Plexus Corp. (PLXS) Q3 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Plexus Corp. Conference Call Regarding its Fiscal Third Quarter 2015 Earnings Announcement. My name is Lorraine and I will be your 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 one hour. I would now like to turn the call over to Mr. Angelo Ninivaggi, Plexus' Senior Vice President, Chief Administrative Officer and General Counsel. Angelo? Angelo Michael Ninivaggi - Senior Vice President, Chief Administrative Officer, General Counsel & Secretary: Thank you, Lorraine. Good morning, everyone, and thank you for joining us today. Before we begin, I should remind everyone that statements made during the call today and information included in the supporting material that is not historical in nature, such as statements in the future tense and statements that include believe, expect, intend, plan, anticipate and similar terms, are 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 September 27, 2014, and the Safe Harbor and Fair Disclosure Statement in yesterday's press release. Plexus provides non-GAAP supplemental information, such as return on invested capital, 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 net income and adjusted operating margins, 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 and clicking on Investor Relations at the top of the page and then Event Calendar. Joining me today are Dean Foate, Chairman, President and Chief Executive Officer; Todd Kelsey, Executive Vice President and Chief Operating Officer; Pat Jermain, Senior Vice President and Chief Financial Officer; and Steven Frisch, Executive Vice President and Chief Customer Officer. I'll be now turning the call over to Dean Foate. Dean? Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you, Angelo, and good morning, everyone. Yesterday, after the close of the market, we reportedly results for our fiscal third quarter 2015. Revenue was $670 million with diluted EPS of $0.69. Both results were consistent with our announcement of preliminary results on July 13. Relative to our original guidance issued April 22, our revenue was at the low end of the range while our EPS result was $0.02 below the bottom of the range. Before Todd and Pat provide further context and details regarding our performance this quarter, I will summarize a few notable items on slide four. While our revenue results are disappointing versus our earlier expectations, we grew about 3% sequentially and we were up 8% versus the comparable quarter last year. Our $670 million revenue results set a new record for the company. During the quarter, we experienced modestly weaker demand in both our Networking/Communications and Healthcare/Life Sciences sectors. The Networking/Communications weakness was more disruptive to results as it occurred late in the quarter with meaningful reductions in demand carrying into our fiscal Q4. While our miss in our Defense/Security and Aerospace sector was a consequence of both modest end-market demand weakness and more significantly these product shipments late in the quarter due to unanticipated production process constraint in one of our focus factories. While we didn't achieve the financial results we set out to deliver this quarter, I am pleased with our ever improving focus on providing exceptional value and execution for our customers. As evidenced, our Net Promoter Scores continue to rise. And this quarter, we're awarded six outstanding performance awards, including Global Supplier of the Year for GE Healthcare. Additionally, we achieved AS9100 Quality Management System certification for Plexus Engineering Solutions in Europe. This certification is in support of our strategy to support higher levels of engineering value-add to customers in the European Aerospace market. We made a few significant leadership changes over the course of the quarter to better position us for growth and improved execution. Recently, we announced the appointment of Oliver Mihm as President of Plexus EMEA. In his new role, Oliver assumes responsibilities for the strategy and execution of all the aspects of Plexus' business in the EMEA region. Oliver is a talented and versatile leader who possesses exceptional customer-facing skills. Ronnie Darroch, who was previously pulling double duty leading Plexus EMEA and Global Manufacturing Solutions, can now focus his exceptional talents on strategy and execution of our Global Manufacturing platform. Ronnie has recently relocated to the United States. Finally, Mike Running assumed leadership over our Global Engineering Solutions business. Over his long tenure at Plexus, Mike has held a number of leadership positions in our engineering organization and is well prepared to leverage his significant portfolio skills to grow this profitable business to the $100 million level and beyond. Advancing to our fiscal fourth quarter guidance on slide five. Looking forward to next quarter, we expect continuing end-market weakness in our Networking/Communications sector to largely offset anticipated sequential growth in our other three market sectors. We are establishing fiscal fourth quarter 2015 revenue guidance of $650 million to $680 million. Achieving the midpoint of this range would bring our full year revenue growth just shy of our 12% enduring goal with all four sectors growing year-over-year. At this level of revenue, we expect diluted EPS in the range of $0.64 to $0.72, including approximately $0.10 of stock-based compensation expense, but excluding any unanticipated special items. I will now turn the call over to Todd for some further comments about our market sectors and operating performance. Todd? Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Thank you, Dean. Good morning. Please advance to slide six for insight into the performance of our market sectors during Q3 of fiscal 2015 as well as our expectations for the sectors in fiscal Q4 of 2015. Our Networking/Communications sector was up 6% sequentially in Q3, which was below our expectations of a high single-digit increase. Two of our top customers de-committed to earlier forecast late in the quarter, while performance in the remainder of the sector was mixed. We expect our Networking/Communications sector to be down in the high teens percentage point range in fiscal Q4, a dramatic change from our expectations of just a few weeks ago. Several of our top customers are experiencing recent weakened end-market demand, a trend consistent with what we observed with our peers. While we're benefiting from new program ramps, the sector remains volatile and our expectations have changed significantly. Despite the recent contraction, we're still projecting double-digit percentage growth within the sector in fiscal 2015. Our Healthcare/Life Sciences sector was down 6% sequentially in Q3, below our expectations of a low single-digit decline. This marked the first time in the last seven quarters that the Healthcare/Life Sciences demand did not strengthen within the quarter. Three of our top 10 customers underperformed to expectations within the quarter. Looking ahead to fiscal Q4, we currently anticipate revenue in our Healthcare/Life Sciences sector to be up in the low single-digits as we benefit from new program ramps. While end-market demand is muted, we expect a good growth here in fiscal 2016 within our Healthcare/Life Sciences market sector as a result of recent program wins. Our Industrial/Commercial sector was up 10% sequentially in our fiscal Q3, slightly above our expectations. Seven of our top 10 customers grew sequentially in the quarter. And we benefited from the large new program ramp we highlighted last quarter. We currently anticipate that our Industrial/Commercial sector will be up in the low double-digit range in our fiscal Q4 as a result of new program ramps and strengthening demand with a top customer. We're positioned for strong growth in this sector for fiscal 2015 and fiscal 2016. Our Defense/Security/Aerospace sector was up 2% sequentially in Q3, a result that was well below our expectations of high single-digit growth. We experienced a production process constraint in one of our Defense/Security/Aerospace factories that limited our ability to complete product shipments late in the quarter. We're working closely with our customers to implement solutions that will reduce further impact. We currently expect Q4 to be up in the high single-digits as we benefit from strengthening demand with a top security customer and new program ramps in Aerospace. Fiscal 2015 remains a healthy growth year for the sector and fiscal 2016 is also positioned well. Next to new business wins on slide seven. During the quarter, we won 34 new programs in our Manufacturing Solutions group that we anticipate will generate approximately $147 million in annualized revenue when fully ramped in production. Our wins were balanced across our three regions. When reviewing the trailing four quarter wins as a percentage of the trailing four quarter revenue, which is the line on the accompanying regional revenue graph, each region is at a healthy ratio above our 25% goal. Our EMEA region has particularly strong wins momentum, enhancing confidence that we'll meaningfully grow the region in future quarters. Please advance to slide eight. This slide provides further insight into the wins performance of our market sectors. It is important to note that there is significant volatility in the data and longer-term trends provide the most value in measuring sector performance. In fiscal Q3, our Manufacturing Solutions wins were particularly strong in the Healthcare/Life Sciences market sector. The team has performed well over the past three fiscal years, positioning us for growth in fiscal 2016 and beyond. Our Manufacturing Solutions wins included significant programs in microelectronics and aftermarket services, two differentiating and higher margin service offerings. Our funnel of new business opportunities remains healthy at $2 billion. Now advancing to wins momentum on slide