Good morning, and welcome to the Plexus Corp. Conference Call to discuss its Fiscal Fourth Quarter 2022 Earnings Announcement. My name is Justin, and I will be your operator for today's call. I would now like to turn the call over to Mr. Shawn Harrison, Plexus Vice President of Communications and Investor Relations. Shawn?

Thank you, Justin. Good morning, everyone, 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 October 2nd, 2021, as supplemented by our Form 10-Q filings and the safe harbor and fair disclosure statement in yesterday's 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, Chief Executive Officer; Steve Frisch, President and Chief Strategy Officer; Pat Jermain, Executive Vice President and Chief Financial Officer; and Oliver Mihm, Executive Vice President and Chief Operating 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. Good morning, everyone. Please advance to Slide 3. I would like to congratulate our nearly 25,000 team members globally. Through our unwavering commitment to operational excellence in our quest to provide our customers exceptional service, our results improved sequentially throughout fiscal 2022, resulting in accelerating momentum that we expect to continue into fiscal 2023. We ended our fiscal 2022 on a very strong note by delivering record quarterly revenue and operating profit. Please advance to Slide 4 for a review of our fiscal fourth-quarter results. Our fiscal fourth-quarter revenue of $1.12 billion, representing year-over-year growth of 33% and GAAP EPS of $1.78 significantly exceeded our guidance. Our EPS result included $0.18 of stock-based compensation expense. While we have not witnessed any meaningful easing in supply chain conditions, our supply chain team, in conjunction with our partners and our investments in people, processes, and tools, continues to find avenues to clear additional supply. As a result of the progress made in mitigating constrained supply, all three of our market sectors had strong quarter-over-quarter growth and significantly outperformed our expectations entering the quarter. The revenue upside created fixed cost leverage resulting in record GAAP operating profit and GAAP operating margin equaling our 5.5% goal, a result which included 45 basis points of stock-based compensation expense. Our funnel of qualified manufacturing opportunities remained at a record $3.4 billion. We also continue to win meaningful new programs even as supply chain conditions have slowed the decision-making process for some customers that we anticipate and tend to partner with Plexus. We won $214 million in new manufacturing programs for our fiscal fourth quarter, bringing our fiscal 2022 total to $1 billion. Included in the fourth quarter wins is an exciting opportunity with a new customer in vehicle, truck, and bus electrification, building upon our existing presence in this secular growth market. Please advance to Slide 5 for a review of fiscal 2022 results. Fiscal 2022 revenue was $3.81 billion, which represented a 13% increase from fiscal 2021, exceeding our 9% to 12% revenue growth target. Our revenue growth benefited from improving end market demand, new program ramps, inclusive of share gains, growing success in mitigating challenged component supply, and our exposure to secular growth markets. Our GAAP operating margin finished the year at 4.7%, inclusive of 61 basis points of stock-based compensation expense, and return on invested capital ended at 13%. While both results were slightly below our long-term targets, we delivered meaningful shareholder value, and the measures increased substantially as the fiscal year progressed, positioning us well for a strong fiscal 2023. Please advance to Slide 6. As a result of our strong performance in fiscal 2022, our 5-year compounded annual revenue growth rate now stands at an industry-leading 9%, consistent with our 9% to 12% goal. Our return on invested capital over that same period is 14.3%, just under our long-term target of 15%. As we look forward, we remain focused on delivering at least 9% to 12% revenue growth, 5.5% GAAP operating margin, and 15% return on invested capital. We believe these are achievable goals and represent industry-leading performances. Please advance to Slide 7. As proud as I am of our efforts to deliver operational excellence during fiscal 2022, I'm equally as proud of our environmental, social, and governance accomplishments. Last year at this time, we implemented a paid volunteer time off program for our team members globally, which has been heavily utilized and is a strong success. We've also grown momentum with our employee resource groups focused on diversity and inclusion, adding new chapters of these team member-driven groups across all three of our operating regions. In addition, we made great progress in our global energy reduction initiatives, reducing relative electricity consumption within our manufacturing sites by over 10%. Furthermore, we spent considerable time innovating across our suite of solutions in order to deliver services to accelerate our customers' progress towards their ESG goals. Innovation is a core pillar of our environmental, social, and governance program and central to reducing the environmental impact and increasing the sustainability of our customers' products. We