Good morning, and welcome to the Plexus Corp. Conference Call regarding its Fiscal Second Quarter 2021 Earnings Announcement. My name is Tiffany, and I’ll be the operator for today’s call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the conference call for questions. The conference call is scheduled to last approximately 1 hour. Please note that this conference is being recorded. I would now like to turn the call over to Mr. Shawn Harrison, Plexus’ Vice President of Communication and Investor Relations. Please go ahead.

Thank you, Tiffany. 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 as they will not be limited to historical facts. The words believe, expect, intend, plan, anticipate and similar terms often identify forward-looking statements. 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 October 3, 2020, as supplemented by our Form 10-Q filings, and the Safe Harbor and Fair Disclosure statement in yesterday’s press release. Plexus provides non-GAAP supplemental information such as ROIC, economic return and free cash flow because those measures are used for internal management goals and decision-making and because they provide additional insight into financial performance. In addition, management uses these and other non-GAAP measures such as adjusted operating income, adjusted operating margin, adjusted net income and adjusted net earnings per share to provide a better understanding of core performance for purposes of period-to-period comparisons. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday’s press release and our periodic SEC filings. 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. In order to maintain appropriate social distancing, we are again conducting this quarter’s call virtually. Joining me today are Todd Kelsey, President and Chief Executive Officer; Steve Frisch, Executive Vice President and Chief Operating Officer; and Pat Jermain, Executive Vice President and Chief Financial Officer. Consistent with prior earnings calls, Todd will provide summary comments before turning the call over to Steve and Pat for further details. Let me now turn the call over to Todd Kelsey. Todd?