nine. Our Manufacturing wins trailing four quarter performance as shown by the dark blue bars is at $716 million. This performance results in a trailing four quarter win ratio of 27% relative to the trailing four quarter revenue, above our target of 25%. While not included in the wins results on the recent slides, we had another good quarter in Engineering Solutions with new project wins totaling approximately $23 million. Our Engineering wins remains very strong in our Healthcare/Life Sciences sector where we continue to differentiate the marketplace. Our backlog in Engineering Solutions is quite healthy and its operational performance has been very good. Next, I'd like to turn to operating performance on slide 10. We achieved record revenue in fiscal Q3 affirming the success of our go-to-market strategy and our focus on customer service excellence. Operating margin finished disproportionately below expectations, primarily as a result of the revenue shortfall due to process constraints in Defense/Security/Aerospace coupled with additional investments we made in the focus factory to address manufacturing inefficiencies. Our Q4 guidance suggests relatively flat revenue and modest improvements to operating margins. In fiscal Q3, our Economic Return remained well within the value creation zone at 310 basis points. Please advance to slide 11 for additional insight into our recent operating margin performance and future expectations. Throughout this discussion, I will move from left to right on the slide. As we entered Q3, we focused on three operational improvement priorities: Guadalajara ramp, EMEA growth, and Aerospace and Defense Center of Excellence ramp. Two of the three are progressing at or ahead of plan. Entering Q3, we expected our Guadalajara site to approach breakeven. The site exceeded expectations and was profitable for the quarter. This had a 20 basis point positive impact to operating margin. We continue to expect to achieve corporate margin targets at the site by Q1 of fiscal 2016 as our annualized run rate exceeds $200 million. Customer satisfaction at the site remains very high. Moreover, our funnel of new business opportunities at the Guadalajara site, which is not included in the revenue projections, is quite strong. In addition, in fiscal Q3, we obtained ISO 1345 (sic) [13485] certification at the site. ISO 1345 (sic) [13485] is an important Healthcare/Life Sciences quality standard. And our teams are leveraging this accomplishment to drive new business into the facility. As anticipated, our path to consistent profitability in EMEA took a one quarter pause as a consequence of soft end markets, transition delays, and investments in new transitions. We're still on track to resume our profitability improvements in the region in fiscal Q4. Our operational results did not progress as anticipated in our Aerospace and Defense Center of Excellence within fiscal Q3. We experienced a production process constraint that limited our ability to complete product shipments late in the quarter. This had a 20 basis point impact to fiscal Q3 operating margin. We're working with our customers on solutions to the process constraint and expect to have this resolved in fiscal Q4. We also made additional investments over those previously communicated, which had a 20 basis point burden on our Q3 operating margin in order to address inefficiencies and properly service our customers in this important market. These investments are positively influencing our key customer metrics, which are trending favorably. While we expect to begin to recover our investments in the next two quarters, the complete recovery will occur over fiscal 2016. Looking forward to Q4, we anticipate that we'll recover the revenue impact of the production process constraints in our Aerospace and Defense factory. We will benefit from the revenue ramp in EMEA. And we will continue to recover our Guadalajara investment according to plan. However, much of these gains will be offset by under-absorption of fixed cost that we put in place during fiscal Q3 to service the previously anticipated revenue growth in fiscal Q4, which was just recently reduced in our forecast. We will work to remove our delays at certain cost as the quarter unfolds. However, we anticipate regional sequential growth in the Networking/Communications and other sectors in fiscal Q1 of 2016. As a result of this increased leverage and continued progress in our three priorities outlined above, we expect improved operating margin in fiscal Q1 of 2016 as we strive to meet our operating margin target range of 4.7% to 5%. I will now turn the call over to Pat for more detailed review of our financial performance. Pat? Patrick J. Jermain - Senior Vice President & Chief Financial Officer: Thank you, Todd, and good morning. Our fiscal third quarter results are summarized on slide 12. Third quarter revenue of $670 million was at the low end of our guidance, however 8% above the prior year third quarter. Gross margin was 8.8%, which was below our expectations and below the fiscal second quarter gross margin of 9.2%. The lower gross margin primarily related to one of our Aerospace and Defense focus factories where missed shipments late in the quarter impacted fixed cost absorption. We also made deliberate short-term investments in this focus factory to improve quality and manufacturing efficiencies. Selling and administrative expense of $30.5 million was consistent with our expectations and as a percentage of revenue was approximately 4.5%, which has been the lowest level we've seen in several years. This percentage has trended downward in recent history due to improved productivity and prudent management of SG&A expenses as we grow the top line. Operating margin of 4.2% (sic) [4.3%] was below our guidance, driven by the shortfall in gross margin. Diluted earnings per share of $0.69 was consistent with fiscal second quarter and consistent with the preliminary results provided on July 13. Similar to last quarter, the current quarter overall impact on revenue and earnings from currency fluctuations related to our European operations was less than 1% when compared to both our quarterly forecast and the prior year fiscal third quarter. Turning now to the balance sheet on slide 13. Return on invested capital was 14.1% for the fiscal third quarter, reflecting an Economic Return of 3.1% based on our fiscal 2015 weighted average cost of capital of 11%. During the quarter, we repurchased approximately 170,000 shares for $7.5 million at a weighted average price of $44.40 per share. The shares were purchased under our $30 million stock repurchase program. We have approximately $7.5 million remaining under the authorization, which we plan to repurchase on a relatively consistent basis over the fiscal fourth quarter. During the quarter, we generated $15 million in cash from operations and spent $10 million in capital expenditures, resulting in free cash flow of approximately $5 million. Our cash cycle at the end of the third quarter was 62 days, which was in line with our expectations and three days higher than our results in the fiscal second quarter. Please turn to slide 14 for details on our cash cycle. Sequentially days and receivables were flat, which again demonstrated our focus on managing receivables. Days in inventory were 88 days, sequentially up two days, primarily driven by the late quarter reduction in revenue compared to our forecast. Accounts payable days were 62 days, sequentially down one day due to the timing of inventory purchases and supplier payments during the quarter. As Dean has already provided revenue and earnings per share guidance, I will now turn to some additional details on our fiscal fourth quarter 2015, which are summarized on slide 15. Gross margin is expected to be in the range of 8.7% to 9.0% comparable to the fiscal third quarter of 2015. With similar revenue expected in the fiscal fourth quarter compared to the third quarter, we expect sequentially consistent SG&A expense in the range of $30 million to $31 million. At the midpoint of our revenue guidance, anticipated SG&A would be approximately 4.6% of revenue. Operating margin is expected to be approximately 4.2% to 4.5% for the fiscal fourth quarter. As Todd has discussed, we're forecasting continued improvement during the next few quarters with our European operations and with the ramp-up of our Guadalajara site. However, the abrupt reduction in fourth quarter revenue for our Networking/Communications sector will negatively impact operating margin from the under-absorption of fixed costs. We're mindful of the gap in operating margin and have a sense of urgency to achieve our targeted operating margin range of 4.7% to 5%. In order to do so, we need to recover our investment in our Aerospace and Defense focus factory, improve productivity levels, and prudently manage our capital and SG&A spending. A few other notes. Depreciation expense is expected to be approximately $12 million in the fiscal fourth quarter. Consistent with our fiscal third quarter, we are estimating a tax rate of 10% to 12% for both the fiscal fourth quarter and full year. This rate has increased slightly since last quarter based on the global distribution of our earnings. Our expectation for the balance sheet is that working capital needs will increase slightly. Based on changes in our market sector mix and the abrupt reduction in our fourth quarter revenue forecast, cash cycle days are expected to be in the range of 63 days to 67 days. We're now forecasting free cash flow in the range of $40 million to $60 million for fiscal 2015. We expect capital spending to be approximately $40 million for fiscal 2015. The majority of this capital is for equipment to support new capabilities, new program ramps, and the refresh of older equipment. We anticipate maintaining a similar level for fiscal 2016. With that, I will open the call for questions. We ask that you please limit yourself to one question and one follow-up. Lorraine?