provide innovation through our full suite of engineering solutions, supply chain design and management, new product introduction, manufacturing, and what was formerly known as our aftermarket services. Please advance to Slide 8. At Plexus, we are committed to building a better world by the way we innovate and operate. Our rebranded Plexus sustaining services exemplifies this vision. Our customers want more than a partner that fixes a broken product. Our customers want help in growing revenue, being more profitable, extending the lifecycle of their products, and reducing waste. Importantly, Plexus sustaining services creates value for our customers through extending the service life of capital equipment that can be in use for 5, 10, or even 20 years. Through our sustaining services, Plexus supports our customers and their customers by ensuring products are ready for use at the critical time and point of need. We ensure products that go back into the market are properly decontaminated and performing at or above the standards of newly manufactured products to ensure the best customer experience. We support asset recovery to get raw materials back into the supply chain or into refurbished products. Our sustaining services are a key part of the circular economy, a rapidly growing piece of our business, and a global service offering supporting all of our market sectors. Please advance to Slide 9. Looking ahead to our fiscal first quarter of 2023, we are guiding revenue of $1.08 billion to $1.13 billion, GAAP operating margin of 5.0% to 5.5% inclusive of 50 basis points of stock-based compensation expense, and GAAP EPS of $1.48 to $1.58 including $0.20 of stock-based compensation expense. While considering the ongoing supply chain challenges and macroeconomic and geopolitical uncertainty, our revenue guidance reflects the benefit from continuing new program ramps, significant unfulfilled backlog, robust customer demand, and our participation in numerous secular growth markets, including warehouse and factory automation, vehicle electrification, commercial space, and robotic-assisted surgery. We also anticipate an impact to GAAP EPS in the fiscal first quarter due to the absence of foreign exchange gains and greater interest and income tax expense relative to the prior quarter. Finally, in regards to our fiscal 2023, each year, I provide an annual update with other Plexus leaders to our team members globally, typically visiting each site. This year represents the first time since prior to COVID that we have the opportunity to visit the vast majority of our team members in person and see the successes achieved and the opportunities for future growth. A key component of my message this fiscal year is to consider what is beyond our current goal of $5 billion in revenue at 5.5% GAAP operating margin and how we need to evolve to achieve that next big goal. The momentum built during the second half of our fiscal 2022, combined with the previously mentioned demand tailwinds, create the opportunity for robust year-over-year revenue growth even when considering the uncertain macro environment. When coupled with our focus on operational excellence to drive manufacturing efficiencies and the significant investments made in our operations, we anticipate generating healthy operating leverage and strong EPS growth in fiscal 2023. 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 on Slide 10 with a review of the fiscal fourth quarter and the full fiscal year performance of our market sectors for 2022 as well as our expectations for the sectors for the fiscal first quarter of 2023. Throughout fiscal 2022, customer demand across all three of our market sectors was exceptionally strong. As we highlighted during the year, supply chain constraints were limiting our ability to capture the full demand of our customers. In the fiscal fourth quarter, our supply chain team significantly outperformed our expectations and secured supply of constrained components. Because we had made the investments in our operations to execute at a quarterly run rate well over $1 billion, our team was able to fulfill additional demand for our customers. The result was shipments of $124 million or 12% above the midpoint of our fiscal fourth quarter guidance. All sector results benefited from this exceptional performance. Starting with the industrial outcome, the sector grew revenue by 14% in the fiscal fourth quarter. The very strong result was significantly above our expectations of a low single-digit increase. Our operations team leveraged the improved supply to deliver above our commitments for 20 of our top 25 customers. The strong fiscal fourth quarter finish contributed to the industrial sector's superior fiscal 2022 revenue growth of 13%. For the fiscal first quarter, our backlog in our industrial subsectors, including semi-cap, remains robust. Although our semi-cap customers are signaling the limited impact in the short term from the new U.S. Department of Commerce export control order, we are taking a conservative approach in forecasting a mid-single-digit decline for the industrial sector for the fiscal first quarter. Our Healthcare/Life Sciences sector achieved exceptional growth of 17% in the fiscal fourth quarter. The result significantly exceeds our expectation