Plexus Q3 2025 Earnings Report

Plexus EPS Results

• Actual EPS: $1.90
• Consensus EPS: $1.71
• Beat/Miss: Beat by +$0.19
• One Year Ago EPS: $1.45

Plexus Revenue Results

• Actual Revenue: $1.02 billion
• Expected Revenue: $1.02 billion
• Beat/Miss: Missed by -$2.59 million
• YoY Revenue Growth: +6.00%

Plexus Announcement Details

• Quarter: Q3 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 8:30AM ET

Plexus (NASDAQ:PLXS) provides electronic manufacturing services in the United States and internationally. It offers design, develop, supply chain, new product introduction, and manufacturing solutions, as well as sustaining services to companies in the healthcare/life sciences, industrial/commercial, aerospace/defense, and communications market sectors. The company was founded in 1979 and is headquartered in Neenah, Wisconsin.

Plexus Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: For Q3 FY25, Plexus reported $1.018 billion in revenue, achieved sequential growth, and met its guidance.
• Positive Sentiment: They delivered a non-GAAP operating margin of 6%—hitting this target in three of the last four quarters—and posted non-GAAP EPS of $1.90, above expectations.
• Positive Sentiment: Plexus generated $13.2 million in free cash flow, exceeded forecasts, maintained a net cash position, and accelerated share repurchases under a new $100 million authorization.
• Negative Sentiment: Evolving program ramp timelines and tariff-related uncertainties offset order activity in certain industrial and European market sectors.
• Positive Sentiment: For Q4 FY25, Plexus guides revenue of $1.025 billion–$1.065 billion, non-GAAP operating margin of 5.7%–6.1%, EPS of $1.82–$1.97 (implying 26% year-over-year growth), and approximately $100 million in free cash flow.

Presentation

[Operator]

Ladies and gentlemen, thank you for joining us, and welcome to the Q3 twenty twenty five Plexus Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Shawn Harrison, Vice President of Investor Relations. Shawn, please go ahead.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward looking statements, including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation and future business outlook. Forward looking statements are not guarantees since there are inherent difficulties of 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 ks filing for the fiscal year ended 09/28/2024, as supplemented by our Form 10 Q filings and the Safe Harbor and fair disclosure statement in our press release. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

Joining me today are Todd Kelsey, President and Chief Executive Officer Oliver Mim, Executive Vice President and Chief Operating Officer and Pat Germain, Executive Vice President and Chief Financial Officer. With today's earnings call, Todd will provide summary comments before turning the call over to Oliver and Pat for further details. With that, let me now turn the call over to Todd Kelsey. Todd?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Thank you, Sean. Good morning, everyone. Please advance to Slide three. Lexus continues to gain momentum as we design, manufacture and service some of the world's most transformative products. For the fiscal third quarter, Plexus received national and regional recognition as a top workplace.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

We grew revenue sequentially. We generated solid new program wins, including opportunities supporting new customers with products aligned to exciting growth technologies. We delivered non GAAP operating margin of 6%, matching our stated goal. We once again generated better than expected free cash flow. And finally, we reduced our debt while accelerating our share repurchase activity and concurrently increasing our share repurchase authorization.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Through our commitment to enabling customer success, we are seeing ongoing strength in new program wins and opportunities to gain share in support of delivering growth outpacing our end markets. In addition, our ongoing strategic investments that drive organizational and operational efficiency are generating strong profitability and free cash flow in support of creating long term shareholder value. Please advance to Slide four. Revenue of $1,018,000,000 met our guidance. As the fiscal third quarter progressed, we saw improved order activity from some industrial and European customers.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