Thank you. We will now begin the question-and-answer session And our first question comes from Brian Alexander from Raymond James. Please go ahead. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. Thanks. Good morning, guys. Dean A. Foate - Chairman, President & Chief Executive Officer: Hi, Brian. Brian G. Alexander - Raymond James & Associates, Inc.: I just wanted to start with the new business wins. I appreciate they were balanced geographically and across segments, but they were roughly 25% below the average we've seen over the last six quarters. And I think the funnel came down as well. So you didn't harvest as many as you had. So is it getting more difficult on the business development front in general? And are you seeing more competition for new programs from some of your larger EMS peers and kind of what's your outlook for new program wins over the next few quarters? Steven J. Frisch - Chief Customer Officer & Executive Vice President: So, Brian, this is Steve. In terms of the funnel itself, it's still healthy at over $2 billion. I think in terms of the aggressiveness of competition, I don't think there's a fundamental difference in what we've seen. And the EMS business is a competitive business. And, again, fundamentally, I don't think there's a big shift that we've seen there. As we look forward, we do expect Q4 to improve in terms of the quantity of wins, led significantly by the Healthcare/Life Sciences team. They are expecting some decent wins this quarter. The one thing that we did do this quarter is we did sign a letter of intent with a large industrial commercial customer. However, we have to win the individual business units. So we're not recognizing any of those wins until we win each of the business units. So that will happen over the course of the fiscal 2016 as we quote and win those pieces of business. So, from our viewpoint and as Todd mentioned and you mentioned, the funnel is healthy in front of the places where we want it to be, in EMEA and in Guad. So yeah, the number is down from where we would like to be or, quite frankly, where you want to see it go. But, fundamentally, we don't see a big shift in the business in terms of what we're doing in the business development front. Brian G. Alexander - Raymond James & Associates, Inc.: Just a follow-up on that – on the industrial commercial letter-of-intent. What's kind of the max opportunity there if you were to be successful on the individual pieces? Steven J. Frisch - Chief Customer Officer & Executive Vice President: We believe it's north of $100 million. In fact, the customers called it as north of $100 million. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. And then maybe for Dean or Todd. I'm trying to get a sense for how much of the weakness that you're seeing in your business in general with the guidance for September being below expectations. How much of this is really demand-driven versus more company-specific and execution related? When I look at the big drop-off in the Communications business, the process issue in the Defense business, the consistent kind of underperformance on overall margins versus your own internal goals, and the several changes that you're making in leadership, it would seem at least to us on the outside that maybe there is some deeper issues at Plexus. So, can you talk about why that perception may not be warranted and what's really going on? Thanks. Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. Well, we certainly don't want to leave you with that impression. I'll let Todd address the first part of your question, which relates to the drop-off in Network/Communications. And we talked about a somewhat modest softness in sort of end-market demand with some of the other sectors. But, fundamentally, the leadership changes that we've been making have been in the long-term in the making. And those that have followed Plexus know that we decided to invest in the EMEA region a number of years ago in addition to the long legacy capability that we had in the UK. That meant we had to begin to build out a team. We've put a design center in Europe. We added a facility in Oradea. We're able to attract a very talented leader away from one of our competitors to take the leadership over that region. That individual, Ronnie Darroch, also is an extremely talented operations leader. And he has, as I said in my comments, been pulling double duty leading EMEA and driving performance across the globe for manufacturing. Of course, that was not a sustainable role having him do both. So we've been developing Oliver into a number of different positions. He first led the Engineering organization. Then we had him take on one of the market sectors to gain more understanding about manufacturing, get closer to growth in those sectors. And then, we're ready to ask him to take the assignment to lead the EMEA region. And so that was at least probably a two-year process to develop and ready him and free up Ronnie then to focus on operations. And, of course, I commented about Mike, who has been with the company for some time in various leadership roles. So these things were really evolving as we look to grow in EMEA and as we look to get better execution and better standards in terms of the way we execute across the globe in manufacturing. And those things, of course, are starting to pay some dividends in terms of our customer Net Promoter Scores and, as I talked about, just extraordinary number of customer performance awards that we won this quarter. So there's nothing – this isn't a reaction. I would say this is more of a longer-term strategy in the development of our people and building the company to scale across the globe. So I'll turn it to Todd and he'll talk about the first part of your question. Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Sure. So with respect, first of all, Brian, to the Networking/Communications sector, what I can say is that the sector as a whole is soft. I mean we're basically not seeing strong growth anywhere and the growth that we're seeing is from new program wins. Now we do have a number of our top 10 customers where there's specific, I'd call it, exceptional softness or greater that are really driving the downturn in our fiscal Q4. Now as we look ahead to fiscal Q1, we do expect some significant sequential growth within the sector in fiscal Q1. Brian G. Alexander - Raymond James & Associates, Inc.: Okay. Thank you. Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Sure. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Mitch Steves from RBC Capital Markets. Please go ahead.