of a mid-single-digit increase. Strong execution with new program ramps and the improved material supply contributed to the outstanding result. The sector grew sequentially throughout fiscal 2022 and finished the year with outstanding revenue growth of 18%. As we start the fiscal first quarter, the momentum with some of the sizable program ramps is increasing. We expect this contribution from these programs and the continued strong demand across our Healthcare/Life Science customers to yield a mid-single-digit increase for the fiscal first quarter. Our Aerospace and Defense sector grew 8% in the fiscal fourth quarter. The result was meaningfully above our expectations of a low single-digit decrease. Improved supply and inventory sales on two end-of-life programs contributed to the higher-than-forecasted revenue. As we look to the fiscal first quarter, supply chain constraints are still limiting our ability to capture our customers' full demand. As such, we anticipate a low single-digit decline in the Aerospace and Defense sector for the fiscal first quarter. Although supply chain constraints limited the Aerospace and Defense sector's growth in fiscal 2022, we expect meaningful growth in fiscal 2023. Please advance to Slide 11 for an overview of our wins performance. We won 32 new manufacturing programs during the fiscal fourth quarter that we expect to generate $214 million in annualized revenue when fully ramped into production. With $1 billion in wins and revenue growth of 13% in fiscal 2022, our wins momentum, which is defined as the trailing four-quarter wins divided by the trailing four quarters of revenue, finished at 26%. With the wins momentum that remains above our 25% goal, we expect new program ramps will continue to support our 9% to 12% revenue growth goal. Next, we can review a few sector and region highlights of the manufacturing wins for fiscal fourth quarter on Slide 12. The Industrial and Healthcare Supply Sciences sector each had a solid quarter of manufacturing wins at $90 million and $101 million, respectively. Included in the wins are two new logos for the Industrial sector and one new logo for the Healthcare/Life Sciences sector. We expect all three of these new customers to generate meaningful revenue in fiscal 2023. These opportunities are targeted for our Americas and EMEA regions, which resulted in their robust regional wins of $121 million and $73 million, respectively. Please advance to Slide 13 for highlights of the fiscal fourth quarter wins. I will start with two new meaningful wins from our industrial sector. The first product is a high-reliability, high-power inverter that is used for the charging of electric vehicles. We expect to have this program from a new logo largely ramped into our Oradea, Romania facility by the end of this fiscal year. The second industrial sector win highlight is the addition of a family of advanced motion controllers used in industrial automation. The products for this new logo will be manufactured by our team in Guadalajara, Mexico. Our Healthcare Life Sciences team won a nucleic acid detection product with a new logo that can be used in a wide variety of laboratory applications. The program will be produced in our Chicago, Illinois facility. The Healthcare/Life Sciences team also won a thrombectomy system used in the removal of blood clots. This FDA Class III medical device will be produced in our Healthcare Center of Excellence facility in Guadalajara, Mexico. Finally, our Aerospace and Defense wins include a mobile communications controller that integrates multiple mission-critical sources into a single secure channel. This program will be added to the platform of products we build for this customer in Oradea, Romania. We can proceed to Slide 14 for highlights of our funnel of qualified manufacturing opportunities. As we exited the fiscal fourth quarter, the funnel maintained a record level of $3.4 billion. Some of the new additions to the funnel are a result of an increasing number of customers reevaluating their internal manufacturing strategies. Our teams are partnering with our customers in the make versus buy analysis, and we believe this trend has the potential to yield meaningful wins in fiscal 2023. Next, I'd like to turn to operating performance on Slide 15. In the fiscal fourth quarter, our supply chain team secured raw materials, largely through the secondary market. With infrastructure investments already in place, our operations team was able to convert the components into finished goods. In addition to the record revenue, the team delivered exceptional GAAP operating margin performance of 5.5%. As we look to the fiscal first quarter, our supply chain efforts in fiscal 2022 are enabling us to fulfill robust customer demand, yet we still have orders in excess of $100 million that we do not anticipate being able to satisfy within the fiscal first quarter. Supply chain constraints and lagging edge semiconductors continue to be the main limiter, and we expect this situation to continue well into fiscal 2023. Similar to the fiscal fourth quarter, our supply chain team will continue to search for creative solutions in order to support demand beyond our commitments. I'll now turn the call to Pat for an in-depth review of our financial performance. Pat?

