've got extended forecast visibility and basically just coming up with creative partnership with our customers to ensure that we're covering the risk there and can ensure continuity of supply.

One of the things I'd add to, Melissa, is if you compare this back to a few years ago when lead times were stretched, I think we're in a significantly better positioned to not only manage inventory better, but also support our customers better through our redesigned sales inventory operations planning process through some of the other systems and tools that we put in place. So we feel like we're in really good shape here as lead times begin to tighten a little bit.

Okay. Great. Yes. Let's hope we don't get back to the conditions of a few years ago. As a follow-up question -- Yes, right? So my next question, I'm excited to see new program ramps ramping next time I visit the Neenah location. But I'm just wondering if with all of these new manufacturing wins and program ramps across a multiple number of locations and end markets. How close are we to needing new capacity additions? Or are you able to support all of this growth that we're expected to see this year and maybe into next year with the existing location or the existing footprint, rather?

Yes. We're in pretty good shape from a footprint standpoint, Melissa. I mean, we think we could comfortably support about $6 billion in revenue with the existing footprint. Of course, it depends a bit on geography and where the growth is, if it ends up concentrated in an area. But we're -- right now, we're in good shape with a significant available capacity in all our regions.

I'll just add there and note that part of our technology and efficiency focus within operations is not just focused on P&L improvements but also focused on essentially what I just call broadly asset utilization, whether that be machine assets in terms of machines or assets in terms of bricks-and-mortar footprint. So we've historically talked or previously talked about our auto stores, so where we're taking our warehouse and putting that into a 3-dimensional cube with robots that are running around picking up bins. And that yielded specifically a 60% reduction in space, and then we can convert that floor space to revenue. And then also, I'd also reflect on specific software tool that we're utilizing to drive efficiency and how we use our surface mount technology machines and just in the past few quarters here, we have redeployed multiple SMT lines, 7 lines, which then creates additional footprint space for, say, higher-level assembly as well as CapEx avoidance.

Yes. And from that standpoint, Melissa, capital spending, I see a shifting over the next few years from more footprint additions to these automation investments. And from a percentage standpoint, we've been running around 2.5 or below percentage of revenue for capital spending. I think we'll be in that range in the next few years. But again, it's more of a shift away from footprint to investments within our sites.

Okay. Great. Super helpful. I thought you guys were going to mention AI, but you missed your take .

Well, we could talk about it if you like.

[Operator Instructions] Our next question comes from the line of Steve Barger with KeyBanc Capital Markets.

Hi. Good morning. This is Jacob on for Steve. The first one from us is on industrial. It's a little bit of a 2-parter. First, I just wanted to follow up on the semi cap commentary. We heard from 2 large semicap OEMs yesterday that called for pretty strong growth this calendar year. They said that pull-ins are happening quickly and demand is almost overwhelmingly strong. I wanted to ask, do you agree with one of their outlooks for greater than 20% growth that's second half weighted? Is that what you're seeing in your order book with your mix of semi cap customers? And then the second part was if you could just walk through the puts and takes of the non-semi cap industrial markets, that would be helpful for how we think about the consolidated segment.

Steve, this is Oliver. From a semi cap perspective, certainly, our prepared remarks should reflect how bullish we're feeling here in fiscal '26. And certainly, we're seeing a variety of different growth rates coming through from customers, from industry metrics. I guess a couple of thoughts there. One is, and Todd hit this earlier, it's still early days, right? So this is something we've seen here just through the last quarter, the uptick in demand from our customers. So in terms of our outlook, we feel confident that we can outgrow the market exactly how that's going to play out. I think early days is the right phrase to use to quantify that.

I'd also note that as we're contemplating and giving you metrics about how we're looking at growth, we're working on our fiscal year basis, which ends in September versus a lot of the industry and customer commentary is coming across from a calendar year basis. So that's a little bit off, and we're just talking about essentially for us, 3 quarters inside the calendar year. Across the rest of the sector, I think there's a lot of other things to be enthusiastic about certainly within comms, and we noted this earlier, generally, a little bit still muted in demand. So we're seeing inflection, but still opportunity for further upside there.

Within comms, we see the tech transition unfolding from a comparable basis year-over-year. Recall that throughout F '25, we mentioned in a number of these calls how we had captured some legacy orders as the transition was bumping along, right? And so that's part of our comparable there. Another subsector we're really excited about is energy, whether that be infrastructure, distribution, control systems, storage, we're excited about our growth with our customers there. We're also excited about our funnel. We've seen a strong rate of increase with technology specifically in support of the data center, like power management and storage, thermal cooling, thermal density, in supportive thermal density, and we've got some several good-sized opportunities in the funnel there.

Understood. That's very helpful. Then the second one from us, I kind of wanted to drill into your automation and efficiency-focused initiatives maybe give you an opportunity to expand on the AI initiatives you have going on? I know you highlighted some activities you're doing but could you just give us any color on the breadth of the initiative across your manufacturing base, the time line and the potential financial benefits? I mean do you think that can benefit sales fast return? Or are you more focused on margin benefits from those activities?