Hey. Thanks, guys. I just had a quick question on the Guadalajara facility ramps. I remember I think last quarter you guys were talking about 20 basis points to 30 basis points improvement in Q4. But now that I look at the slide deck, it looks like you guys are delaying that to FY 2016. So could you just maybe provide some commentary what changed there and why the delay? Patrick J. Jermain - Senior Vice President & Chief Financial Officer: Sure. So there's not a delay in Guadalajara and it's actually ahead of schedule. So what we had talked about last quarter was overall a 40 basis point drag that was a result of the Guadalajara investments that we've put in place to aggressively ramp the facility. We expected to recover that over a three quarter period, Q3, Q4 and Q1. So we've recovered 20 basis points of it already in Q3 because of the facility really ramping faster than expected, achieving profitability when we expected it to be at a slight loss in Q3. So we're ahead of plan. We still expect to make some further improvements in Q4 and be completely up to corporate targets in Q1.

Got it. Thanks. And then if I could ask one more on the Networking side. I'm sure you guys hear a lot of questions on this, but is there any comments you guys can make on maybe next year just because the quarters were so lumpy this year? And when we'll see maybe year-over-year growth, the comparable, to be maybe pretty tough in the first two quarters? Dean A. Foate - Chairman, President & Chief Executive Officer: Boy, I don't know. That's a tough one to answer right now because we sure didn't see the kind of step down like we just experienced into Q4. I guess at this point, I mean we've got a forecast for next year. We see revenues coming up again in that sector as we come into the new fiscal year. Demand from the customers that we saw weaken has come back up. We don't think that we're going to see the extraordinary strength from in particular one of the customers that we've seen this past year. And I don't think that they would suggest they would see that in that regard either in the near term. Definitely, they were positioned such that they were first to market with a new technology and they made extraordinary progress penetrating that market. And, of course, the demand is going to normalize. Now who knows what's going to happen with follow-on product technologies and those kinds of things. But, at this point, that marketplace for us and for everyone, I think, is just really difficult to pin down in terms of what we think the kind of quarter-by-quarter linearity is going to be. It's going to be – I think continue to be somewhat volatile here. Todd P. Kelsey - Chief Operating Officer & Executive Vice President: The one thing too that I'd add, Dean, is that we're expecting strong growth and have a really solid forecast in our other three market sectors. So, we feel really good about our prospects in those three sectors. But the Networking/Communications in general has been so volatile, it's just tough to predict right now.