Thank you, Steve, and good morning, everyone. Our fiscal fourth-quarter results are summarized on Slide 16. Gross margin of 9.5% was above the top end of our guidance and consistent with the fiscal third quarter. For the fiscal fourth quarter, we experienced significant fixed cost leverage as revenue increased 15% sequentially, while fixed manufacturing expenses only increased slightly compared to the third quarter. This leverage benefit offset inflationary pressures and greater-than-forecasted incentive compensation expense. Selling and administrative expense of $45 million was above guidance primarily due to additional incentive compensation expense linked to improved revenue and operating performance. As a percentage of revenue, SG&A was 4%, which was favorable to expectations and sequentially lower by 50 basis points. Inclusive of approximately 45 basis points of stock-based compensation expense, we delivered our targeted GAAP operating margin of 5.5%, which exceeded the top end of our guidance. Non-operating expenses were favorable to expectations as a result of foreign exchange gains recognized in several countries due to the strong U.S. dollar. GAAP diluted EPS of $1.78 was above our guidance due to our strong operational performance, combined with lower non-operating expenses and a favorable tax rate. Turning to our cash flow and balance sheet on Slide 17. As anticipated for the fiscal fourth quarter, we made investments in working capital to align with our customers' strong demand. With customer support for these investments, we managed to have minimal cash outflow from operations. Capital expenditures totaled $17 million for the quarter and just over $100 million for the fiscal year. As a percentage of revenue, full-year capital expenditures were below 3%. We restarted our share repurchase activity in mid-August after our Board of Directors approved a new $50 million share repurchase authorization. During the fiscal fourth quarter, we purchased approximately 38,000 shares of our stock for $3.5 million at an average price of $90.63 per share. We now have $46.5 million available under the current authorization and expect to execute repurchases on a consistent basis throughout fiscal 2023 while taking market conditions into consideration. Our goal remains to return all excess cash to our shareholders. We ended the year with a strong balance sheet. Cash totaled $275 million, while total debt was $462 million. We also had $237 million available to borrow under our amended credit facility. I was pleased with our ability to steadily improve operating performance and manage working capital, which drove a sequential improvement in our return on invested capital as we moved through fiscal 2022. As a result, we ended the year with a return on invested capital of 13%, which was 370 basis points above our weighted average cost of capital. Our fiscal fourth-quarter cash cycle of 100 days was consistent with expectations and sequentially improved by 2 days. For more details on our cash cycle, please turn to Slide 18. Sequentially, inventory days improved by 16%, while still driving inventory purchases to support new program ramps, further success in clearing constrained components allowed for robust growth in fiscal fourth-quarter shipments. While revenue grew 15% sequentially, our inventory value only increased 3%. In addition, we now have 30% of our inventory covered with customer deposits. Essentially offsetting the reduction in inventory days was a 15-day reduction in payable days related to earlier procurement and payment of inventory. 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 19. Fiscal first-quarter gross margin is expected to be in the range of 9.1% to 9.5%. At the midpoint, gross margin would be approximately 20 basis points lower than the fiscal fourth quarter. We expect the near-term impact on margins due to investments in fixed costs, including our new Thailand facility in order to support our strong growth outlook. We expect selling and administrative expenses in the range of $45 million to $46 million, slightly higher than the fiscal fourth quarter, also related to incremental investments to support our projected growth. Non-operating expenses are expected to be in the range of $9 million to $9.5 million, sequentially higher primarily due to the anticipated absence of foreign exchange gains recognized in the fiscal fourth quarter along with rising interest rates impacting our variable rate debt. Our tax rate for both the fiscal first quarter and fiscal year is expected to be in the range of 14% to 16%. Our expectation for the balance sheet is that working capital investments will modestly increase compared to the fiscal fourth quarter. Based on our revenue forecast, we expect this level of working capital will be sold in cash cycle days of 98 to 102 days, sequentially flat at the midpoint. With modest working capital investments, coupled with capital expenditures to support anticipated fiscal 2023 revenue growth, we expect the usage of cash for the fiscal first quarter. A few comments on the full year. We expect capital spending to be in the range of $110 million to $130 million, which does not include any site additions. Given our inventory position exiting fiscal 2022, we are projecting lower fiscal 2023 working capital investments compared to the prior year despite the robust growth expectations for this year. Last, with lower working capital investments, we expect free cash flow to improve as we move through fiscal 2023, ending the year with more than $50 million. With that, Justin, let's now open the call for questions.