In addition, we observed early signs of increasing European defense sector activity, a market we are uniquely qualified and positioned to support. This offset the impact of evolving program ramp timelines and tariff related uncertainties on our market sectors. Non GAAP operating margin of 6% was near the high end of our guidance, increasing 30 basis points sequentially and meeting our stated goal of 6% or greater operating margin. We have now achieved this goal and delivered operating margin at or above 6% for three of the last four quarters. Continued strong performance from our Engineering Solutions and Sustaining Services, operational efficiencies and volume leverage drove the sequential expansion.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Non GAAP EPS of $1.9 exceeded our guidance, benefiting from strong operating performance, lower than anticipated interest expense and a favorable tax rate. Finally, we delivered $13,200,000 of free cash flow, significantly better than our expectations entering the quarter as we continue to drive strong working capital management. Please advance to Slide five. For the fiscal third quarter, we secured 41 new manufacturing programs with $250,000,000 in revenue annually when fully ramped into production. Included in these wins, which were well balanced across all of our market sectors, our share gains resulting from our sustained focus and zero defects in perfect delivery.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

We also added in each of our market sectors new customers with products aligned to exciting growth technologies. Furthermore, similar to last quarter, the revenue contribution and diversification of the wins performance of our engineering solutions was strong. Finally, our funnel of qualified opportunities expanded sequentially once again, with balanced diversification across our market sectors as well as a strong contribution from our sustaining services. Please advance to slide six. At Plexus, our commitment to advancing sustainability is aligned to our value of innovating responsibly.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

We boldly drive positive change and promote a sustainable future for and through our people, our solutions and our operations, all of which is built on a foundation of trust and transparency. Our people are the heart of who we are and what we do. With that in mind, I'm incredibly proud to share that Newsweek listed Plexus as one of America's greatest workplaces in manufacturing 2025. Further, our Chicago site was recognized as one of the twenty twenty five best and brightest companies to work for nationally and regionally. 2025 marks the eighteenth consecutive year this site has received regional recognition and the third consecutive year receiving national recognition.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Thank you to our incredible team members for living our values and enabling our success. Our people are also at the heart of strengthening our communities. In celebration of Earth Day, our teams around the globe participated in a number of local volunteer activities, including community cleanup and recycling events. Here in Wisconsin, our team members recycled an amazing 8,000 pounds of electronics waste. In June, we released our 2024 sustainability report, building trust through transparency and highlighting the many ways we're committed to doing something more for our customers, our team members and the world.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Finally, our commitment to customer success drove our historically strong customer satisfaction score to a seven year high in our recently completed customer Net Promoter Survey. We believe this positive customer sentiment is manifesting into share gains and expanded outsourcing opportunities across our market sectors. Please advance to Slide seven. For our fiscal fourth quarter, we are forecasting sequential revenue growth and expect to realize another strong quarterly financial performance. We anticipate delivering this revenue expansion through share gains, new program ramps and growth with new customers, overcoming modest end market demand, evolving new product ramp timelines and uncertainties created by tariffs.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Our fiscal fourth quarter guidance is for revenue of $1,025,000,000 to $1,065,000,000 non GAAP operating margin of 5.7% to 6.1% inclusive of greater incentive compensation and the opening of our new facility in Penang, Malaysia and non GAAP EPS of $1.82 to $1.97 At the midpoint, our fiscal fourth quarter would result in impressive non GAAP EPS growth of 26% for fiscal twenty twenty five. Additionally, we are now forecasting approximately $100,000,000 of free cash flow for fiscal twenty twenty five, which would represent cumulative two year free cash flow generation of nearly $450,000,000 As previously noted, in recognition of our robust free cash flow performance and our long term value creation potential, we accelerated our share repurchase activity during the fiscal third quarter, while also engaging with our Board of Directors to approve a follow on authorization of $100,000,000 creating additional shareholder value. Finally, while early, for fiscal twenty twenty six, we currently anticipate delivering healthy year over year revenue growth from each of our market sectors without assuming end market demand improvement. We also anticipate sustaining our strong operating margin and free cash flow performance. In closing, we are committed to creating long term shareholder value.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Flexus continues to gain momentum through enabling customer success and through focused initiatives that drive organizational and operational efficiency. We're bullish on the growth opportunities our solutions and our market sectors provide. Our strategy is creating opportunities to sustain strong financial performance and gain share in support of delivering growth outpacing our end markets. I will now turn the call to Oliver for additional analysis of the performance of our market sectors. Oliver?