Thank you, Shawn, and good morning, everyone. Please advance to Slide 3 for a discussion of our fiscal second quarter results. Robust fiscal second quarter results highlight the advantages of our unique value proposition and consistent focus on operational excellence. We expanded our industry-leading GAAP operating margin to 5.8%, improving on last quarter's performance by 11 basis points. This was achieved through our focus on productivity improvements and expense management, along with continued solid performance from our Engineering Solutions and Aftermarket Services teams. The result includes 23 basis points of restructuring expense and 73 basis points of stock-based compensation expense. It is our best performance in over a decade since 2008 and represents the fourth consecutive quarter of GAAP operating margin in excess of 5%. We achieved quarterly revenue of $881 million, which was in line with our expectations and at the midpoint of our guidance range. Our Industrial sector exceeded our high expectations entering the quarter, led by upside from semiconductor capital equipment customers. Our Healthcare/Life Sciences sector had an exceptional quarter. We are seeing signs of improving demand for equipment used for elective procedures. Finally, Aerospace and Defense underperformed the forecast, primarily due to labor availability late in the quarter as a result of the COVID-19 pandemic. Through this combination of strong operating performance and inline revenue, we delivered GAAP diluted earnings per share of $1.42, including $0.07 associated with a modest restructuring of our operations in Scotland and Idaho and $0.22 of stock-based compensation expense. This result was well above the top end of our guidance range. I'm extremely proud of our global Plexus team as they continue to deliver outstanding results while navigating the challenges stemming from COVID-19. Please advance to Slide 4. I will now highlight fiscal second quarter accomplishments that we expect will enable accelerated future revenue growth. Our team produced another exceptional quarter of wins, delivering $284 million of manufacturing revenue when fully ramped into production. With this result, our trailing 4-quarter wins was again over $1 billion and hit a new record. The quarterly wins included 6 new logos, another very strong result that enables further growth as these relationships expand. The wins also consist of a notable aftermarket services engagement. We continue to make great progress in expanding our capabilities and growing revenue with this higher-margin differentiated offering. In addition to the manufacturing wins, our team delivered its highest level of quarterly engineering wins since fiscal 2019. Strong engineering wins are generally a leading indicator of accelerating manufacturing growth. The strong wins result highlights the success of our innovative virtual business development efforts and underscores the market recognition of our strong execution. Our go-to-market team continues to be successful in leveraging our reputation as the leader in highly complex products and demanding regulatory environments to produce several consecutive quarters of exceptional results. In addition, we announced the commencement of construction of our new manufacturing facility in Bangkok, Thailand. This 400,000 square foot facility will be complete in the fiscal third quarter of 2022. Bangkok is known for its highly skilled workforce and established supply chain. It provides us an additional growth engine in the APAC region to support customers across all 3 of our market sectors. Existing customers have already expressed significant interest in the facility, and we look forward to welcoming approximately 1,800 new Plexus team members upon its completion. Please advance to Slide 5. We anticipate our robust performance will continue for the fiscal third quarter based upon incrementally stronger demand, particularly in our Healthcare/Life Sciences sector, and our confidence in our ability to consistently execute. We are seeing broad-based strengthening of Healthcare/Life Sciences demand over the next several quarters, led by the start of a recovery for devices related to elective procedures. These increases more than offset a slowdown in point-of-care diagnostics orders. Likewise, as we look beyond the fiscal third quarter, our Industrial sector is showing significant broad-based demand increases. Semiconductor capital equipment and communications forecasts are robust. We believe our Aerospace and Defense sector revenues troughed and forecasts should begin to inflect higher. Taking these factors into consideration, we are guiding fiscal third quarter revenue of $875 million to $915 million. Overall, our customer demand exceeds our guidance, but we are limited in our ability to meet upside due to supply chain constraints. As a result of effective expense control and the efforts of our operations team in driving sustainable productivity gains, we are guiding GAAP operating margin in the range of 5.1% to 5.6%, including 72 basis points of stock-based compensation expense. With the strong operating performance, we anticipate delivering GAAP diluted earnings per share of $1.23 to $1.38, including $0.22 of stock-based compensation expense. Our guidance assumes that neither supply chain constraints, nor COVID-19 will materially impact end markets or our operations beyond what is already anticipated. Next, a few thoughts regarding our longer-term outlook. Fiscal 2021 is shaping up to be a solid year with mid-single-digit revenue growth, operating margin well above 5% and EPS growth potentially above 30%. Leveraging this foundation, we believe we have a platform to sustain strong revenue growth moving forward through the strengthening in the overall demand environment, including equipment used in elective medical procedures, an eventual commercial aerospace recovery, our ability to support secular growth markets, and the acceleration in new program wins. We're particularly excited about new program ramps related to robotic surgery, blood processing and warehouse automation. Looking beyond fiscal 2021, we are confident these demand catalysts support our goal of achieving 9% to 12% annual revenue growth while continuing to deliver industry-leading operating performance, with operating margins consistently above 5%. Please advance to Slide 6. Prior to concluding my comments, I'd like to touch on a longstanding cornerstone of our Plexus culture and a critical component to achieving our vision of creating the products that build a better world. This cornerstone is our environmental, social and governance efforts. It represents our responsibility as a company to our many stakeholders, and we reflect it through 5 pillars. We recognize we must be a responsible employer, community partner, global citizen and industry steward and that we are accountable to our stakeholders in the way we govern our company. We recognize that this responsibility wholly aligns with our commitment to create long-term shareholder value. A key part of our ESG efforts is ensuring that leaders across Plexus fully understand these commitments and are accountable, engaged in our ESG initiatives. Our leaders ensure an ESG focus is integrated into our strategy and the way we operate our business. It is also important that we effectively capture and communicate the positive impacts we pursue just as we communicate our financial results. Addressing ESG matters is not only the right thing to do, but can also result in increased operational efficiencies, innovation and expanded team member engagement and retention, all of which are critical to realizing our goal of delivering $5 billion in revenue at greater than 5% operating margin by fiscal 2025. Specific areas of immediate focus are expanding our diversity and inclusion efforts, which is a nonnegotiable aspect of our culture at Plexus and an enabler of our ability to engage and retain top talent. We're also making capital investments to measure and reduce energy consumption and seeking opportunities to reduce waste to landfill. When we build new factories, they will leverage green technologies, which is occurring with our new facility in Thailand. It's not lost on us that in order to fulfill our vision to create the products that build a better world, we must go beyond that and also take action to build a better world. These actions include treating our people exceptionally well, improving the communities that we touch, minimizing our impact on the planet and influencing our business partners to do the same. As our ESG strategy continues to develop, investments occur and milestones are realized, we are committed to providing updates on the benefits and value to our team members, customers, partners and shareholders. In closing, I would like to thank our approximately 19,000 Plexus team members for not only helping to create the products that build a better world, but for your efforts in building a better world. I'm proud of your commitments and accomplishments. I will now turn the call over to Steve for additional analysis of the performance of our market sectors and operations. Steve?