Yes. I'll highlight a couple of different things we're doing here and take the opportunity to build some of our AI-driven activities and then maybe others can jump in as well. One thing that we're really excited about is how we're using automated robots to drive material deployment from our warehouses, which are converting to these auto store 3D cube, which I talked about earlier. These robots piloted that in fiscal '25 and just to show that the pace and alignment across the organization as we adopt these technologies by spring of this calendar year here, 2026, we're going to have full sight deployment of that technology across all of our sites, essentially eliminating human work, transferring materials from the warehouse to the floor for what I would say is generally lighter items, right?

And then just thinking about that, didn't stop there. So one of our sites just in the past few weeks, conducted a Kaizen activity, optimize their floor layout to now better support that technology and as a consequence, reduced as far as 75% reduction in the mileage that we're driving across -- for the material deployment. Each of those deployed box replaces roughly 1.5 to 2 FTEs. ROI on that less than 12 months. So we're pretty excited about that kind of deployment, I should say. Yes. And then from an AI perspective, we're building that in a number of different ways. So we're building AI and machine learning into how we can -- how we handle work orders that are in play, and we're specifically expecting a significant reduction in with on the production floor as a result of that. Also now using AI and some camera technology to help us define optimal standard work times which will then enable us to reduce overall labor -- or sorry, improve labor efficiency in our high mix, high level assembly aspects of our production floor.

Yes. So Jacob, a lot of what Oliver has talked about is definitely going to benefit margins, it will also help with reduced capital spending. One other AI application is around the quoting process and how can we speed up the quoting process. So that will have an impact on revenue as well, bringing in new wins.

So one of the things that's worth mentioning, too, is we have a two-pronged attack approach for how we're attacking or AI and leveraging it throughout the facility. One, we have a dedicated team of data scientists and programmers, which are tackling large enterprise-level issues similar to the ones that Oliver and Pat talked about, but we've also fully deployed AI tools to the [ death ] of all our employees, and that's getting well over daily usage from our staff. So our teams are heavily leveraging AI and the way they go about doing their work.

Our next question comes from the line of Anja Soderstrom with Sidoti.

Congratulations on the nice performance here and outlook. Most of my questions has been addressed, but did you quantify to what magnitude your seasonal bonus pay are going to pressure the margins for the second quarter?

Yes. We didn't say it in a number of terms, but it's about 50, 60 basis points of a headwind that we're overcoming. So again, to maintain operating margin consistent with Q1. We're overcoming a lot of headwinds there. And again, that's a combination of improving profitability with our new Malaysia facility, Thailand, just the sheer revenue growth, better leverage of our fixed costs. And then what we've been talking about, a lot of productivity improvements, driving efficiencies and margin improvement there.

Okay. And then do you expect further improvements in the Malaysia and Thailand facilities in the second half, right?

Yes. And typically, what we see is this hit in the March quarter from the compensation headwinds, and then we start to earn through that with productivity improvements in the back half of the year and with sequential revenue growth as well we'll be leveraging our fixed cost even further.

Okay. And then in terms of taxes, like that's going to come down. What are the puts and takes for the tax rate and where it's expected to come down?

I don't think we were guiding that, Anja. We're keeping our range at 16% to 18%. So I think the Street had us at 17%, and that's where we continue to think it will fall. If you go back to last year, it was a very low rate because we had a lot of reversals of some reserves that took place in fiscal '25. So that rate was 8%. And now we're guiding up to 17%. And the real increase is around global minimum tax that's taking effect in certain jurisdictions. But yes, I think we're going to maintain that 17%.

Okay. And then you mentioned in industrial that you won a new robotics program that was transitioning out from internal manufacturing. Is that a new customer or -- and do you have more opportunities to win more programs from them?

The customer is not new. We're currently doing work for that customer in the Americas region. What's new is we're now going to be -- that particular win I talked about is in our EMEA region. And yes, we absolutely have further opportunity with that customer. Including opportunities that are currently in our funnel of qualified manufacturing opportunities.

Our next question comes from Jim Ricchiuti with Needham & Company.

I just had a quick one. I believe in the Q4 call, you alluded to -- of some programs or it may have been 1 program that I believe was in A&D that slipped a bit. And I was just wondering if there was any catch up in Q1? Or is -- has that timing shift move to later in the year?

Yes, that's on track now, Jim.

Okay. So it's -- you're anticipating that over the next few quarters. I don't know how significant that was.

Yes. It was enough to impact the A&D results, but I wouldn't call it a big needle mover on Plexus overall revenue. I mean, yes, it has a positive impact, but it's not going to flow through in a huge way.

There are no further questions at this time. I will now turn the call back to Todd Kelsey, CEO, for closing remarks.