Got it. And just real quick. Was ARRIS still a 10% customer in the quarter or did they drop off? Patrick J. Jermain - Senior Vice President & Chief Financial Officer: Yeah. We, Mitch, only report that on an annual basis. So we'll be reporting that in our year-end results.

Okay. Got it. Thank you. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Matt Sheerin from Stifel. Please go ahead. Matt J. Sheerin - Stifel, Nicolaus & Co., Inc.: Yes. Thanks. Good morning. Just wanted to ask some questions revolving around the production process constraints in your Aerospace/Defense business. Was that specific to one customer? And could you give us more color in exactly what those issues were? I know it's been a drag on margins. Is it going to continue to be a drag over the next couple quarters? Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Sure. So, Matt, this is Todd. I'll take this one. With respect to the issue of the production process constraint, it was in our conformal coating function. So this is essentially a back-end process that's utilized heavily in Aerospace, occasionally in other market sectors, but primarily within Aerospace. And what's particularly challenging around it is we have 17 chemistries that we currently have implemented right now, of which three or four are the bulk of the volume. And then within that conformal coating, there's a certain – the typical method is to automate the processes around the coating, but there's certain products that have very manual intensive processes that become very Aero prone. So what we've been working with our customers on is – and what we expected to have resolved within Q3 is to automate some of these more manual processes on products in particular where we've seen upside and also to really bring on third-parties for the really obscure coat processes that we have in place. And those did not occur within the quarter. We're working through those. And we have the bulk of it resolved as of today. Still a couple of things to resolve yet within the quarter, but we expect to clear that up in the quarter, well within the quarter, even within the month. And the impact is that we'd recover that 20 basis point revenue impact that we had to operating margin as a result of not being able to get the product out late in the quarter. Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. I would just add to that. To be clear, we're pretty much ready to go. Unfortunately, the nature of the Aerospace technologies is such that it takes sometimes an extraordinary amount of time to get approvals to make production process changes. And we thought we were going to get those things approved and be able to have a higher throughput. And, unfortunately, that just didn't come about. Matt J. Sheerin - Stifel, Nicolaus & Co., Inc.: And was that an impact from one customer or multiple customers? And was that revenue that you missed? Is that basically just pulled into the – or pushed out to the current quarter, the September quarter? Dean A. Foate - Chairman, President & Chief Executive Officer: It's from multiple customers. And yes, it is a push out. Matt J. Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. And just in terms of your 4.7% to 5% operating margin targets, you talked about the moving parts and the drags from the three main issues. What do you expect to reach those targets for all of fiscal 2016 or at what point during fiscal 2016 do you expect to hit those targets? Dean A. Foate - Chairman, President & Chief Executive Officer: I'm going to let Pat take a little bit of a swing at this. But at this point because of what happened with revenue, obviously, we're clearly disappointed that we didn't live up to our commitments here because we really thought we were going to be on top of it here in this quarter. So we have some work to do here in the coming year to make sure that we get the revenue, the top line, fine-tuned to get the cost structure right, if we don't see some of these revenue come back to the extent that it was. So I mean I would be disappointed if we couldn't get after this and see it earlier in the year. I think we really need to do that. Otherwise, it's going to be a significant – it's already a significant disappointment obviously to the shareholders and to us. And so we feel a real sense of urgency to get the path back to get into that range. Patrick J. Jermain - Senior Vice President & Chief Financial Officer: Yeah. I'd add to that, Matt, that we're right in the process of developing our plan for next year and looking out. Typically, we always have a step-down in our fiscal second quarter with merit increases and payroll resets. But to Dean's point, we're looking at our cost structure and what we can do to get to those levels as soon as possible. And whether we can get there for the full year, we wouldn't be at a position right now to comment on it. Matt J. Sheerin - Stifel, Nicolaus & Co., Inc.: Okay. Thanks a lot. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Sherri Scribner from Deutsche Bank. Please go ahead.