Our first question comes from Jim Ricchiuti from Needham & Company.

A couple of questions, if I may. So there's been a lot of focus on the semiconductor capital equipment business. So I'm wondering if you could remind us what this represents in terms of revenues, percentage of revenues for you? And what are you hearing from those customers just relative to some of the industry data suggesting that the WFE market could be down 20% or more in '23?

Yes, this is Todd. I'll begin and then Steve may also want to add his thoughts. Our semiconductor business represents roughly 20% of our overall revenue. Upon reviewing the semiconductor landscape and its effects on our customers, I want to highlight a few key points. First, our thorough analysis shows no impact on non-semiconductor capital equipment customers. Our semiconductor capital customers expect minimal short-term impact, yet they are assessing the longer-term outlook. Those who have finished their evaluations indicate that depending on their specific products and clientele, their prospects range from potential growth next year due to a strong backlog to a slight decline. Some customers in the market have reported a decline of about 20%. Taking all this into account, we estimate that our semiconductor business might face a worst-case impact of around 10%, translating to a couple of percentage points for Plexus overall. Importantly, this does not include the market share gains we are currently experiencing; we are securing several new programs. Additionally, since we do not manufacture semiconductor equipment in China, we have clients considering relocating their production to Plexus, which presents an opportunity for growth next year.

I understand. I have another question regarding the unfilled demand. Could you provide some insights on how that demand might be distributed across different market verticals? It seems that a few of the verticals are expected to decline sequentially in Q1. I'm curious if that is due to seasonality or possibly a shift in scheduling from customers.

Yes. If we look across the market sector, we are optimistic about Healthcare and Life Sciences, as new programs from our recent wins are really starting to make an impact. We have a positive outlook for that sector. For industrials, we are taking a cautious approach in our guidance due to the semiconductor sector, but looking at fiscal '23, most of our subsectors in that area are predicting growth. Therefore, we do expect growth in that sector as well. Aerospace and Defense is currently the most dynamic sector. They are still recovering from supply chain issues. Many discussions with our customers focus on how to accelerate meeting commitments and deal with decreased demand. While the demand is present, there is a lag in semiconductors and ensuring they reach the right pipeline to meet that demand. We expect growth across all sectors as we move through fiscal '23, though the challenges are mostly short-term, particularly for Aerospace and Defense due to supply chain constraints.

Yes. I would like to add that one reason we are modestly guiding Q1 down is because Q4 finished very strong. If we achieve our guidance in Q4, it would reflect strong growth.

And our next question comes from David Williams from Benchmark Company.

Congrats on the $1 billion in quarterly revenue milestone. That's a really great execution, and it feels like to hit on all cylinders here. Really great performance. One of the questions and I just wanted to ask here, and you covered this a bit in your last answer. But on the industrial side, we heard from one of the major semi-suppliers this week that pointed to the slowing trends broadly across the industrial segment. I guess one, are you seeing anything similar in your order book? And have you adjusted your orders maybe from component suppliers? Or do you think this is maybe just where you're placed in the supply chain and maybe inventory coming back into balance maybe for their supply chain? Just anything, I guess, around the industrial segment would be helpful.

Sure. From a customer standpoint, they're obviously still trying to figure out the impact of China. But with that said, the backlog is so strong that what we expect is basically just a reallocation of the demand if the China demand declines. And so Todd talked about the fact that there could be a bit of a decline in our business over the year to the rate of maybe a couple of percent. But at this point, no dramatic decline is expected. And I think one of the things that we're referring to is there's a few people that have come out and talked about the fact that industrials and maybe some of these lagging semiconductors, they're seeing a little bit of softness. That is not what we're seeing in terms of what the supply chain solution is for us, the historical challenges that we've had through fiscal '22 continue from the same relative suppliers. And so there's a little bit of optimism that maybe there is some freeing up that's going to happen as we go through '23 here. But for us, the supply chain constraints in the lagging node, which are typically in the products that we build, still very challenging to get and secure supply for.

Yes. What I'd say is overall to, in our broader industrial space, we're not seeing a degradation of demand on aggregate.

And our next question comes from Steve Fox from Fox Advisors, LLC.

A couple of questions for me. First off, I was wondering if you could provide a little bit more color on the electrification program you mentioned in the beginning of the prepared remarks. What type of services you're providing there? And how it fits into the bigger picture, you're right to play in those types of markets, et cetera? And then secondly, if we just step back and think about the industry as a whole, you guys obviously delivered tremendous upside. We've seen it across the board from companies you compete against. What would you say is the biggest overarching dynamic that's driving the better industry performance, including your performance over, say, the last 12 to 18 months?