All right. Thank you, Shaley. I'd like to thank shareholders, investors, analysts and our Plexus team members who joined the call this morning. In closing, we're generating significant momentum, and I anticipate fiscal 2026 to be a great year for Plexus as we celebrate our 40th year as a publicly traded company. Our strong start and outlook is a testament to our consistent strategy and our more than 20,000 team members globally who focus on delivering for our customers each and every day. Thank you again to our team members, our customers and shareholders. Have a nice day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Plexus Fiscal Fourth Quarter and Fiscal Year-end 2025 Conference Call. [Operator Instructions].

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. .

Forward-looking statements are not guarantees of [indiscernible] difficulties [indiscernible] future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. 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, is supplemented by our Form 10-Q filings, with safe harbor [indiscernible] disclosure statement in our press release.

We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page. Joining me today are Todd Kelsey, President and Chief Executive Officer; Oliver Mihm, Executive Vice President and Chief Operating Officer; Pat Jermaain, Executive Vice President and Chief Financial Officer.

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. Todd?

Thank you, Sean. Good morning, everyone. Please advance to Slide 3. 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. 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. In 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.

I'm excited that the momentum [indiscernible] 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 [ for 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.

Please advance to Slide 4. Revenue of $1.058 billion approach the high end of our guidance range, marking our third consecutive quarter of sequential growth. Our team ability to support late quarter demand upside from semi cap and energy customers more than offset minor delays in new program transition in 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 5.8%. We expanded non-GAAP operating margin by 40 basis points [ in ] 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 amount that substantially exceeded our projections. We have now generated $495 million of free cash flow over the past 2 fiscal years while deploying excess cash to reduce our borrowing and accelerate our share repurchase activity. Please advance to Slide 5. For the fiscal fourth quarter, we secured 28 new manufacturing programs, worth $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, and notable market share gains within [ semi ] cap. For fiscal 2025, our team generated 400 -- 141 manufacturing wins, representing $941 million in annualized revenue. In addition, efforts to diversify our engineering solutions engagements successfully drove increased wins for fiscal 2025, including a record result in Aerospace and Defense. 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. Please advance to Slide 6.

At Plexus, we are committed to boldly driving positive change and promoting a sustainable future for and through our people, our solutions and our operations, all of which is built on a foundation of [ rest ] and transparency. The following are recent highlights of how Plexus lives our value of innovating responsibly. In September, GE [ Venova ] presented Plexus its Supplier Innovation Award at the Gas Power Supplier Conference in Shanghai, China. This award recognized Plexus' strategic engagement and collaboration in supporting a successful program transition to our facility in Xiamen, China, well ahead of GE [indiscernible] original time line. Next, as we reflect on the accomplishments of fiscal 2025 and our guiding principle that people are at the heart of who we are and what we do.

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 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 [indiscernible] organizations in the communities where we live and work.

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 8 sites reaching zero waste to landfill status, which accounts for over 40% of our manufacturing sites. Finally, we reduced absolute Scope 1 and 2 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. 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.

Please advance to Slide 7. For our fiscal first quarter, we are guiding revenue of $1.05 billion to $1.09 billion, non-GAAP operating margin of 5.6% to 6.0%, and a 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.

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.

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. 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.

We [indiscernible] 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?

Thank you, Todd. 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.

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. Starting with our Aerospace and Defense sector on Slide 8.

Revenue decreased 6% sequentially in the fiscal fourth quarter, below our expectation of flat revenue. [indiscernible] 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.

For the fiscal first quarter, we expect revenue for the Aerospace and Defense sector to be up mid-single digits [indiscernible] strength and new program ramps within the commercial Aerospace, Defense and unmanned aircraft subsectors. 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.

Our [[indiscernible] indiscernible], site [indiscernible] award from an existing customer in our unmanned aircraft subsector based on the strength of the partnership that we've built with this customer. We also captured share gain through 2 new programs in the commercial aerospace subsector that were awarded to our team in Penang, Malaysia. 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 in commercial aerospace associated with new program ramps and the expectation of modest market growth.

Please advance to Slide 9. I 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. 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 demand increases with previously ramped products contributed to the result.

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 demand 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. Our sustaining services team's exceptional quality and delivery performance drove the win. Our [indiscernible] Romania facility is [indiscernible] a new customer to Plexus 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 well as a strong cultural alignment between the 2 organizations contributed to the win.

As we look to the next fiscal year, revenue contributions from ongoing and new program [indiscernible] as well as improved end market demand, support our robust growth outlook. 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 subsectors more than offset various other demand changes. Revenue was flat for fiscal 2025, low double-digit growth in the semi-cap subsector, 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 subsector and generally muted near-term demand. The industrial market sector wins for the fiscal fourth quarter were strong at $165 million. This marks a 9-quarter high for the sector. Our semi cap wins were robust, including an award for 2 substantial programs from an existing customer for our Bangkok, Thailand facility. Continued operational excellence contributed to the award 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 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. Please advance to Slide 11 for a review of our funnel of qualified manufacturing opportunities. The funnel of qualified opportunities is up 2% sequentially and 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. The sector's momentum is further supported by a record high aerospace and defense funnel for our 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. Ongoing and new program ramps market share gains and specific subsector 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.

I'll now turn the call over to Pat. Pat?