[Oliver Mihm, Executive VP & COO at Plexus]

Thank you, Todd. Good morning. I will begin with a review of the fiscal third quarter performance of each of our market sectors, our expectations for each sector for the fiscal fourth quarter and some directional sector commentary for fiscal twenty twenty six. I will also review the annualized revenue contribution of our wins performance for each market sector and then provide an overview of our funnel of qualified manufacturing opportunities. Starting with our aerospace and defense sector on Slide eight, revenue increased 6% sequentially in the fiscal third quarter, meeting our expectation of a mid single digit increase.

[Oliver Mihm, Executive VP & COO at Plexus]

New program ramps contributed to the performance. We expect revenue for the aerospace and defense sector to be flat in the fiscal fourth quarter as improving defense sub sector demand and new program ramp revenue balances muted performance from the other sub sectors. Our wins for the fiscal third quarter for the aerospace and defense sector were $51,000,000 the best in more than two years and nearly a record result. Our reputation for customer service excellence and our highly collaborative engagement yielded a substantial award with a new customer in the space subsector for our facility in Kelso, Scotland. Strength of execution yielded a number of follow on awards and new programs with existing customers in our defense and space subsectors.

[Oliver Mihm, Executive VP & COO at Plexus]

Our robust growth outlook for fiscal twenty twenty six is supported by a combination of new program ramps, new customer additions and modest market growth that collectively drive strong defense sector growth and a return to growth in commercial aerospace. Please advance to Slide nine. Revenue in our HealthcareLife Sciences market sector was up 2% sequentially for the fiscal third quarter, below our expectation of a mid single digit increase. This variance was due to a customer design update that resulted in a temporary production delay for their program. For the fiscal fourth quarter, we expect the Healthcare Life Sciences market sector to be up low single digits, driven by multiple ongoing program ramps.

[Oliver Mihm, Executive VP & COO at Plexus]

Fiscal third quarter health care life sciences sector wins of $116,000,000 included a substantial follow on award from an existing customer with a global rollout of a platform that treats atrial fibrillation. Our historical strength of execution with both new product launches and ongoing production for the device of the device for its US rollout enabled the win. This program will be built in our Chicago facility. We also won work with a new customer for our sustaining services organization. Our work will support a cardiovascular platform and be performed in our Guadalajara, Mexico facility.

[Oliver Mihm, Executive VP & COO at Plexus]

Our Neenah, Wisconsin facility won a substantial award with a new customer for a surgical generator product used in a novel new cancer treatment. Our ability to effectively collaborate and develop trust during the quoting process contributed to the win. As we look to the next fiscal year, revenue contributions from both ongoing and new program ramps support our strong growth outlook. Advancing to the industrial sector on Slide 10. Revenue was up four percent sequentially in the fiscal third quarter.

[Oliver Mihm, Executive VP & COO at Plexus]

The result was in line with our expectation of a low single digit increase. Inside the quarter, demand increases in the broadband communications and energy markets offset demand push outs in our semi cap subsector. Our fiscal fourth quarter outlook for the industrial sector of a low single digit increase is supported by strength of orders for legacy equipment and the broadband communications subsector and new program ramp revenue in both the semi cap and energy subsectors. The industrial market sector wins for the fiscal third quarter were strong at $83,000,000 This marks a five quarter high for the sector. Continued strength of execution and our ability to redesign for cost reduction yielded wins with three of our top semi cap customers.

[Oliver Mihm, Executive VP & COO at Plexus]

These products will be built in our Penang, Malaysia and Guadalajara, Mexico campuses. Winds also include a substantial award from a new customer for an automated vehicle inspection system. This product will be assembled in our Guadalajara, Mexico facility. Our positive fiscal twenty twenty six growth outlook is supported by the better than market growth rate we anticipate in the energy and semi cap subsectors as a result of continued share gains and new program ramps. Please advance to Slide 11 for a review of our funnel of qualified manufacturing opportunities.