Thank you, Todd. Good morning. I will start with a review of the performance of our market sectors for the fiscal second quarter of 2021 as well as our expectations for the fiscal third quarter of 2021. Revenue within our Industrial sector increased 8% for the fiscal second quarter, which was better than our expectations of a mid-single-digit increase. Greater demand across several subsectors, including semiconductor capital equipment, test and measurement, and communications contributed to this stronger result. Looking ahead to the fiscal third quarter, demand in the semiconductor capital equipment subsector remains strong, but supply chain constraints will limit our ability to realize the full potential. Additionally, new program ramps in our industrial equipment subsector are being offset by two programs that are ramping down this quarter. Consequently, we anticipate a low-single-digit decrease for our Industrial sector in the fiscal third quarter before an expected return to growth in the fiscal fourth quarter. Our Healthcare/Life Sciences sector revenue increased 10% in the fiscal second quarter, exceeding our expectations of a high single-digit increase. Strong demand for analyzers used for COVID testing and increasing demand for some elective medical devices were the main contributors. For the fiscal third quarter, we expect the forecast for elective medical products to keep improving, leading us to anticipate a mid-single-digit increase in our Healthcare/Life Sciences sector. Revenue in our Aerospace and Defense sector fell 7% in the fiscal second quarter, falling short of our expectations of a low single-digit increase. Broad softness across the sector, combined with labor shortages due to COVID quarantines late in the quarter, led to this miss. Looking into the fiscal third quarter, we do not expect improvement in end market demand, particularly in commercial aerospace, until later this fiscal year, so we are forecasting flat revenue for this sector in the fiscal third quarter. Now, we will look at our wins performance for the fiscal second quarter. We secured 42 new manufacturing programs, which we expect to generate $284 million in annualized revenue once fully ramped into production. The mix of wins between existing and new customers was well balanced this quarter, with 27 wins coming from current customers and 15 from new relationships. Among the new relationships are the addition of six new logos and the expansion into new groups with nine existing customers. This strong performance brought our trailing four-quarter wins to a record level of over $1 billion. With this momentum, our wins remain very healthy at 30%, surpassing our 25% goal and supporting our long-term growth strategy. Regarding manufacturing wins by region for the fiscal second quarter, the APAC region achieved its highest quarterly wins in over six years at $130 million, with trailing four-quarter wins growing 7% to $419 million. The unique value proposition of our Healthcare Center of Excellence in Penang, Malaysia is recognized by our customers, with 70% of the APAC wins related to this center. The Americas region saw wins of $119 million, resulting in an 8% increase in trailing four-quarter wins to $481 million. Similarly, our Healthcare Center of Excellence in Guadalajara, Mexico is also producing strong wins. The EMEA region recorded wins of $35 million, which includes a significant program from a new logo requiring in-region manufacturing, bringing the region's trailing four-quarter wins to $144 million. Now, let’s delve into the manufacturing wins performance by market sector. Our Healthcare/Life Sciences team achieved a record wins total of $153 million in the fiscal second quarter, raising our trailing four-quarter wins to $0.5 billion, also a new record. The Industrial sector also showed healthy performance with $96 million in new wins for the fiscal second quarter, and the team added two new logos during this period. The Aerospace and Defense sector captured wins totaling $35 million, including two new logos for our growing space subsector. To highlight some wins from the fiscal second quarter, in the Healthcare/Life Sciences category, we secured a Class 3 defibrillator to be deployed in urgent care settings, transferring production from the customer's internal manufacturing to our Penang facility. Additionally, this facility will ramp a single-use device for breast cancer detection. The Healthcare/Life Sciences team also obtained the manufacturing rights for a next-generation diabetes monitor from a current customer, which will be produced in our Guadalajara facility. In the Industrial category, we landed a project from a new customer specializing in warehouse automation, with the automated picking system to be manufactured in our Appleton, Wisconsin facility. Furthermore, we secured the manufacturing of a new distributed architectural cable access product, expected to ramp in our Guadalajara facility later this year. Within the Aerospace and Defense wins, we established a program with a significant new defense customer, who chose our Boise, Idaho facility for its capability to produce advanced technology assemblies at scale within the U.S. Finally, this team also won a project for a new device for secured communications, which will add to the existing product family made for this customer in our Oradea, Romania facility. Moving on to our funnel of qualified manufacturing opportunities, we finished the fiscal second quarter with a strong $3 billion. The industrial sector funnel closed at $583 million, boosted by solid wins and our decision to forgo a large outsourcing opportunity that would have diluted our earnings. This choice highlights our commitment to profitable revenue growth. Although the Healthcare/Life Sciences sector saw a slight dip in their funnel due to excellent wins, new projects with a robotic-assisted surgical device and a catheter monitoring system kept the funnel at a healthy $1.8 billion, supporting strong wins performance going forward. The Aerospace and Defense sector increased their funnel by $33 million to finish at $700 million, marking the fourth consecutive quarter of funnel growth. Despite muted end markets, business development activity remains strong, including the addition of a new space program to their funnel this quarter. Now, shifting to operating performance, we achieved a strong GAAP operating margin of 5.8% for the fiscal second quarter, which is an outstanding outcome. While it requires the entire organization to generate such results, our operations team in the Americas has steadily improved operational efficiency. Their focus on continuous improvement has significantly contributed to our robust fiscal second quarter results. Their efforts are a key reason our operating margin has consistently been above 5%, and we believe it will remain there. In conclusion, while operational excellence often brings to mind the manufacturing process, it encompasses much more. You cannot manufacture anything without the necessary materials. Plexus' global and regional supply chain teams are proving their commitment to operational excellence by navigating the current challenging supply chain environment, which enables our factories to continue delivering for our customers. I want to express my gratitude to each of them for their dedication and hard work, which have set Plexus apart in the marketplace. I will now hand the call over to Pat for a detailed review of our financial performance. Pat?