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. 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. 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, SG&A was consistent with the fiscal third quarter. Non-GAAP operating margin of 5.8% was within our guidance range. Nonoperating 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. 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. We were extremely pleased with our free cash flow performance as we wrapped up the fiscal year. For the fiscal 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 2 years, we have generated close to $0.5 billion in free cash flow, an 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. 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. 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, 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 in 4 years. Cash cycle at the end of the fiscal year was 63 days, favorable to expectations and 6 days lower than the fiscal third quarter and 1 day lower than last year. This level of cash cycle was the best result delivered in the past 5 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. increased revenue and continued progress on working capital initiatives contributed to the sizable reduction in inventory days. Our teams 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.

For days in advance payments, we experienced a 4-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, 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 million 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. 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. 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. As such, we are estimating an effective tax rate between 16% and 18% for both the fiscal first quarter and for fiscal 2026. Diluted shares outstanding are expected to be approximately $27.3 million.

Our expectation for the balance sheet is that 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 progress 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 the usage of cash for the fiscal first quarter, a trend we have experienced in the last several years. While a 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.

[Operator Instructions] Your first question comes from David Williams with the Benchmark Company.

Congrats on the solid results. I guess maybe, first, this quarter seems fact there was a lot of discussion around the investments that you're making across the business. And it feels like you really pointed to that to support your future growth. It sounds to me like you're getting at least a little more confident in that kind of growth trajectory. And I guess first question, is that fair to say? And then secondly, what gives you that confidence, I guess, if you look out into this year in terms of the growth opportunity?

Yes. So David, yes, it does imply that we're getting more confident in the future growth potential. So we think we're on a nice growth trajectory in creating substantial momentum as we go into fiscal 2026. With regards to investments, we do, and we've talked about our new Penang facility coming online, which is having a bit of a near-term impact. But amazingly, in 1 quarter, that [indiscernible] will breakeven and in 2 quarters, it will be close to corporate profitability.

So that will be a very near-term drag for us. Hence, Pat's projection that Q2 will recover nicely and 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 ramp. So we have a number of substantial new program ramps in 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 modest improvement in end markets as we look forward, which is really good to see. Although we still haven't factored in any substantial aerospace rebound, so that could be additional upside for us as we look to fiscal '26.

Great. No, great color there. And then maybe the second here. Just kind of curious, I know that -- on the AI side, there hasn't -- there's been a lot of discussion at least in terms of your participation there and those potential opportunities. It sounds like -- forgive me if I'm wrong here, but it sounds like you said Romania picked up the new AI platform there. Just kind of curious if you could give us a little more color around that, and maybe what your opportunities are in the AI space overall?

Yes. That -- what I was talking about there was a new product and the product itself. It has AI technology and to help with [indiscernible]

Yes. And what I'd 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 in. We believe that's going to commoditize quite heavily. But we're focused on power and 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 are leveraging AI.

And I would say healthcare is a real leader in leveraging AI. So we have a number of programs in play where the product itself is leveraging AI.

Next question comes from Jim Ricchiuti with Needham & Company.

First question is, I was wondering, are you anticipating any fallout in 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 if this 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, I'll just corroborate what Todd said. So no indication of any change from our customers. Yes. I mean 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 their products.

Got it. And the second question I had is, I was hoping to drill down into your comments a little bit more about the strength in semi cap and the growth in energy. I'm wondering, has your view of semi cap for fiscal '26 changed at all versus a few months ago? Just given the modest expectations for WFE in 2026. And then on the energy side, you highlighted, I think, [indiscernible], how big a driver is that in terms of what we're hearing in the data center build-out?

Yes. I'll start with the semi cap and Oliver can jump into the power generation. But with regards to semi cap, at this point, we're viewing '25 and '26 to be pretty similar. I mean the forecast we're seeing are WFE growth in the low single digits. And I think overall, that kind of collaborates 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 '25, 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 narration as well as electrification. We talked about the fact program wins are helping to accelerate that revenue growth through F '26, and we're also seeing increased opportunity in [ EMEA ] [ and ] energy. .

Your next question comes from Melissa Fairbank with Raymond James.

I had a question probably for Oliver, the Healthcare/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 negated that inventory overhang or if it's new program ramps that are driving that revenue?

Melissa, I'll say it's a bit of both. So we are certainly, as we gave directional guidance here for fiscal '26 of robust growth. That does include strength of new program ramps. But in general, I think the inventory overhang has worked itself to the system. So we also noted that some modest market growth is expected, and that was to be indicative of the fact that, [indiscernible]

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 you're seeing going forward in that business?

Yes. I think we've previously used the term nonlinear. I think lumpy is a good term as well as we see the industry is still working through and I'd say, testing solutions and figure out what they're -- where they're going to go with that. We did a highway as part of our Q4 [ beat led ] from some strength in that specific subsector as we got some orders for legacy product from our customers. .

Yes. And just looking at '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 of broader industrial was muted for the [ year ].

Okay. Great. Having covered that space for a while. I would say, it's probably never going to be linear.