[Oliver Mihm, Executive VP & COO at Plexus]

The funnel of qualified manufacturing opportunities is up 4% sequentially and robust at $3,600,000,000 I'm pleased with the increasing breadth of opportunities we are seeing in our funnel across engineering, manufacturing, and sustaining services. In summary, our focus on delivering excellence and creating customer success continues to contribute to strong wins performance. Our new program ramps, share gains and new customer additions are contributing to a healthy outlook for our growth in the coming fiscal year. As Todd previously noted, this sentiment is without assuming improvements in the current end market environment. I will now turn the call over to Pat. Pat?

[Patrick Jermain, Executive VP & CFO at Plexus]

Thank you, Oliver, and good morning, everyone. Our fiscal third quarter results are summarized on Slide 12. While revenue was at the midpoint of our guidance, gross margin of 10.1% was slightly above the midpoint due to a favorable mix of service offerings and better fixed cost leverage. Productivity improvements associated with our operational efficiency initiatives continue to benefit our manufacturing sites. Selling and administrative expense of $50,000,000 was at the low end of our guidance and consistent with expectations as a percentage of revenue.

[Patrick Jermain, Executive VP & CFO at Plexus]

Non GAAP operating margin of 6% was toward the top end of our guidance due to strength in gross margin. Non operating expense of $3,800,000 was favorable to expectations due to lower than anticipated interest expense. Non GAAP diluted EPS of 1.9 exceeded our guidance due to the items mentioned and a favorable tax rate. The lower tax rate was primarily attributed to a state tax law change and allowed for the release of a valuation allowance against deferred tax assets. Turning to our cash flow and balance sheet on Slide 13.

[Patrick Jermain, Executive VP & CFO at Plexus]

As shown across these financial metrics, we continue to improve our performance and liquidity. As a result, we delivered $27,000,000 in cash from operations and spent $14,000,000 on capital expenditures, generating free cash flow of approximately $13,000,000 This performance exceeded expectations and positions us well to meet our increased fiscal twenty twenty five free cash flow projection of approximately $100,000,000 During the quarter, we continued to return cash to shareholders through our share repurchase program by acquiring approximately 143,000 shares of our stock for $18,400,000 As of today, we have completed the fiscal twenty twenty five authorization of $50,000,000 and have now begun executing upon the $100,000,000 authorization approved by our Board last quarter. Similar to the prior quarter, we ended the fiscal third quarter in a net cash position. We had $45,000,000 outstanding under our revolving credit facility with $455,000,000 available to borrow. As we had anticipated, our strong balance sheet position allowed us to use excess cash and minimal borrowing under the revolver, repay the $100,000,000 of private placement notes, which matured last month.

[Patrick Jermain, Executive VP & CFO at Plexus]

For the fiscal third quarter, we delivered return on invested capital of 14.1%, which was $5.20 basis points above our weighted average cost of capital. Our invested capital base is significantly lower than the prior year due to our efforts to drive sustained improvement in working capital. This combined with improved operating performance drove the expansion of ROIC over the prior year and represents the highest ROIC in nearly four years. Cash cycle at the end of the fiscal third quarter was sixty nine days, consistent with expectations and one day higher than the fiscal second quarter. Please turn to Slide 14 for details on our cash cycle.

[Patrick Jermain, Executive VP & CFO at Plexus]

Along with the sixth consecutive quarterly reduction in gross inventory dollars, we experienced a four day improvement in inventory days. This is another quarter of our team demonstrating the relentless focus on driving working capital initiatives. For days in advance payments, we experienced a four day reduction with a net of $19,000,000 being returned to customers during the quarter. As Todd has already provided the revenue and EPS guidance for the fiscal fourth quarter, I'll review some additional details, which are summarized on Slide 15. Fiscal fourth quarter gross margin is expected to be in the range of 9.8% to 10.1.