Hi. Thank you. I wanted to dig a little bit more into the Networking weakness that you saw this quarter. And I want to confirm, Dean, I think that you said during the previous questions that customers that were weak this quarter has come back. I want to confirm that that's what you said. And then also I wanted to ask in terms of the Networking piece. How much of that weakness do you believe is related to weakness in China, which is something we've heard from other companies or is it not related to China at all? Dean A. Foate - Chairman, President & Chief Executive Officer: I'll let someone else take the market question overall. But I would just say I want to clarify what I said. It came down late in Q3 and disappointed. And, of course, that weakness carried into Q4. We see improvement in Q1 but at this point not to the level that we're executing revenues with some of the customers that came down for the prior higher levels. I mean, we see it coming back some but we're not – I wouldn't say it's a robust forecast for that sector. Steven J. Frisch - Chief Customer Officer & Executive Vice President: This is Steve. I'll take the market question. As Todd highlighted in his comments, we did see some extraordinary things happen with one or two customers with some new product ramps that came down. And that kind of magnified the thing for us. But in terms of the feedback we're getting from customers, yeah, there is end-market weakness that they are seeing that I think you've heard from other people. So I think there's a combination of the two things. One is we kind of have the extraordinary dip due to a couple of product lines and then just the overall general end-market weakness is something that being reflected back to us as well. Todd P. Kelsey - Chief Operating Officer & Executive Vice President: And it's not necessarily China, Sherri. Steven J. Frisch - Chief Customer Officer & Executive Vice President: Yeah.

Okay. Okay. Thanks. And then, Dean, just thinking about fiscal 2016, you indicated that most of the segments are going to see growth next year based on your funnel of business and wins. It looks like the Street is forecasting growth of about 7% next year. Does that seem like a reasonable growth number for you for fiscal 2016? Dean A. Foate - Chairman, President & Chief Executive Officer: Well, it's tough to start guiding 2016 just yet. But I mean certainly the marketplace supports growth at that or better. And so, I wouldn't want people to take their numbers up based on that statement yet because it's just too early. But if we only grow 7%, that would be kind of disappointing, quite frankly.

Okay. Thank you. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Shawn Harrison from Longbow Research. Please go ahead.

Hi. I'm going to beat a dead horse. So we got a lot of detail on Networking. Just want to be clear. So were these new products going into market that didn't ramp as expected based upon the last comment? Was it an inventory correction? Was it new business you were supposed to ramp? Just trying to, I guess, get that last detail. Steven J. Frisch - Chief Customer Officer & Executive Vice President: This is Steve. The detail is, is that the customer was forecasting stronger growth and strength in their product ramps. And now it had been ramping nicely. Their end-markets didn't materialize the way that they thought with those products in the quarter. And they see a short-term dip that was more significant than what I think anybody anticipated. And I think Dean highlighted the fact that we do expect to see some of that come back in 2016, back to more normalized run rate. So there was a particular product line that took a dip for everybody here more than what anybody anticipated. And the exact end-market reasons for that – I think weakness in what was happening in that market sector surprised everybody in that market sector or that subsector. Dean A. Foate - Chairman, President & Chief Executive Officer: Well, we're also cautious here about what we're saying, quite frankly, because we're out in front of the customers on our customers' earnings announcements as well. So you know who some of our key customers are. I guess I'd just say just hang on and listen to their calls and they will give you more detail. We don't want to be giving information that are contrary to what they might say in terms of direction.

That's fair. Just the bounce back into the December quarter that implies that there is excess inventory out there and that's why we bounced back or is it stronger demand that you're getting from the customer in terms of the feedback? Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. Generally, I don't think there's a lot of inventory in the channel. This stuff is pretty much direct fulfilled. So there is some of that clearly but a lot of this is just their ability to make sales to customers and get the product moving out into the marketplace.

Okay. And then just as a follow-up. Maybe I think it was Todd's earlier comments on a bullish year on Mexico into 2016. I know last quarter you talked about potentially very large programs breaking free. Is that what the bullishness in the medical sector is tied to or is there something else that could be breaking free in driving growth? Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Yeah. So the growth is – we have three major customers that are ramping within that facility right now. And I'd say that by itself is driving the bullish view. But we also have several other Healthcare/Life Sciences customers that we're beginning to grow as well too. And to be honest, we would view that as being upside to our projections in Mexico.

But nothing incremental on large medical programs breaking free tied to the comment last quarter? Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Not into this facility at this point.

Okay. Got you. Thanks so such.

Thank you. And our next question comes from Steven Fox from Cross Research. Please go ahead.

Thanks. Good morning. First question just with regards to the weakness in Networking/Communications, just a broader question. The company has had periods where it's disappointed the Street and it seems to typically be related to customer or market concentration. Obviously, you can't snap your fingers and just balance everything out overnight. But can you talk about given this latest round of misses, what you're doing to maybe reduce some of this end-market risk or end-market dependency risk in the future? Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. I think if you look at where we were at a number of years ago in terms of our overall concentration in Networking/Communication, obviously, it was quite high. I think it was - Todd P. Kelsey - Chief Operating Officer & Executive Vice President: 50% Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. It was north of 50% at one point in time. So I think we've done a nice job, not necessarily always in the way we'd want to. But we've done a nice job growing the other sectors proportionally faster than we have the Networking/Communication sector. So that's part of the strategy. Part of the difficulty, obviously, with the customers in Network/Communications is they tend to have much bigger average program sizes than perhaps the other sectors. So even though you have a lot of volatility in Healthcare and you have volatility in Industrial/Commercial with individual product lines the fact that you're building so many different products with such a great deal of mix that tends to kind of smooth out performance. But in Network/Communications, the customers tend to have these very significant programs that can have enormous volatility to them. So, our strategy is to try to pick the right customers where we can provide a lot of value-add, grow in Network/Communications because we think it's an important growth sector, but continue to grow the other sectors faster, to try to reduce some of that volatility. But, clearly, we're not always successful doing that. Like I would say, the hit we took this – in the coming quarter obviously is driven substantially by Network/Communications. But if we look at the miss in the prior quarter, this was somewhat self-inflicted as well with our inability to get product out in Defense/Security and Aerospace. So it's not all Network/Communications that gave us the current issues.