[Operator Instructions] Your next question comes from the line of Ruben Roy with Stifel.

Todd, I wanted to ask maybe a bigger picture question on sort of [ for ] 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, how the customer conversations are going in terms of -- I know tariffs is -- 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 '26, fiscal '26, however you want to sort of talk about that topic.

Yes. Well, I think in general, visibility seems okay right now. Markets have kind of 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 continue in that direction. When we think about I mean you mentioned tariffs and tariffs -- 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 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 and NEXT programs and a lot of efforts from our trade compliance team just around mitigating challenges that come up on a regular basis on [ USMCA ] being one, but there's certainly others around various components and what have you that need to be worked through.

That's helpful. And then I got a follow-up on the energy discussion because there's been a lot of discussion even last week at a trade event conference on sort of kind of going forward, power generation into data centers and around data centers, et cetera. Is that something that you would characterize as I think you just kind of mentioned how you're going and sourcing new programs, et cetera. Is that something that you put more focus or emphasis on [indiscernible] just given how much activity there is around power and data center and obviously AI?

Yes, we're definitely putting more focus around there, Ruben. And I mean we talked about an award we got from a pretty substantial player within that space. We've 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 '26, 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?

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 that take hold in fiscal '25 with a 40 basis point improvement in operating margin from '24 to '25. We expect that to continue in '26. So yes, as Todd pointed out, we're looking at pretty similar margins for Q2 and then that ability to improve as the year goes on with automation, continuous improvement efforts.

Your next question comes from Anja Soderstrom with Sidoti.

Covered a lot of ground here already. But I'm curious with the quick ramp of Malaysia, are you going to reach full capacity pretty quickly then? And how should we think about [ further ] expansions in CapEx?

No, we won't 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 they'll be at a fraction of their full capacity but still be at corporate margins is because of the way that the facilities are run there.

It's Shawn. One of the things we're doing with our automation and efficiency efforts is really looking to create more revenue capacity within our existing sites. And so whether it's warehouse automation, whether it's 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.

And just to add just a hear more to that as well, too. I think given our current footprint and the efforts that are underway, we feel pretty comfortable that we're set for a bit, barring any major changes in the geopolitical landscape that would make 1 location significantly more desirable than it is today. But right now, we have good capacity in each of our locations. .

Okay. And also you mentioned that the target for this year in revenue doesn't does not account for a return of the commercial aerospace. What are you seeing there?

Yes. Oliver, do you want to jump in on one, why don't you take it?

Yes. So we are -- as we noted earlier, we're expecting some commercial aerospace tailwind here. As we look at the broader fiscal year or F '26, I should say, but that's not contemplating any Boeing or Airbus demand change, so to speak. So the recent news just last week [ redheads ] allowing them to increase their demand, increase their production rates, I should say, that has not trickled through to a demand signal change for us yet. .

Okay. And you don't have any sort of indication on when you expect that to happen? Or is it like you're not expecting it to happen this year?

It could happen this year. I mean it needs to happen at some point as Boeing and Airbus run through the inventory that they have at their facilities and through the [ gliders ] other situation. So it just remains to be seen. It just isn't visibility to us as to when that's going to happen.

Anja, I mean, the announcement was made last Friday, if we see a change in a demand signal, we can pick that up typically within 90 days. And so if it flows through to the customers we support, that would begin to potentially help us out in sometime in calendar 2026. .

Your next question comes from Steven Fox with Fox Advisors.

A couple of clarifications, if I could. First, on the 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 over time?

Yes, I don't think it's necessarily -- we're not thinking of a hockey stick kind of revenue ramp to the year. It's more of a, call it, a linear ramp is the way that we're looking at it right now. I think the things to getting in the 9% to 12% is 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, are we -- should we consider the level of investments to be mainly focused around [ Penang ]? Or if it's not just [indiscernible], can you sort of call out what the next sort of biggest items are? And how this sort of the investments relate to like the fiscal year just completed? I'm trying to understand like if there's an unusual drag on margins for the investment level.

Yes. 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 rent growth.

So some examples would be One, we're investing in IT infrastructure to support CMC compliance, which enable 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 '24, we saw a 300% increase in [ PIK ] rate, a 60% reduction in space and similar reduction in labor. And so we rolled that out with 2 additional sites in fiscal '25. We're looking at doing another 4-ish sites in fiscal '26. And by the end of '26, we'll probably have captured about half of our opportunity across our [indiscernible] based on where that would be applicable. Other tools that we have, Shawn mentioned earlier, there's tools that we're using to essentially optimize machine performance. So if you think about a 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 and utilize 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 at all of our sites by spring of 2026. 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 a long-term drag that we're anticipating on margins. We have a near-term drag, mostly driven by [ Bridgeview ], the new site that we have in [ Panamalaysia ], 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'll will overcome them very quickly and then they'll start to provide additional productivity improvements as we move forward.

[Operator Instructions] Next question comes from the line of Steve Barger with KeyBanc Capital Markets. .