[Patrick Jermain, Executive VP & CFO at Plexus]

At the midpoint, gross margin would be slightly lower than last quarter. While gaining fixed cost leverage on anticipated sequential revenue growth, some additional variable incentive compensation expense is expected along with a slight margin drag from the startup of our new Malaysian facility. We expect selling and administrative expense in the range of 50,000,000 to $51,000,000 which is fairly consistent with prior quarter. Note that this estimate is inclusive of approximately $6,300,000 of stock based compensation expense. Fiscal fourth quarter non GAAP operating margin is expected to be in the range of 5.7% to 6.1%, exclusive of stock based compensation expense.

[Patrick Jermain, Executive VP & CFO at Plexus]

Non operating expense is anticipated to be approximately $4,500,000 a reduction of nearly 50% from the prior year fiscal fourth quarter. As we have shared before, our strong cash flow has resulted in much lower debt levels and associated interest expense. Since last year's fiscal third quarter, we have reduced our total debt by over $200,000,000 For the fiscal fourth quarter, we are expecting to release additional tax reserves following the closure of the statute of limitations for certain tax years. As such, we are estimating an effective tax rate between 810%, While our fiscal twenty twenty five effective tax rate will be lower due to reserve releases, a more normalized rate for us moving forward is in the upper teens. Diluted shares outstanding are expected to be $27,500,000 Our expectation for the balance sheet is that working capital investments will slightly reduce compared to the fiscal third quarter.

[Patrick Jermain, Executive VP & CFO at Plexus]

With this improvement, combined with our anticipated sequential revenue growth, we expect our cash cycle days to improve compared to the fiscal third quarter. Hence, we are guiding a cash cycle range of sixty four to sixty eight days. Fiscal twenty twenty five capital capital spending spending is is expected expected to to be be in in the the range range of of $8,080,000,000 million dollars to $100,000,000.50 lower than our previous guidance as certain payments related to our new facility in Malaysia will now be made early in fiscal twenty twenty six. Once again, given our improved performance through the first March of the fiscal year, we now anticipate generating approximately $100,000,000 of free cash flow for fiscal twenty twenty five. With that, Nicole, let's now open the call for questions.

[Operator]

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. Your first question comes from the line of David Williams with The Benchmark Company. Your line is open. Please go ahead.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Hey, good morning, everyone. Can you hear me okay?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

We can, David. Good morning.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

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

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

And, can you provide maybe a little more color there? Is that more on, maybe a demand side or forecast changes? Or is that more driven by maybe changes, to that product ramp or the product itself?

[Oliver Mihm, Executive VP & COO at Plexus]

Hey, David. This is Oliver. I'll take that. That had to do with just some idiosyncrasies specific to those programs. And I think it's important to note that that push out is just moving the revenue to the right.

[Oliver Mihm, Executive VP & COO at Plexus]

It's not perishable demand. And so from an overall subsector perspective, we also noted that our Q4 is buoyed by a number of new program ramps in the semi cap subsector. That's how we do that.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Great. Thanks so much. And then maybe just on the aerospace and defense side. Typically, when you see the semi cap that has the push and pulls, you're able to offset that through strength in other segments. Just kind of curious what you're seeing on the defense side excuse me, the aerospace side?

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

And are you seeing the pull in from those the aerospace customers as you would have anticipated?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Yes, we're still not seeing David the pull in from Boeing or Airbus for the increased production ramps. So we'd expect that to happen at some point as we move forward, but the demand just hasn't flown through yet to us. We are seeing strong demand within our defense and our space subsectors though and particularly defense. And as I mentioned in the prepared comments as well too, we're starting to see signs of increased European defense demand as well, which we view as a great opportunity for us moving forward.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

And David, it's Sean. Just one thing to be clear. Our preliminary outlook into fiscal twenty six does not include a recovery in production from current rates from Boeing and Airbus and the impact to our end customers. So it's steady state. So if that were to change, that would positively affect our view into 2026.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Great. Appreciate the color there. Thanks so much. I'll get back in the queue.