Thank you, Steve, and good morning, everyone. Our fiscal second quarter results are summarized on Slide 14. Second quarter revenue of $881 million was at the midpoint of our guidance, while gross margin of 10.3% exceeded the top end of our guidance. Favorable gross margin resulted from improvements in our Americas region due to better business mix and operational performance. In addition, we experienced lower-than-anticipated health care costs due to a reduction in claims activity. Selling and administrative expenses of $38.3 million were in line with expectations for the quarter. Our GAAP operating margin of 5.8% was above our guidance due to the improvement in gross margin. This is the fourth consecutive quarter with operating margin above 5%. Inclusive in our GAAP operating margin was 73 basis points of stock-based compensation expense and 23 basis points of restructuring expense. Non-operating expenses of $4.3 million were favorable to expectations, primarily due to lower interest expense. Given the strength of our balance sheet and free cash flow generation, we elected to repay our 364-day term loan early. This loan totaled $138 million and was originally due at the end of April. The early repayment led to lower interest expense for the quarter. GAAP diluted EPS of $1.42 was above the top end of our guidance range for the reasons already mentioned. Turning now to our cash flow and balance sheet on Slide 15. We delivered $82 million in cash from operations and spent $7 million on capital expenditures, resulting in significant free cash flow for the quarter of $75 million, a result well in excess of our quarterly net income. During the fiscal second quarter, we purchased approximately 349,000 shares of our stock for $29.2 million at an average price of $83.39 per share. At the end of the second quarter, we had approximately $53 million remaining under the $100 million fiscal 2021 authorization. We expect to repurchase the balance of the authorized amount on a consistent basis throughout the remainder of fiscal 2021, while taking market conditions into consideration. At quarter end, cash totaled approximately $295 million, sequentially lower by $62 million. The lower balance was a result of the early repayment of our term loan, which was funded with cash and capacity under our revolving credit facility. With the term loan repayment during the quarter, our total debt was sequentially lower by almost $100 million. At quarter end, we had $38 million borrowed under our $350 million revolving credit facility. With our exceptional operating performance, we delivered return on invested capital of 17.3%, sequentially higher by 100 basis points and the highest return in 4 years. This result generated economic return of 920 basis points above our weighted average cost of capital, creating considerable shareholder value. At quarter end, we were pleased with our cash cycle, which came in favorable to our guidance. With the result of 72 days, our cash cycle was sequentially improved by 8 days. Please turn to Slide 16 for details on our cash cycle. While inventory dollars were essentially flat compared to last quarter, inventory days reduced by 4. The improvement in days primarily related to a higher level of revenue in the fiscal second quarter and continued diligent inventory management. Adding to the better cash cycle days were modest improvements in both our payable days and customer deposit days. The dollar value of customer deposits increased by approximately $20 million during the quarter. As Todd has already provided the revenue and EPS guidance for the fiscal third quarter, I'll review some additional details, which are summarized on Slide 17. Fiscal third quarter gross margin is expected to be in the range of 9.5% to 10%. At the midpoint of this guidance, gross margin would be sequentially lower, primarily due to a rise in healthcare costs, representing a return to a more normalized pre-pandemic level. In addition, we expect additional incentive compensation expense linked to the increased revenue and return. For the fiscal third quarter, we expect SG&A expense in the range of $39 million to $40 million. At the midpoint of our revenue guidance, anticipated SG&A would be 4.4% of revenue, slightly higher than the fiscal second quarter. Again, increased healthcare costs and incentive compensation expense are impacting the guidance. Fiscal third quarter GAAP operating margin is expected to be in the range of 5.1% to 5.6%, which includes 72 basis points of stock-based compensation expense. A few other notes for the fiscal third quarter. Depreciation and amortization expense is expected to be approximately $15 million, which would be slightly lower than the fiscal second quarter. Non-operating expenses are expected to be in the range of $3.8 million to $4.2 million. At the midpoint of this guidance, these expenses would be approximately $250,000 below last quarter, primarily due to lower interest expense. We are estimating an effective tax rate of 12% to 14% and diluted shares outstanding of approximately 29.2 million shares. Our full year effective tax rate is also expected to be in the range of 12% to 14%, which does not assume any legislative changes. Our expectation for the balance sheet is that working capital investments will increase compared to the fiscal second quarter. We expect additional inventory as we increase procurement activity to meet the anticipated higher second half demand. Based on our revenue forecast, we expect this level of working capital will result in cash cycle days of 77 to 81 days. At the midpoint of this guidance, cash cycle would increase 7 days compared to the fiscal second quarter, primarily due to the inventory requirements. Finally, our capital spending estimate for fiscal 2021 remains in the range of $70 million to $85 million, which includes approximately $23 million related to our expansion in Thailand. For the full year, we continue to expect free cash flow generation of approximately $100 million. This amount will be dependent on the timing of capital expenditures for Thailand and working capital investments needed to support the revenue outlook as we enter next year. With that, Tiffany, let's now open the call for questions.