Just a longer-term question. You drove about 40 basis points of annual margin expansion over the past 3 years to the 9.5% in FY '25. And that's on revenue that really didn't grow much since 2022 or FY '22. Looking forward, I know this is an investment year, but after this, do you expect you can get back on to 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 you're making and 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 set it at 6% or above. And you're 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 '26 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. And 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 will drive productivity improvements for us in the future. Again, one of the last things Shawn mentioned was just improving capacity within our existing sites to cut down on footprint expansions as quickly as we would normally have had to put up new sites. So I think all of that combined could have us sitting here next year, looking at what's our next target to go after.

Understood. Yes. And I guess kind of a related question. I know engineering and sustaining services are a small part of the mix, but 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 we Engineering is already well above corporate target margins and sustaining, we believe, has the potential to get there as it scales. .

We have a follow-up question from Jim Ricchiuti with Needham & Company.

Just on the program ramp timing issue for Q4, was that mainly in the defense area that you alluded to?

Yes. So Q4, timing issue -- yes, minor delays in defense is what -- is the big contributor to the quarter's result. Yes.

And that is behind you looking into Q1, Q2? And then maybe just a follow-up on the A&D wins that you talked about. Again, is that mainly coming from Defense? And to what extent did unmanned going to be a bigger driver for you just given all the activity we're hearing in that market?

Yes. So that is behind us. We are, 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 to your question. You talked about unmanned aircraft, yes. So we do see that as being a bigger factor going forward that market -- as we've been watching it has evolved, we saw a good fit. We see a strong opportunity for us to be a value-add player there.

And so that's what warranted the explicit focus in the commentary today around that specific subsector. I also talked about the fact that we had additional follow-on win there. So that just further [ corroborates ] our ability to grow that subsector as we go forward here in F '26. Did I catch all the components of your question?

You do.

Just one follow-up. I mean we do expect a really strong growth year in Defense in fiscal 2026. We've picked up new wins, expanded engagements over the past a couple of quarters as well as a couple of years. Todd and Oliver 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 moat.

And then we are investing in in looking to gain additional businesses we expect to see over time additional military spending in both the U.S. and Europe. So really strong outlook for Defense, really strongly positioned there to capture new business [indiscernible] market share.

There are no further questions at this time. I will now turn the call back to Todd Kelsey for closing remarks.

All right. Thank you, John. I'd like to thank shareholders, investors, analysts and all of our [ business ] team members who joined the call this morning. In summary, I'd like to reiterate that we're pleased with our strong finish to fiscal 2025, with 3 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 $150 million of free cash flow generation.

We believe we're well positioned to carry this momentum into fiscal 2026 anticipate accelerating revenue growth and strong financial performance. Thank you again, and have a nice day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the Q3 2025 Plexus Earnings Conference Call. [Operator Instructions]

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. Some of the statements made and information provided during our call today will be forward-looking statements, including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation and future business outlook.

Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. 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, which is supplemented by our Form 10-Q filings and 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 at Plexus' website at www.plexus.com, clicking on investors at the top of that page.

Joining me today are Todd Kelsey, President and Chief Executive Officer; Oliver Mihm, Executive Vice President and Chief Operating Officer; Pat Jermain, Executive Vice President and Chief Financial Officer. 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 turn the call over to Todd Kelsey. Todd?

Thank you, Shawn. Good morning, everyone. Please advance to Slide 3.

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 delivered 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 markets. 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.

Please advance to Slide 4. 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. This offset the impact of evolving program ramp time lines and tariff-related uncertainties on our market sectors.

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. We have now achieved this goal and delivered operating margin at or above 6%, for 3 of the last 4 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. Finally, we delivered $13.2 million of free cash flow, significantly better than our expectations entering the quarter as we continue to drive strong working capital management.

Please advance to Slide 5. 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. We also added in each of our market sectors, new customers with products aligned to exciting growth technologies.

Furthermore, similar to last quarter, the revenue contribution and diversification of the wins 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.

Please advance to Slide 6. 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, all of which is built on a foundation of trust and transparency.

Our people are at 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 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.

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.

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. Finally, our commitment to customer success drove our historically strong customer satisfaction score to a 7-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 sectors.

Please advance to Slide 7. 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, overcoming modest end market demand, evolving new product ramp time lines and uncertainties created by tariffs.

Our fiscal fourth quarter guidance is for revenue of $1.025 billion 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 non-GAAP EPS of $1.82 to $1.97. At the midpoint, our fiscal fourth quarter would result in impressive non-GAAP EPS growth of 26% for fiscal 2025. Additionally, we are now forecasting approximately $100 million of free cash flow for fiscal 2025, which would represent cumulative 2-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. 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 improvement. We also anticipate sustaining our strong operating margin and free cash flow performance.

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 and 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 markets.

I will now turn the call to Oliver for additional analysis of the performance of our market sectors. 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 annualized revenue contribution of our wins performance for each market sector and then provide an overview of our funnel of qualified manufacturing opportunities.