Sure. This is Steve. I'll hit on the electrification part. And so from us, I think as you all know, we're not in the automotive space. And so electrical vehicles for us is not something we have a desire to pursue. However, as you look across where electrification is going and it's going into industrial equipment in trucks in that area as well as in the infrastructure to support electrical vehicles, that is a really nice sweet spot for what Plexus has to bring. And so we've been very successful working with those types of companies bringing our solution to them. And in this case of this one that we announced today, this customer historically did everything in-house. And as they look at ramping and growing, they're looking for a global supply chain that can do more of these higher or lower volume, mid-volume, higher complexity products, it fits us well. And so we won this business for EMEA. I expect to be adding an opportunity from the same customer for the U.S. market in the coming quarters here. And so again, we see it as a great growth secular market for us.

I'm sorry to interrupt. Just before you move on, Steve, can you just give us a sense for exactly what you do and what capabilities are you bringing to the table? I'm still not clear on how you're servicing the customer.

Yes, these are focused on high availability and high reliability. They range from industrial equipment to applications in construction trucks and buses, and they also support the electrical vehicle market. This customer, for instance, offers a wide array of products, including electrical vehicles, trucks, buses, and heavy construction equipment. We provide a comprehensive suite of products for them, covering all electrical charging applications.

Yes. The one thing I'd add to Steve is the program that we referenced in the press release is beginning as a manufacturing program, but we have other customers in that space that are using our full suite of services. So it's more than one customer and more than one service offering. It's pretty broad-based.

That's helpful. And then just the bigger picture question?

Yes. So I mean, I'm not going to speak to the industry as a whole, but I'll just speak to us and what's driving our better-than-projected performance. And what you have is we have some really strong demand across all of our end markets. And some of it's even, I would say, still goes back to the days of COVID, where we had there's pent-up demand that hasn't been completely fulfilled yet. We have a highly constrained supply market. And essentially, what's happening is we're finding ways to clear supply within lead time. So a lot of it is through spot buys. I mean, some of it is through other mechanisms, but as we find the ways to clear those supply challenges, it results in upside. And Steve, from a margin standpoint, we've talked about over a year ago, having the infrastructure in place to support north of $1 billion of revenue. And now we have that, and we're delivering on our earnings commitment.

And our next question comes from Melissa Fairbanks from Raymond James.

Congratulations on a great quarter and guide. Glad to see things easing up for you, at least on the procurement side. I've got one question, maybe this one would be for Oliver. I think in the past, you've said in order to reach that $5 billion annual revenue target, you may need to add new capacity. Now that Thailand is ramping, can you give us an idea of where some of these additions would be made? Maybe how quickly you see the new Thailand facility ramping?

Sure, sure. And just to clarify, you used the phrase easing up. And I guess we would just see a slightly different word choice. I don't think we're seeing any change in the lead time profile, especially as Todd mentioned earlier, and in the semiconductor space is seeing more traction and then candidly, sometimes things unexpectedly show up in that secondary market and we're able to capitalize on that. Again, to your question about capacity. So obviously, our Bangkok facility continues to ramp according to plan. I will take a quick moment here to congratulate the team on hitting their first production shipment in Q4. Very proud of the team for being able to achieve that. Customer feedback continues to be very positive with that facility. So that ramp is going according to plan. And from an overall capacity perspective, we still have bricks and mortar capable of handling significant additional revenue growth. We are obviously considering where our next investments might be. And at this point, what I'd be comfortable offering is that we really do enjoy the campus dynamics, co-locating facilities, manufacturing, engineering, and being able to all work together on behalf of our customers. It's something that we continue to pursue as a primary thought process relative to our footprint expansion.

One thing I'd also add on the Bangkok facility, Melissa, is that we have multiple customers ramping within that facility at a pretty reasonable rate, and we believe we'll achieve profitability in the facility during the current fiscal year.

Great. Apologies for the imprecise wording on the supply. Maybe just one quick follow-up. With a number of the new programs ramping, I was just wondering if we should be thinking about any type of seasonal patterns in the revenue going forward? Or will the quarterly results just be driven by specific delivery timelines for these programs?

Yes, this is Steve. We're not anticipating any significant seasonality associated with the programs. So I would expect it to basically just continue down the path a bit. The demand remains strong across all the subsectors, and we're expecting that to continue throughout the year.

Yes. Melissa, as you know, from a cost standpoint, our March quarter always is impacted by merit increases and reset of U.S. payroll taxes. So from that standpoint, we do see a bit of pressure on our margins in that quarter.

And our next question comes from Matt Sheerin with Stifel.