[Operator]

Your next question comes from the line of Jim Ricchiuti with Needham and Company. Your line is open. Please go ahead.

[James Ricchiuti, Senior Analyst at Needham & Company]

Hi. Can you hear me okay?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Yes. Now we can hear you, Jim.

[James Ricchiuti, Senior Analyst at Needham & Company]

Terrific. Thanks. Thanks a lot. Couple of questions. Just as we think about the industrial business, you know, it sounds like, at least as we went through the the most of the the first nine months of the year, you were seeing pretty healthy demand in in semi cap. So, yeah, I'm curious. Your implied guidance for q four, what is that kind of assume for semi cap in fiscal twenty twenty five, just given that that is a big part of the industrial business, isn't it?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

It is a big part. It's close to half of our industrial business. Now we have seen the forecast weaken a bit from a quarter ago. So, while we had been talking about revenue growth in mid teens for semi cap for fiscal twenty five, it's looking like it'll be low double digits, call it, right now. So we had some of the push outs that Oliver had talked about in some of the semi cap business that we have.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Now, within the broader industrial though, we are starting to see some signs of demand recovery in certain sub sectors. Energy is one that we've highlighted in particular and we've got a real strong position there and good growth prospects as we move forward.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. That's that's helpful, Todd. Thanks. Hey, Pat. Maybe I wanted to just turn to to Malaysia.

[James Ricchiuti, Senior Analyst at Needham & Company]

You you talked about, you know, some of the start up expense, the potential for, you know, some of that to be a a drag in q four. I'm wondering if you can give us a sense or help us size that and how you see that going forward in the early part of fiscal twenty six.

[Patrick Jermain, Executive VP & CFO at Plexus]

Yes. It's going to be a pretty minimal drag in Q4. And what we've seen in the past when we've started up facilities, in Malaysia, is how quickly we can bring those sites to profitability. Part of it is campus environment we've got where we can move programs pretty easily into new sites. So I think it's you know a four quarter period to get us to profitability and closer to our corporate average.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

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

[James Ricchiuti, Senior Analyst at Needham & Company]

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

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Yeah. The well, the initial focus is gonna be semi cap, but it'll be broad based though, and we'll quickly move on to health care within that site. And in the in the future, it could take on other sectors as well.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thank you.

[Operator]

Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Your line is open. Please go ahead.

[Jacob Moore, Equity Research Associate at KeyBanc Capital Markets]

Hi, good morning. This is Jacob Moore on for Steve Barger today. Thanks for taking the questions.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Thank you, Jacob.

[Jacob Moore, Equity Research Associate at KeyBanc Capital Markets]

Hey, just first from us, knowing that you're ramping that new facility in Malaysia, can you just comment on current capacity and utilization across the business? You know, where does utilization stand today, and roughly what sort of revenue run rate could you hit if you're at your target u?

[Oliver Mihm, Executive VP & COO at Plexus]

Yeah. Sure. From an overall utilization perspective, the the way we look at our capacity is that if we fill that up, we will be able to execute in excess of $5,000,000,000. And I would say that utilization rate relative to where we are at today is pretty consistent across all of our regions.

[Jacob Moore, Equity Research Associate at KeyBanc Capital Markets]

Understood. That's helpful. Thank you. And then the second one from us, you you know, you mentioned that engineering solutions did well in the quarter. Can you just sort of expand on your strategy for that part of your business and maybe provide a little bit of basic info for it?