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 ramps contributed to the performance. We expect revenue for the Aerospace and Defense sector to be flat in the fiscal fourth quarter, as improving defense subsector demand and new program ramp revenue balances muted performance from the other subsectors.

Our wins for the fiscal third quarter for the Aerospace and Defense sector were $51 million, the best in more than 2 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 subsector for our facility in Kelso, Scotland. Strength of execution yielded a number of follow-on awards and new programs with existing customers in our Defense and Space subsectors. 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 drive strong defense sector growth and a return to growth in commercial aerospace.

Please advance to Slide 9. Revenue in our Healthcare/Life Sciences market sector was up 2% sequentially for the fiscal third quarter, below our expectations 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 program ramps.

Fiscal third quarter Healthcare/Life Sciences sector wins of $116 million included a substantial follow-on award from an existing customer, with the global rollout of a platform that treats atrial fibrillation. Our historical strength of execution with both new product launches, and ongoing production for the device -- of the device for its U.S. rollout enabled the win. This program will be built in our Chicago facility.

We also won work with a new customer for our sustaining services organization. Our work will support our cardiovascular platform and be performed in our Guadalajara, Mexico facility. Our Neenah, Wisconsin facility won a substantial award with a new customer for a surgical generator product used in a novel new cancer treatment. 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 outlook.

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 in our semicap subsector.

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 communications subsector and new program ramp revenue in both the semicap and energy subsectors. The industrial market sector wins for the fiscal third quarter were strong at $83 million. This marks a 5 quarter high for the sector. Continued strength of execution and our ability to redesign for cost reduction yielded wins with 3 of our top semi-cap customers. These products will be built in our Penang, Malaysia and Guadalajara, Mexico campuses.

Wins also included a substantial award from a new customer for an automated vehicle inspection system. This product will be assembled in our Guadalajara, Mexico facility. Our positive fiscal 2026 growth outlook is supported by the better-than-market growth rate we anticipate in the energy and semi-cap subsectors as a result of continued share gains and new program ramps.

Please advance to Slide 11 for a review of our funnel of qualified manufacturing opportunities. The funnel 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.

In summary, our focus on delivering excellence and creating customer success continues to contribute to strong wins performance. 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.

I will now turn the call over to Pat. 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 sites.

Selling and administrative expense of $50 million was at the low end of our guidance, and consistent with expectations as a percentage of revenue. Non-GAAP operating margin of 6% was towards the top end of our guidance due to the strength in gross margin. Nonoperating 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 and a favorable tax rate. The lower tax rate was primarily attributed to a state tax law change, and allowed for the release of a valuation allowance against deferred tax assets.

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 expenditures, 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.

Similar to the prior quarter, we ended the fiscal third quarter in a 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, we paid a $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 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 of ROIC over the prior year, and represents the highest ROIC in nearly 4 years. Cash cycle at the end of the fiscal third quarter was 69 days, consistent with expectations, and 1 day higher than the fiscal second quarter.

Please turn to Slide 14 for details on our cash cycle. Along with the sixth consecutive quarterly reduction in gross inventory dollars, we experienced a 4-day improvement in inventory days. 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. 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. 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 million to $51 million, which is fairly consistent with the prior quarter. Note that this estimate is inclusive of approximately $6.3 million of 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. Non-operating expense is anticipated to be approximately $4.5 million, a reduction of nearly 50% from the prior year 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.

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%. 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.

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.

Fiscal 2025 capital spending is expected to be in the range of $80 million to $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 3 quarters of the fiscal year, we now anticipate generating approximately $100 million of free cash flow for fiscal 2025.

With that, Nicole, let's now open the call for questions.

[Operator Instructions] Your first question comes from the line of David Williams with The Benchmark Company.

Can you hear me okay?

We can, David.

So maybe first, the execution has been very strong financially. But I guess my question is on the semi cap. You talked about some of those pushouts 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?

David, this is Oliver. I'll take that. That had to do with just some idiosyncrasy 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 demand. And so from an overall subsector perspective, we also noted that our Q4 is [ buoyed ] by a number of new program ramps in the semi cap subsector. That's how we do that.

That's great. And then maybe just on the aerospace and defense side. Typically, when you see the semi cap that has the push and pulls, you're able to offset that through the strength in other segments. Just kind of curious what you're seeing on the Defense side -- or excuse me, the Aerospace side? And are you seeing the pull in from those aerospace customers as you would have anticipated?

Yes. 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. 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 for us moving forward.

And David, it's Shawn. Just one thing to be clear. 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 state. So if that were to change, that would positively affect our view into 2026.

Your next question comes from the line of Jim Ricchiuti with Needham & Company.

Can you hear me okay?

Yes. Now we can hear you, Jim.

Terrific. A couple of questions. Just as we think about the industrial business, it sounds like, at least as we went through the -- most of the first 9 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 business? Is that?

It is a big part. 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 semicap for fiscal '25, it's looking like it will be low double digits, call it, right now. So we had some of the pushouts that Oliver had talked about in some of the semicap business that we have.

