Plexus(PLXS) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for fiscal 2025 was $1.058 billion, marking the third consecutive quarter of sequential growth and approaching the high end of guidance [7] - Non-GAAP EPS grew over 30% to $2.14, substantially exceeding guidance due to favorable discrete tax items [7][25] - Non-GAAP operating margin expanded by 40 basis points to 5.8% [8][24] - Free cash flow for fiscal 2025 was $154 million, significantly exceeding projections, with a total of $495 million generated over the past two fiscal years [8][25] Business Line Data and Key Metrics Changes - Aerospace and Defense sector revenue decreased 6% sequentially in Q4, with flat revenue for fiscal 2025 due to delays in new product launches [16][18] - Healthcare Life Sciences sector revenue increased 1% sequentially in Q4 and 5% for fiscal 2025, driven by strength in imaging and monitoring subsectors [18][19] - Industrial sector revenue was up 11% sequentially in Q4, but flat for fiscal 2025, with strong wins of $165 million in Q4 [20][22] Market Data and Key Metrics Changes - The funnel of qualified manufacturing opportunities increased by 2% sequentially to $3.7 billion, with a record high in aerospace and defense sector opportunities [22] - The company expects mid-single-digit growth in the Aerospace and Defense sector for Q1, driven by new program ramps [17] - The Healthcare Life Sciences sector is anticipated to grow high single to low double digits in Q1 due to ongoing program ramps [18] Company Strategy and Development Direction - The company aims for revenue growth in excess of 9%-12% in fiscal 2026, supported by new program ramps and market share gains [7][13] - Investments will focus on talent, technology, and facilities to enhance operational efficiency and support sustained revenue growth [7][12] - The company is committed to driving positive change and promoting sustainability through its operations and community engagement [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in future growth potential, citing substantial new program ramps and modest improvements in end markets [40] - The company is monitoring the impact of government shutdowns but has not seen any indications of slowdown in major market verticals [48] - There is optimism regarding the defense sector's growth, with expectations of increased military spending in the U.S. and Europe [114] Other Important Information - The company achieved a gross margin of 9.9% in Q4, consistent with guidance, and experienced improved fixed cost leverage [24] - The cash cycle improved to 63 days, the best result in five years, due to reduced inventory days and improved working capital management [27] Q&A Session Summary Question: Growth trajectory and investments - Management indicated increased confidence in growth trajectory due to substantial new program ramps and modest market improvements [36][40] Question: AI opportunities - The company is seeing opportunities in AI, particularly in power generation and healthcare, with several programs leveraging AI technology [41][44] Question: Impact of government shutdown - No indications of slowdown due to the government shutdown have been observed, and customer conversations remain stable [48][49] Question: Semicap and energy growth - The outlook for semicap remains similar to previous forecasts, with expectations of share gains, while energy growth is driven by infrastructure and power generation [51][52] Question: Healthcare life sciences strength - Strength in the healthcare sector is attributed to both new program ramps and the resolution of inventory overhang [55][56] Question: Customer visibility and tariffs - Customer visibility is stable, with ongoing focus on mitigating tariff-related challenges [66] Question: Margin expansion outlook - Management expects to overcome near-term headwinds and achieve better fixed cost leverage with revenue growth [102] Question: Program ramp timing - Minor delays in defense programs contributed to Q4 results, but growth is expected in Q1 and beyond [109][110]