[Jacob Moore, Equity Research Associate at KeyBanc Capital Markets]

You know, like, what size is it today? Where do you want it to be? And what's the relative margin profile look like?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Sure. So where where I'd start with engineering is the first thing I'd say is we view it as one of the most significant differentiators for Plexus. I mean, we've historically we've had engineering and product development and been well versed in it throughout our history. In fact, I even started in our engineering over thirty years ago. So it gives you an idea of the longevity of that business, something that we consider strategically important.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

About a third of the revenue that we have in manufacturing, we've had a direct impact on through our engineering services. Right now, that business is in excess of $100,000,000 We don't give a lot of specifics about it, but excess of $100,000,000 having a really excellent year from a standpoint of both growth and profitability within the business. One of the other real keys to our engineering business that's been exciting over the course of this past fiscal year in particular has been the diversification we've achieved throughout the business. Historically, we've had a strong focus within our healthcare business in particular. We've seen this expand into aerospace and defense, industrial semi cap, as well as life sciences over the course of the past year in more meaningful way. So the diversification is particularly exciting.

[Patrick Jermain, Executive VP & CFO at Plexus]

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

[Jacob Moore, Equity Research Associate at KeyBanc Capital Markets]

Understood. Thank you very much.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

Thank you.

[Operator]

Your next question comes from the line of Anja Soderstrom with Sidoti. Your line is open. Please go ahead. Yes.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

We can now, Anja.

[Anja Soderstrom, Financial Analyst, Equity Research - Small-Mid Cap Technology Sector at Sidoti & Company]

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

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Yeah. Generally, our Malaysia sites perform quite well.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

Yep.

[Anja Soderstrom, Financial Analyst, Equity Research - Small-Mid Cap Technology Sector at Sidoti & Company]

Okay. And another we haven't really touched on the tariffs. What are you sort of seeing there? Or have you seen any sort of headwinds to orders? Or what can we expect?

[Todd Kelsey, President and Chief Executive Officer at Plexus]

Yeah, there hasn't been a lot of change from the previous call or the previous quarter with respect to tariffs. We're still seeing customers in a wait and see mode. Again, just to remind everybody on the call, we passed tariff costs onto our customers and we haven't gotten pushed back on that front. We think we're really well positioned to help our customers with a lot of strength in our trade compliance organization. We've invested heavily in there in people and process and tools.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

And from a standpoint of demand, we've only seen maybe one customer pull in any demand and we've seen pretty limited push outs of demand. So demand isn't really moving much because of the tariffs as of this point. One of the things that we have done is within our Mexico operations, there's been a big push to drive for USMCA compliance within our for our customers' products, and we're north of 80% right now, which we think is really an excellent number that we have within that on that front.

[Anja Soderstrom, Financial Analyst, Equity Research - Small-Mid Cap Technology Sector at Sidoti & Company]

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

[Patrick Jermain, Executive VP & CFO at Plexus]

Yes. Well, that's kind of where we're guiding Q4 mid-60s. I think there's opportunity as we move into fiscal twenty twenty six with efforts we're doing around inventory. We'll see gross inventory days, I think still come down. There will be return of deposits associated with some of those reductions.

[Patrick Jermain, Executive VP & CFO at Plexus]

But I think Anya being in the mid to low 60s is very realistic for us.

[Anja Soderstrom, Financial Analyst, Equity Research - Small-Mid Cap Technology Sector at Sidoti & Company]

Okay. Thank you. I'll get back in the queue.

[Operator]

We have a follow-up question from David Williams at The Benchmark Company. David, your line is open. Please go ahead.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Hey, thanks for letting me jump back in here. Maybe, Todd, just wanted to ask on or Pat on the new tax legislation. Is there anything there that changes your point of view on maybe the CapEx? I know you're pushing some of that sounds like more for timing on Malaysia. But does that change anything from maybe the on the tax side of things in terms of CapEx or the way you're thinking about the business in any way?

[Patrick Jermain, Executive VP & CFO at Plexus]

Not from a CapEx standpoint. Obviously, there's a lot of strategies we're looking at to minimize the effect of the global minimum tax, but not necessarily anything we're seeing around capital spending at this point.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

One of the things, David, that we are looking at more from a market standpoint or maybe a couple of things is with the expensing of R and D, there may be some potential that could have some positive pull through for our engineering solutions, we believe. There's also some components of the bill that are around rural health and providing rural health as well as potentially some pull forward of clean energy demand given some of those credits going away in the future and not to mention the increased defense budget that's out there. There's some reasonable market inputs that could be positives. We haven't seen any of that flow through as of yet though.