Now within the broader industrial, though, 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. Pat, maybe I wanted to just turn to Malaysia. You talked about some of the start-up 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?

Yes. It's going to be a pretty minimal drag in Q4. And what we've seen in the past when we've 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. So I think it's a 4-quarter period to get us to profitability and closer to our corporate average.

Yes. Just to add a little bit of additional color to that, Jim. We have that site seated with a significant amount of new business already. So the ramp to profitability will be quick. I think in terms of a small number of quarters. And even to get to corporate targeted profitability levels, I wouldn't expect it to take very long.

And maybe you could just remind us what the focus -- if there's a sector-focused -- market sector focus for this site?

Yes. Well, the initial focus is going to be semicap, but it will 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.

[Operator Instructions] Your next question comes from the line of Steve Barger with KeyBanc Capital Markets.

This is Jacob Moore on for Steve Barger today. 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? Where does utilization stand today? And roughly what sort of revenue run rate could you hit if you're at your target yield?

Yes, 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 an 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 regions.

Understood. That's helpful. And then the second one from us. You mentioned that 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? 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. So it gives you an idea of the longevity of that business, something that we consider strategically important.

About 1/3 of the revenue that we have in manufacturing, we've had a direct impact on in -- through our engineering services. Right now, that business is in excess of $100 million. We don't give a lot of specifics about it, but excess of $100 million, having a really 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. Historically, we've had a strong focus within our health care business in particular. We've seen this expand into Aerospace and Defense. Industrial semicap as well as life sciences over the course of the past year in more meaningful ways. So the diversification is particularly exciting.

Yes. And from a margin standpoint, we can typically see double the manufacturing margin, so a very profitable business for us.

Your next question comes from the line of Anja Soderstrom with Sidoti.

Can you hear me?

Yes, we can now Anja.

Okay. Sorry. It's a new system that I am not used to. So I'm just curious within Malaysia, when that's fully ramped, the margins there, is that above corporate average? Or how does the margin compare to the rest of the business?

Yes. Generally, our Malaysia sites performed quite well.

Yes.

Okay. And then we haven't really touched on the tariffs. What are you sort of seeing there? Or have you seen any sort of [indiscernible] to orders or -- what can we expect?

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 on to our customers. And we haven't gotten pushback on that front. We think we're really well positioned to help our customers with a lot of strength in our trade compliance organization. We've invested heavily in there in people and process and tools.

And from a standpoint of demand, we've only seen maybe one customer pull in any demand, and we've seen pretty limited pushouts of demand. So -- so demand isn't really moving much because of the tariffs as of this point.

One of the things that we have done is within our Mexico operations, there's been a big push to drive for USMCA compliance within our -- 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.

Okay. I'm just going to squeeze in one more about the cash cycle days. Are you still expect that to come down to the low 60s eventually?

Yes. Yes. Well, that's kind of where we're guiding Q4 to 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.

[Operator Instructions] We have a follow-up question from David Williams at The Benchmark Company.

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 the -- on the tax side of things in terms of CapEx or the way you're thinking about the business in any way?

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 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 the increased defense budget that's out there. So there's some reasonable market inputs that could be positive. So we haven't seen any of that flow through as of yet though.

We have a follow-up question from Jim Ricchiuti with Needham & Company.

Just a question on the health care life science part of the business. It sounds like you're looking at fiscal '26. You're optimistic of a pickup in growth. That's going to be more difficult part of the business to forecast. Hasn't it been? It seems -- and this is not just you. We are hearing this from other players as well, including the OEMs. Just given -- I'm trying to get a sense as to what gives you the confidence about fiscal '26?

Yes, Jim, I'll offer and refer back to my prepared remarks that the strength of ongoing and new program ramps gives us, A, contributes to our Q4 outlook. Also that carries into F '26. 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.

And then the other thing I'll talk about is we talked earlier about our engineering design services. 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, health care 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 customers, with our engineering design services, relative to life sciences. So given that that's a leading indicator that gives us further optimism as we anticipate strong growth in F '26.

That's helpful. And just maybe one quick follow-up. You alluded to the potential for stronger defense in Europe. What are you seeing there? And 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?

Yes. I'll just start by what we're seeing there is certainly an increase in activity and interest. And then also I'll highlight back to the fact that we just added a new sector -- or sorry, a new customer in that sector. I guess the specifically space whenever I was talking earlier and contributing to our optimism that we're going to see additional activity in Europe in Defense.

And Jim, it's Shawn. A couple of things. We do -- Defense in aggregate is maybe a little more than 1/3 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 of weeks ago. Significantly more conversations about how we can support European defense companies. With our strong footprint in region, as we mentioned, some good initial gains here, we think there's a significant amount of opportunities. There's different TAMs out there that have been discussed. But given how we play, and where our footprint is in that market, we think we're strongly positioned to capture market share and support the upside potential out there.

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.

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.

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 cash flow performance, as well as exceptional EPS growth. We're positioned to carry this momentum into fiscal 2026 and anticipate another good year. Thank you again, and have a nice day.