And your first question comes from the line of Jim Ricchiuti with Needham & Company.

I have a couple of questions. I wanted to focus on the supply chain constraints you mentioned. I assume this is connected to what we've been hearing about for some time now regarding the chip shortages. Does this represent most of those constraints?

Yes, this is Steve. We track around 60 commodities as a company, and this is a widespread challenge that everyone is facing, not just us. Of those 60 commodities, about 85% have either pricing increases or lead time challenges. So, it's a broad-based supply chain issue. Our teams are doing an exceptional job managing it, but this is consistent with what you've likely heard from other companies in the industry.

Got it. So if we think about what at least we're hearing out there is that it doesn't sound like this is going to be resolved anytime soon. And so I guess what I'm wondering is, is there a potential risk that this remains a headwind in Q4 for you guys. At the same time, that we're hearing about an economy that could grow 6% or more in the U.S. this year. And so it seems like you've got the potential for customers to potentially accelerate activity. And so I'm wondering how we should think about that as we think about Q4 and even early next year?

Yes. We are reasonably confident about our forecast from customers regarding our ability to secure supply and produce for them. As I mentioned last quarter, one of our concerns is that some customers are reducing their upside demand within the quarter and lead time, which makes it more challenging for us to deliver. We have a significant amount of revenue we could generate if we could improve our supply chain. Therefore, my focus is more on our capability to capture upside potential rather than worrying about downside risks.

Yes. The 1 thing I'd add to that, too, Jim, and this is Todd, is as we look to Q4 and as we look at fiscal '22, we're bullish about the demand that's out there, and our supply chain guys are working to clear all the challenges that we have out there. But there's solid demand and our ability to execute on the demand that comes in, in under more normal circumstances as strong as ever. The challenge becomes when you're dropping in things inside the quarter or inside the lead time of certain components that are out there right now.

Got it. Just a final question. I'm wondering if you called out this aftermarket services engagement. I'm wondering if you could say anything more about that with respect to size, type of customer and whether this is maybe an area that you think you're going to be able to further leverage your capabilities with maybe other customers like this.