[David Williams, Equity Research Analyst at The Benchmark Company LLC]

Great. Thanks so much for the help.

[Operator]

We have a follow-up question from Jim Ricchiuti with Needham and Company. Jim, your line is open. Please go ahead.

[James Ricchiuti, Senior Analyst at Needham & Company]

Yes.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thanks. Just a question on the health care life science part of the business. It sounds like you you're looking at fiscal twenty six. You're optimistic of a a pickup in growth. That's been a more difficult part of the business to forecast, hasn't it been?

[James Ricchiuti, Senior Analyst at Needham & Company]

It seems and and it's not just you. We're hearing this from other players as well, including the OEMs. Just give I'm trying to get a sense as to what what gives you the confidence about fiscal twenty six.

[Oliver Mihm, Executive VP & COO at Plexus]

Yeah, Jim. I'll offer and refer back to my prepared remarks that the strength of ongoing and new program ramps gives us, a, contributes to our q four outlook. Also, that carries into f twenty six. Two other things I'll mention is two new customers added this quarter, so that's expected to provide us some additional, tailwind as we work through f twenty six. And then the other thing I'll talk about is we talked earlier about our engineering design services, and they typically act as a leading indicator for us.

[Oliver Mihm, Executive VP & COO at Plexus]

And while we had seen, if I reference back to a few quarters ago and the inventory correction that that sector went through, health care kind of got out ahead of life sciences. And then more recently, we've seen increase in activity and discussion with both new customers and existing customers with our engineering design services relative to life sciences. So given that that's a leading indicator, that gives us further optimism as we anticipate strong growth in F twenty six.

[James Ricchiuti, Senior Analyst at Needham & Company]

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

[James Ricchiuti, Senior Analyst at Needham & Company]

And is that how big is that in terms of the defense business overall? And as you look at fiscal twenty twenty six, do you see that as a bigger driver?

[Oliver Mihm, Executive VP & COO at Plexus]

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

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

And Jim, it's Sean. A couple of things. Do defense in aggregate is maybe a little more than a third of that sector. European defense is a is a smaller component of the mix, but we do forecast in 2026 really robust growth overall for our defense exposure. Our team just came back from the Paris Air Show a couple weeks ago.

[Shawn Harrison, Vice President of Communications & Investor Relations at Plexus]

Significantly more conversations about how we can support European defense companies with our strong footprint and region. As we mentioned, some, you know, good initial gains here. We think there's a significant amount of opportunities. There's different TAMs out there that have been discussed. But given how we play and where our footprint is in that market, we think we have we're strongly positioned to capture market share and support the upside potential out there. Got it. Thank you.

[Operator]

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

[Todd Kelsey, President and Chief Executive Officer at Plexus]

All right. Thank you, Nicole.

[Todd Kelsey, President and Chief Executive Officer at Plexus]

I'd like to thank the shareholders, investors, analysts and our Plexus team members who joined the call this morning. In closing, I'd like to reiterate that we're poised for a solid finish to fiscal twenty twenty five with quarterly sequential revenue growth in the back half of the year, strong operating and free cash flow performance, as well as exceptional EPS growth. We're positioned to carry this momentum into fiscal twenty twenty six and anticipate another good year. Thank you again, and have a nice day.

Participants

Executives

• Shawn Harrison, Vice President of Communications & Investor Relations
• Todd Kelsey, President and Chief Executive Officer
• Oliver Mihm, Executive VP & COO

Analysts

• Patrick Jermain, Executive VP & CFO at Plexus
• David Williams, Equity Research Analyst at The Benchmark Company LLC
• James Ricchiuti, Senior Analyst at Needham & Company
• Jacob Moore, Equity Research Associate at KeyBanc Capital Markets
• Anja Soderstrom, Financial Analyst, Equity Research - Small-Mid Cap Technology Sector at Sidoti & Company