Yeah. Dean, that's fair. I guess one of the things I was getting at is my understanding was that you guys have done a better job of diversifying within the segment in Networking/Communications. So maybe you can just sort of give us an update on how well you're diversified to – there are some – obviously with some industry consolidation that is going on, there's some spending cycles that maybe are in more sync right now within that segment than usual. But how diversified would you say you are today within that big segment? Thanks. Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. I don't have the percentages with me right now. But, clearly, we have a couple of very dominant customers. And like I said, those customers – the revenue generated for Plexus with those customers tends to revolve around a handful of product lines. And so it's going to be volatile in that sector for us. So it's not as stable as I think as we'd like but at the same time these are great customers and great partners for us. And, of course, we're working to add additional customers into that sector to help grow with over a longer period of time and hopefully take some of that volatility out.

Great. Thank you very much. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Andrew Huang from B. Riley. Please go ahead. Andrew Huang - B. Riley & Co. LLC: Thanks for taking my question. First, I was wondering if we could kind of go back a little bit to the wins and then specifically in the Americas because I think in that specific geography there was a pretty big drop-off. Steven J. Frisch - Chief Customer Officer & Executive Vice President: Todd, do you want to take that? Dean A. Foate - Chairman, President & Chief Executive Officer: Yeah. Just go ahead, Steve. Steven J. Frisch - Chief Customer Officer & Executive Vice President: Yeah. So, in the Americas, if you go back and look over the last couple of quarters, it's actually similar to some of the sectors. There's actually been some volatility now. A couple of quarters ago, we had a pretty decent win. I mean in Q2 of F2015, we were at $133 million. Q1 of F2015, we're at $23 million. And this quarter, we're at $61 million. So, from a volatility standpoint, I think, what you'll see, as you look quarter-to-quarter, you will see volatility in the regions just like you will in the sectors. And that's why we kind of look at the trailing four quarters. And the trailing four quarters has been running relatively flat, in that 25% to 30% range. So, from our perspective, it's not anything that's abnormal. It's just normal volatility that we would see. And, as Todd highlighted, I think we're pretty comfortable with what we've got sitting in the front end of each of the regions at the moment. Todd P. Kelsey - Chief Operating Officer & Executive Vice President: Yeah. What I'd add too is, from an absolute standpoint, it's the largest of the three regions, even in the current quarter. So, it's a number that we feel comfortable with. Andrew Huang - B. Riley & Co. LLC: I think when you talked earlier you mentioned there was this large Industrial customer. Going forward, would that be in the Americas region? Steven J. Frisch - Chief Customer Officer & Executive Vice President: No. The benefit of that customer is that it's a conglomerate that has several different business units. And we're actually quoting business in all three regions. And that's one of the reasons why it's a little bit more complex, is that we're going to quote each business unit for the right targeted market. So, from that standpoint, we expect it to affect all three regions. Andrew Huang - B. Riley & Co. LLC: Okay. And then my next question is related to your December quarter. So I think, historically, with the exception of last year, the Industrial/Commercial segment seems to take a pretty big downtick. So, at this point, do you have any visibility on whether total company revenue for the December quarter will be up or down sequential? Dean A. Foate - Chairman, President & Chief Executive Officer: Well, yeah, we would expect it to be up sequential. I'd have to take a look at Industrial/Commercial. You're right that it can show that sort of pattern. But we also usually see Healthcare/Life Sciences strengthen in that quarter because it's the fiscal year-end for some of our bigger Healthcare customers. They tend to have a stronger performance in that quarter. At the moment, we probably suspect that there would be a little bit of softening and that sort of normal pattern would unfold. Andrew Huang - B. Riley & Co. LLC: In Industrial/Commercial? Dean A. Foate - Chairman, President & Chief Executive Officer: Industrial/Commercial, a little bit of softening, but more strength in Healthcare. Andrew Huang - B. Riley & Co. LLC: Okay. If I could squeeze in just one housekeeping item. I think for your fiscal 2015, you actually cut your CapEx budget from $50 million down to $40 million. So maybe you could talk a little bit about that. Patrick J. Jermain - Senior Vice President & Chief Financial Officer: Yeah, we did. Andrew, this is Pat. What will happen as we traditionally go through a year is we've got a forecast coming in. And, typically, we're not going to be able to get through all of the projects. We prioritize those and we'll see some reduction as we go through the year. So, yes, we're down $10 million and just being more mindful about our capital given our circumstances. And that's why going into next year, we see a similar level. Andrew Huang - B. Riley & Co. LLC: Thanks very much. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Mark Delaney from Goldman Sachs. Please go ahead. Mark T. Delaney - Goldman Sachs & Co.: Good morning and thanks very much for taking the questions. I was hoping, first, to talk more on the Industrial/Commercial segment and trying to better understand some of the dynamics with a couple of the larger program opportunities that the company has talked about. I think on the last call, the company talked about a $100 million opportunity. And I think you had already booked $75 million or so of that with maybe another $35 million still to come. How much of that has already shipped for revenue through the June quarter and how should we expect the additional part of that program to layer on? And then the additional $100 million opportunity that you were talking about that you think you can book in Industrial, is that the same customer or is it somebody new and when can that turn into revenue? Steven J. Frisch - Chief Customer Officer & Executive Vice President: This is Steve. To answer your last question first, the customer I talked about is a new customer. It's not the same one. And, in turn, in regards to the customer we talked about last quarter, the $77 million we'll complete ramping this quarter. And it is fully loaded for the F2016 forecast. There, we talked about additional $35 million in revenue. In this quarter, we closed $5 million of that additional, so that will be being loaded into the site forecast in the F2016. There's still an additional $28 million to $30 million that's in our funnel that we're still pursuing with the customer. And I don't have an expectation exactly as to when that would close, but that's still in our funnel that we're pursuing with that customer. Mark T. Delaney - Goldman Sachs & Co.: And with the new $100 million opportunity that there's additional customer, I mean is that revenue opportunity in 2016 or is it more of a fiscal 2017 timeframe before you can close the business and ship for sales? Steven J. Frisch - Chief Customer Officer & Executive Vice President: It would be a mix. There is a piece of the business that we're talking with the customer about doing transitions. And so that would have an impact in 2016. There's also opportunity that we're talking with them about new program ramps which would probably not impact 2016 and we're still deciphering exactly what that mix is. Mark T. Delaney - Goldman Sachs & Co.: Okay. Understood. And then just maybe more of a macroeconomic question about some of the trends the company is seeing across the businesses and certainly relates in particular to Industrial. A lot of semi and supply chain companies have seen weakness in the Industrial end-market. I know there's actually a few bigger programs that's allowing Plexus to do better in that business, but maybe just help us understand. Have you seen any slowdown in some of your Industrial programs outside of these big wins? And if not, is that something that concerns you as you look into fiscal 2016? Dean A. Foate - Chairman, President & Chief Executive Officer: Well, I'd just comment that I mean we are experiencing slowdowns with certain customers in certain end-markets. I mean we've certainly talked about the challenges in oil and gas. And, of course, that's all already reflected in our numbers and our expectations. Semi-cap has kind of had fits and starts with – depending upon the customer, we benefited some by just gaining incremental programs, not so much because of the bullish end-market demand by any stretch. You saw we keep talking about Healthcare/Life Sciences. Generally, I would say it's softer than we would expect. And I think that's largely around the challenges of economic performance around the globe. So it clearly is meeting the overall business growth for our customers. And, of course, it's reflected in our numbers. So sometimes difficult economic times can actually benefit EMS companies, not because you're going to get the expansion of growth of existing product lines, but the economic pressure that it puts on the broader customer base in various markets many times creates new opportunities that when become available had or maybe not become available as quickly without the economic pressures. So we see this as just continuing the sort of secular trend toward global arts, so it's also seeing as long as this pressure continues. Mark T. Delaney - Goldman Sachs & Co.: Understood. Thank you very much. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Jim Suva from Citi. Please go ahead.