Yes, we're very enthusiastic about this opportunity, Jim. It's with a healthcare customer, though I can't disclose any specific product details. This engagement spans all three of our regions and involves multiple sites, making it significant from a revenue perspective. We've previously discussed our aftermarket potential and aim to grow it to 5% to 10% of our overall revenue in the long run. I believe this opportunity is a positive step toward that goal. This single opportunity could substantially increase our revenue in the aftermarket and, particularly, when combined with our existing business in that area.

The next question comes from the line of David Williams with Loop Capital.

Congrats on the solid quarter. My first question pertains to the shortages you've mentioned, and you've provided some insight on that. I'm curious about how these shortages may be affecting your customers. Beyond the manufacturing process, do you sense that they might be experiencing any issues that could limit their ability to sell in their markets?

I would say that most of what we're doing is quite close to a finished product. Our customers do add value in certain areas, so I don't think they are facing significant constraints as long as we can deliver. For the most part, they are able to fulfill their needs. That said, some customers do have secondary products and other items they incorporate. However, the main challenge right now has been primarily related to electronics and other components.

The other thing I'd add to on that, David, is we're seeing really strong demand from our semiconductor capital equipment customers, of course, because they're the ones who can help the fabs and the manufacturers get beyond the situation that we're in right now.

Sure, that makes sense. Are your customers experiencing a drop in orders at the same rate as the previous quarter? How do you view the demand? Is it increasing, and what has that trend been like?

The demand environment itself is just really strong right now. I mean if we look at what we saw in the out quarters, 1 quarter ago versus today, it's completely different. I mean, particularly within our Industrial sector where semiconductor capital equipment and communications are very strong. And then in healthcare, where elective is coming up very rapidly. So we're seeing major demand increases across those 2 sectors in particular.

Great. And then lastly for me, maybe is the industrial segment is an area that we've thought would see a nice uptick as we kind of got through COVID here. And it seems like maybe some of the automation has finally begun becoming a bigger play there. What is your sense in terms of that segment in particular? And just the demand that you're seeing now? Do you think this is something that maybe we're in the beginning of a new cycle for some of the industrial especially on automation? Or do you think this is maybe just a blip and it settles down as we get into next year?

Yes. So I'll just hit specifically on the warehouse and factory automation, and then maybe Steve can provide a little bit more color on the sector overall. But that's one of the areas I'm going I highlighted a bit in my script that we're very excited about a few different program ramps that we have going on in there. And we think it's a huge secular growth market for us with just outstanding potential. It's particularly an F '22 type event for us, not really in F '21, but in a major way, but we're very excited about what's happening within warehouse and factory automation.

Yes. I mean, just to reiterate what Todd said, I think we've got 2 things going on. One is that we are winning new customers and taking market share in that space. And that market space is also set for growth. And so you've got both things going and working in the right direction. So as Todd said, we're pretty optimistic about that as we get into '22.

Your next question comes from the line of Adam Tindle with Raymond James.

Okay. Todd, I just wanted to start on wins and funnel, another healthy quarter here. Maybe you could touch on the composition of the incremental wins from a profitability profile basis. As those layer in, what sort of kind of gross and operating margin profile on that incremental contribution? And then secondly, for Steve, just kind of on this topic from an operating standpoint, recognize these wins are healthy. What lanes do the salespeople have to work within? And maybe why not expand those lanes, given margins are at record levels, economic return is so far in excess of cost of capital, you talked about passing on a large outsourcing opportunity. So I just wanted to ask from an operating standpoint, why not expand the lanes?

Yes. So from a standpoint of the margin profile of the new wins, I would say they fit nicely within our model. And what we do is we give our sector leaders the leeway to be able to manage their portfolio as a book of business. And they know that as they bring in certain new business, it will be at lower margins as it typically is as it ramps up and particularly with new customers, but then they layer on top of that, some better margin business in essence, run a portfolio that meets their targets. So we give them a lot of leeway. But in general, they're good at targeting business that fits the type of financial model that we want to deliver.