Steve, you gave some detailed commentary about the outlook for the various sectors for fiscal '23, but we haven't seen an exact target range. Based on your December guide, you're going to be up, call it, 35% or so year-over-year in Q1. So as we think about the full year, is it reasonable to assume that you should be able to grow 15% to 20%?

Yes. So Matt, this is Todd. I'll take this one. And one of the things, and we've been intentionally a little bit vague just because of the macro and geopolitical uncertainties that are out there as well as supply chain constraints. So we don't want to turn into prognosticators at the wrong time here. But I can give you some idea at least as how we see things currently and then you can make your own judgments as to where to go from there. But when we look at our sectors, we see strong double-digit growth from all of our market sectors and probably even more exceptional growth out of healthcare with all the program ramps that are going on there. Now our Q1 guide is essentially flat, but we'd expect that we'd start to see quarterly growth again after that, the way things shape up right now. So if you take Q4 and you flatline it out there, it puts us above our 9% to 12% revenue growth and a bit into the area that you had just mentioned there. So certainly, that's an achievable goal, we believe, at this point.

Okay. And then just in terms of the outsourcing, the wins that you talked about, the pipeline, the funnel, all up. And Steve, you did talk about the acceleration, I think, of wins in North America and in EMEA. And is any of that related to your customers moving more business or production out of Asia more insuring? Does your geographic exposure give you an edge in terms of some of these deals?

Sure. Maybe even going back to Melissa's comment about where do we see our expansion. And so we've got the footprint to carry us in the $4 billion, but as we go to $5 billion, we do expect growth in all three regions from a facility standpoint, and that's driven by what we expect our customers to ask us for. Now with that said, our historical growth engine had been APAC outperforming the other regions. I think what we're seeing now is a more balanced growth in all three regions as we look to go to $5 billion and beyond. And so companies that historically would just default to APAC or a different region are now looking maybe at Mexico or in Eastern Europe. And part of that is for the geopolitical reasons, but part of it is also a bit more focused on the ESG side of the world in terms of what is the carbon footprint associated with moving your product around. And so we see more conversations and more considerations of things beyond maybe just what is the lowest part price. But our expectation and what we see in our forecast is growth in all three regions as we go to $5 billion.

Okay. Very helpful. And just lastly, if I may, just in terms of inventory. I know you sounded like you're seeing a little bit of better supply, but still working hard dealing with the spot broker market, et cetera. But Pat, you also talked about expectation for increased cash flow as you get through the year. So are you hearing from customers that we've had enough inventory or let's start to rebalance because I know a lot of OEM customers are having working capital requirements or issues as well because they have to obviously fund some of your inventory?

We're not necessarily hearing that. I think the focus, Matt, is really on some of the new program ramps and being able to support the inventory that's needed for those. So I mean we do see some growth in working capital with the top line growth, but just at a lower rate than we had experienced all of fiscal '22.

And our next question comes from Anja Soderstrom from Sidoti.

And congratulations on another great quarter. So I'm just curious if there's been any change in sentiment among the economy? Have you seen any more de-commit due to the uncertain economic environment?

Yes. Anja, this is Oliver. I'll take that. I would say that the de-commit rate has not changed appreciably. Just referencing back to what Steve and Todd mentioned earlier, the primary commodity that ends up being the limiting factor for us to create that clean kit is often in the semiconductor commodity. And Steve connected asked earlier, that this lagging edge technology components. We are not seeing an increase in de-commits. We're seeing really no change in lead time, which is what underscores Todd's remark in the prepared commentary there that we have not seen an appreciable change in the overall supply chain-constrained dynamics.

Okay. And given that now you're navigating the supply chain challenges quite well. And so once we come out of that and that normalizes, what impact do you think that might have on your business?

Well, I think we've got a couple of things that are going to have an impact on our business. I think in the nearest term, when we look at the supply chain normalizing as we have the unfulfilled backlog to essentially clear. So that's going to result in some increased revenue over that time period. But I do believe that the processes we've put in place to manage through this period are going to help us to forecast and drive revenue and drive inventory more effectively as we move forward. So hopefully, with any luck, we're out of this in calendar '23 at some point, hopefully at least by the end of it, and then we're driving better processes and tools and such. One other clarification I wanted to make on semiconductors as well, too. And when we talk about lead times not changing for us. It's the lead times for the gating components, which are those lagging edge ones. We are seeing improvements in lagging-edge semiconductors as well as some of the other commodities that we track. I wouldn't say it's a great environment, but it's an improved environment. But the gating components are equally as difficult and challenging and long to get.