Thank you. When we think about your new business line, is there a reason why one should not think about (55:30- 56:10). Dean A. Foate - Chairman, President & Chief Executive Officer: Thanks, Jim. It sounds to us like you maybe on a mobile device or something because we're having a little bit difficult time completely piecing together your questions. So I'm going to try to interpolate between the various. What I think I heard – I think you were asking about our 12% kind of enduring growth rate, the target that we have of 25% of trailing four quarter revenues as being the target to support the 12% goal. And excuse me if I'm not getting your question right. But I think that throughout the year now, for the past couple of years, we've done a pretty good job staying meaningfully above that 25% goal. If you look at this year, I mean we're all sitting here disappointed kind of how this has unfolded. We're still going to grow for the full year now. It looks like just shy of that 12% enduring goal. So the arithmetic in terms of our win rate and driving growth near 12%, I think, holds up. And, in fact, all of our sectors are growing in fiscal 2015. So I think we feel good about the growth. It's not – we felt we were going to be well above 12%. The difficulty is that the cost structure was out in front of 12% – the cost structure was starting to come in for higher levels of growth. And, of course, we also just have some couple of facilities here that are putting a meaningful drag on our near-term results that we just have been frankly struggling to get them course corrected and we will get them course corrected. But we've clearly struggled and so we haven't gotten the operating leverage and the EPS growth this year that we ought to be getting. And so, generally speaking, I think that we still got the right model. I think we still got the right go-to-market strategy. We're winning the new customers, winning the programs. This isn't – our issues aren't related specifically to pricing in the marketplaces or in the industry of collapsing. Just our ability to generate profit is about us getting a couple of facilities course corrected and getting the growth into the new sites that we've invested in.

Thank you very much. Dean A. Foate - Chairman, President & Chief Executive Officer: Thank you, Jim.

Thank you. And at this time, I'm showing no further questions. Dean A. Foate - Chairman, President & Chief Executive Officer: All right. Well, clearly, this isn't the outcome that we had expected. We expected just a quarter ago to have a much stronger result. We take our responsibility and our commitments to deliver numbers in our guidance range very seriously. Over the past 10 years, 12 years, this is the only second time we've missed on our EPS guidance range. And we're quite embarrassed by that. And we're even more disappointed here with what the outlook here in the near-term on Q4. And so, again, we appreciate the questions from the sell-side and we certainly appreciate the support that we've had from our shareholders. And we feel a sense of urgency to get the margin performance back where it needs to be and then get reacceleration of top line growth here as fiscal 2016 unfolds. So, thanks very much. And I hope all of you have a pleasant day.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.