Yes, I will address the second part. The sector teams have significant freedom regarding their strategies. For instance, the Healthcare team and Life Sciences team are pursuing robotic surgery, the Industrial team is focusing on automation and warehouse automation, and the Aerospace and Defense sector is exploring space products. They can pursue opportunities they believe will drive future business, provided it aligns with our overall strategy. Regarding the specific opportunity you mentioned, I'm glad you raised it because it highlights the discipline our teams exhibit. This particular customer is transitioning from a hardware platform to a software platform, reflecting the industry's direction. Honestly, this could have generated a considerable revenue boost in the next year or two, but we recognized that the end market was likely heading toward commoditization and the volume of products needed would decrease. While we could have pursued and won that opportunity, it would have posed margin challenges in the early stages, and we concluded it wasn't the best decision for the long term. Although it's often difficult to forgo revenue opportunities, I think it’s impressive that our teams are able to pursue the right business, letting go of what isn't suitable for us. I was quite impressed with their decision-making.

One additional thing I'd add on that as well, Adam, is when we think about our markets and our pricing, we believe that at our financial model, our markets support the low double-digit growth target that we have.

Yes. That makes sense and helpful color. I appreciate it. Maybe just a follow-up for Pat. One of the other impressive stories that you've driven so far at the company is the OpEx trends. Ratios have improved significantly. You've had productivity gains, expense management. I remember years ago, trying to get below 5% operating expense as a percent of revenue, and you're now pushing to the low 4% range. Just talk about the trajectory from here on OpEx. Is the right way to think about the normalized model still mid 4%? Has it become lower than that? Is there additional opportunity? Just maybe just walk us through the OpEx line?

Sure. Yes, I think there is opportunity. I think we're still going to be operating within this 4% to 4.5% range. So depending on investments, we make in certain quarters. But I think it does have the ability to trend down, especially if we're driving double-digit top line growth, we can really leverage our OpEx expenses to see some improvement. But I think, Adam, working within that low 4s is probably reasonable going forward.

Our next question comes from the line of Steven Fox with Fox Advisors.

I had another question about the component supply situation. During the quarter, you actually reduced inventories even as conditions were tightening. I understand you don't speculate on inventory, but why weren't you able to encourage some of your customers to prepare in advance, perhaps creating opportunities for some upside? I also have a follow-up question.

Yes. I would say that some of our customers did get ahead of it. We were definitely building inventory for a few customers, especially in semiconductor capital equipment. And as Pat talked about, the deposits that some of our customers put, they were asking us to get ahead of the financial forecast as they saw it coming. I would say some other industries, specifically like the elective procedures in Healthcare/Life Sciences, it's coming back a little bit quicker than what people thought. And so there is a question about how quickly they should have brought in inventory and working with them. I can tell you that in our aerospace customers, we are having those conversations with some of our aerospace customers now about starting to procure inventory for the eventual return of that market. So it's a case-by-case situation, and we are doing that, and we are working effectively with customers in many cases. Other cases, it's really about a belief in terms of what their forecasts are going to be. So I think we've got a good balance, and we're able to do that. In terms of inventories, a dollar numbers from a dollar standpoint, it's up days were down as we look through the quarter here. So you will see inventories continue to build here for a little bit before we start to bleed them off as the markets clear up a little bit.

Great. That's helpful. And then just on the labor shortages, you mentioned the sort of headwind. Can you just sort of go into some more details on whether that was your own facilities or further up or down the supply chain? And how you expect that to clear given that other regions outside the U.S. still seem to be struggling with COVID?

Yes. So it was related to our facilities. And basically, we had a number of positive cases that allowed us to lose sometime late in the quarter. And I mean, generally, it's just one of those things that we've been managing through and been managing very effectively. The thing why it became an issue this quarter is because it was so late in the quarter, there wasn't enough time to recover. But generally, we're able to recover from those without really much of an impact.

Your next question comes from the line of Matt Sheerin with Stifel.

Another follow-up regarding the supply constraints. Could you quantify any miss upside opportunity? You talked, Steve, about some headwinds in terms of revenue on semi cap. Even though it sounds like customers are trying to get ahead of it. Are we talking about like a 5% opportunity miss? Could you just quantify that?

Sure. The upside that we saw in the fiscal second quarter that customers dropped in is probably $10 million to $15 million. But as quickly as I got drop and there was no way we were going to realize that. What we're looking at for the current fiscal quarter is about $40 million to $50 million of demand that we do not have loaded into our financial forecast that if we could get materials we think we could execute on.

Okay. Great. And are you seeing those projects then get just pushed out? And as the component constraints ease, you'll start to see some acceleration there?