Yes, more specific.

And our next question comes from Paul Chung from JPMorgan.

Can you discuss the relationship between pricing and volume? How much of an increase have you observed from component inflation, and where are you seeing increases in volume as well?

Yes. Paul, this is Pat. From an inflation standpoint, it's mid-single digit is what we're seeing. And then we're also seeing on the labor side, some increases that we're working with our customers on. But that's essentially what we're seeing at this point.

Got you. And then on the wins, you've had very strong wins over the past seven quarters, generally, on a four-quarter basis. You're seeing some declines here for the second consecutive quarter. Is there anything to read into there? Your backlog remains quite robust. So assuming you have pretty nice visibility here into '23 and beyond?

Yes, we are not interpreting anything significant right now. We had strong successes in the fiscal second quarter of '22. We focus on the trailing four quarters because we want to avoid the pressures of meeting goals at the end of each quarter, which can lead to irrational pricing. The main concern we have is the distractions in Aerospace and Defense due to supply disruptions. Other than that, there is nothing else on our radar. As I mentioned earlier, we are beginning to see some of our other customers in Industrial and Healthcare Sciences, who had been previously distracted, start to revisit their manufacturing strategies in more detail, akin to their pre-COVID approaches. Given the disruptions caused by COVID and ongoing supply chain issues, companies are spending more time considering their long-term manufacturing strategies. Typically, when this shift occurs, it presents good opportunities for us.

Got you. And then lastly, Pat, on cash flow. Did you mention CapEx for '23? And how do we think about free cash flow conversion long term beyond '23? It sounds like working cap remains somewhat elevated in '23 as you work through that backlog. But can we start to see more meaningful conversion maybe in '24 in your view?

Yes. I sure do see that, Paul. I did mention the guide for '23 being $110 million to $130 million without any consideration to site additions. At that level, we would be less than 3% of revenue. And I think going forward, that's probably a good goal for us because with the organic growth we're facing, we're going to have to continue our investments in capital expenditures and working capital. But I do see a better conversion rate, clearly, better than fiscal '22 when we were faced with supply chain constraints. So again, growing organically, we're going to have to invest. And if you're in the teens of growth, that is going to consume cash, but I fully believe we'll be able to generate free cash flow for distribution to our shareholders. And I think longer term, it would be in the range of about 80% net income conversion.

And we have a follow-up question from Jim Ricchiuti, Needham & Company.

Yes. So everyone defines secular growth differently. I'm wondering within your portfolio, I'm wondering which areas or opportunities are you most excited about in fiscal '23 and fiscal '24. And you highlighted a few electrification charging applications, warehouse automation. But I wonder what you see, again, the potential for bigger growth?

Yes. Well, we see certainly robotic-assisted surgery, and that's one we've talked about a lot. Within healthcare, I think Therapeutics is a really significant growth market for us where we have a number of very exciting new programs that are ramping. So those jump first and foremost to mind. We have the commercial space that we've talked about. In general, Aerospace is just in a position to have a strong recovery because of the down cycle that it's in right now. So those are some, I would say, are particularly exciting. Maybe one other one within health care would be single-use devices that would be used in surgical products.

Got it. Helpful. And then finally, if I could, one last question. Just on the Thailand capacity. You may have touched on this, but I'm wondering about the interest level from new customers versus existing customers awarding additional programs as a result of your expanded footprint there.

Currently, the business growth is mainly driven by existing customers, but there is also significant interest from new customers. We expect to achieve a well-balanced mix of both new and existing customers as we progress.

And the new customers would be a fiscal '24 contribution perhaps?

That's probably a fair assessment that our Thailand would be primarily existing customer revenue in '23, and then it start to blend between existing and new in '24 and beyond I think that's fair.

Regarding Thailand, we're excited about our current customers, as they are not just transferring existing business but also introducing new programs at the facility. This allows us to gain market share as they expand their operations with additional initiatives, including some from China. We see numerous opportunities for growth in this area.

End of Q&A: I am showing no further questions. I would now like to turn the call back over to Todd Kelsey, CEO, for closing remarks.

All right. Thank you, Justin. I'd like to thank everybody who joined our call today. We certainly appreciate your support and interest in Plexus. And one of the things I'd like to reiterate in closing is that we're very excited about the momentum that we built through fiscal 2022. We believe this finish positions us for meaningful revenue growth and strong EPS levels. So thank you all very much, and everybody, have a nice day.

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