Yes, that's a great question. I would say that we do believe some of the demand is going to push, and we do see it building in future quarters. One of the conversations we're having with customers is how much of it is perishable. I would say it's a little early to quantify exactly that entire $40 million to $50 million is going to be realized in future quarters versus how much is perishable. But I guess my message is that some of it's going to push some of that's going to be perishable, but we haven't really been able to quantify it completely yet.

Okay. Great. And on the Aerospace side, it sounds like fundamentals are bottoming there. And do you expect sort of bounce along the bottom here for a couple or 3 quarters? Or are there any signs, for instance, MRO picking up or any sort of indicators that give you some more confidence that it's going to be a faster recovery?

Yes. So what we expect is this quarter to be kind of somewhat around the bottom, and then it start to pick up a bit. What we're seeing pick up right now is MRO as well as business jets is picking up rather nicely right now. Now we think the next thing to come would be the single aisle, but that's probably a few quarters out yet. And then it could be a long time before we start to see the multi aisle start to pick up within commercial aerospace.

Okay. Lastly, I have a quick question for Pat about how we should approach interest expense and tax rate beyond the guidance for the June quarter. Are we expecting it to be relatively flat in the upcoming quarters? Does that make sense, or will interest expense vary based on working capital or other factors?

Yes. I think our interest expense, if you're looking at other income expense that I guide, I think we could see that come down $1 million or $2 million going into fiscal '22 with lower interest expense, if we keep the capital structure the way it is. Tax rate is real uncertainty at this point. I think what I can tell you is we're in the same boat as every other company that if changes go through, our tax expense is going to go up, whether it's domestic tax or offshore profit tax on offshore profits. So very similar to other companies there.

Your next question comes from the line of Paul Coster with JPMorgan.

This is Paul Chung on for Coster. So just on competition, can you expand on the pricing environment your peers are also seeing pretty strong margin performance. Just your thoughts on the reasons behind kind of the more favorable pricing environment in your view? And how do I continue to stay disciplined on pricing and your expectations over the year and longer-term for the industry?

In general, the pricing environment is much more disciplined now than it has been in the past within our industry, which is positive for everyone. There are numerous new management teams among our competitors, and I believe this has significantly influenced the situation. From a pricing standpoint, it has been a favorable environment. However, we have made efforts to establish differentiated positions, focusing on capabilities rather than solely on price competition. This approach also benefits us.

Got you. And then as we kind of think about post COVID, do you expect some of your existing customers to kind of accelerate the shift to outsource manufacturing? And how are those conversations evolving? And then same question for new customers and new logos? And then anything you want to call out in Asia and the particular strength there?

In light of recent disruptions, such as COVID or economic downturns, customers generally reassess their sourcing strategies. We have noticed a slight increase in customers evaluating their approaches. For instance, one customer is moving from internal production to outsourcing for aftermarket services. Disruptions tend to lead to more decisions like this, so we might see further shifts in the future. Regarding our APAC operations, the team is performing exceptionally well, and our strategy is proving effective. Our expansion into Thailand aims to increase capacity in Southeast Asia, especially as our facilities in Malaysia are nearing full capacity. Overall, things are progressing steadily, and we achieved record wins this quarter, which reflects positively on our efforts in the region.

Okay, great. Lastly for Pat, regarding free cash flow, if I consider your guidance for the third quarter, I expect there might be slight usage, but the fourth quarter has performed well in the past two years, averaging close to $100 million. What are your thoughts on the annual free cash flow guidance? Is there some conservatism included in that?

Yes. Some of this will depend on the timing of capital expenditures for Thailand. We have $23 million allocated for this year, and some of that might carry over to next year, which would enhance our free cash flow. We plan to procure a significant amount for the growth we anticipate in fiscal '22. I believe this will influence our working capital and increase our investments, which is included in my estimates. Therefore, I think around $100 million is still a reasonable expectation, depending on how next year unfolds, and we'll have more clarity on that in the next three months.

At this time, I'm currently showing no further questions in queue. I will now turn the call back over to Mr. Todd Kelsey.

Alright. Thank you, Tiffany. And before closing, I'd again like to thank our Plexus team members globally. I want to thank you for your exceptional performance, another excellent quarter and for continuing to work incredibly hard to meet the needs of our customers. And I also want to thank everybody who joined our call today. Again, we appreciate your interest in Plexus, and we appreciate your support.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.