Good morning and welcome to the Plexus Corp. Conference Call regarding its Fiscal Second Quarter 2016 Earnings Announcement. My name is Paulette and I’ll 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’d now like to turn the call over to Ms. Susan Hanson, Plexus' Director of Communications and Brand Management. Susan?

Thank you, Paulette. Good morning and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements as they will not be limited to historical facts. The words believe, expect, intend, plan, anticipate and similar terms often identify forward-looking statements. Forward-looking statements are not guarantees, since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of factors that could cause actual results to differ materially from those discussed, please refer to the Company's periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended October 3, 2015 and the Safe Harbor and fair disclosure statement in yesterday's press release. Plexus provides non-GAAP supplemental information such as ROIC, economic return and free cash flow because those measures are used for internal management goals and decision-making and because they provide additional insight into financial performance. In addition, management uses these and other non-GAAP measures such as adjusted net income and adjusted operating margin to provide a better understanding of core performance for purposes of period-to-period comparison. 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' Web site, plexus.com, clicking on Investor Relations on the top of that 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, Patrick Jermain, Senior Vice President and Chief Financial Officer; and Steve Frisch, Executive Vice President and Chief Customer Officer. Let me now turn the call over to Dean Foate. Dean?

Thank you, Susan and good morning, everyone. Consistent with past earnings calls; I’ll provide my summary comments before turning the call over to Todd and Pat for further details. Beginning with our fiscal second quarter results on Slide 3. Yesterday after the close of the market, reported results for our fiscal second quarter of 2016. Revenue was $619 million, largely in line with guidance. Versus earlier expectations, modest strength in our network communication sector, more than offset the slight underperformance of our industrial commercial sector. I’m pleased to report that our non-GAAP diluted EPS of $0.55 was at the high-end of our guidance range as we benefited from several of our cost reduction and productivity improvement initiatives. Advancing now to our fiscal third quarter guidance on Slide 4. We expect to return sequential growth in our fiscal third quarter as new program ramps more than offset the lingered revenue headwinds associated with the two previously announced program disengagements. While we’re guiding fiscal third quarter revenue in the range of $640 million to $670 million, suggesting 6% sequential growth at the midpoint. With the excellent work by our teams to deliver on many of our cost reduction and productivity initiatives, we expect our operating margin will return to our target range of 4.7% to 5% in our fiscal third quarter, one quarter ahead of plan. A substantially improved operating margin -- our operating performance should deliver non-GAAP diluted EPS in the range of $0.73 to $0.81. The midpoint of our EPS guidance range suggest a $0.22 or 40% improvement over the fiscal second quarter. Now I’d like to take a few minutes to summarize what I believe will be somewhat the key takeaways today. Please advance to Slide 5. As a team, we’re confident in our commitment for further improvement in…

Thank you.

A well managed executive development and succession plan made it possible for me after 14 years as the Company’s CEO to retire at fiscal year-end. The Board has asked me to serve as Executive Chairman during fiscal 2017 to assist Todd ensuring a smooth transition. It’s anticipated that I will serve as Non-Executive Chair thereafter. I’ll now turn the call over to Todd.

Thank you, Dean. Good morning, everyone. Before I get started, I’d like to recognize Dean and thank him for his tremendous leadership over the past 14 years. He has strategically positioned the Company and has built a strong management team to enable our future success. Please advance to Slide 7 for a insight into the performance of our market sectors during the fiscal second quarter of 2016, as well as our expectations for the fiscal third quarter. Our networking communications sector was flat sequentially in Q2, which was better than our expectations of down in the mid-single digits. Two of our customers outperformed prior forecasts, while results in the remainder of the sector were somewhat soft to expectations. Looking to Q3, we expect networking communications revenue to be down in the low single-digit percentage point range as we continue to wind down the program previously outlined by Dean. Excluding this program, we are expecting underlying growth within the sector during the quarter, driven by an improving forecast from one of our top customers and new communications program ramps. Overall, demand within the sector remains volatile and we expect revenue from 6 of our top 10 customers to decline sequentially. Our healthcare/life sciences sector was down 1% sequentially in Q2, essentially in line with our expectations of flat. Demand remained relatively stable throughout the quarter. Looking ahead to the fiscal third quarter, we anticipate revenue in our healthcare/life sciences sector to be up in the mid-single digits relative to Q2 as we benefit from new program ramps. Our industrial commercial sector was down 2% sequentially in our fiscal second quarter, below our expectations of up low single digits. The results were driven by modest softening in the sector end markets and component constraints related to a customer order inside of lead…

Thank you, Todd, and good morning, everyone. Our fiscal second quarter results are summarized on Slide 14. Revenue of $619 million was slightly above the midpoint of our guidance, while gross margin of 8.6% was above our guidance and 50 basis points above the fiscal first quarter. Our efforts to manage costs, improve productivity, exit low margin programs, and ramp our Guadalajara facility, all contributed to the margin expansion. The two lower margin program disengagements that we previously outlined continue to progress largely as planned. Selling and administrative expense of $28 million was at the top end of our guidance primarily due to higher variable incentive compensation. For the second quarter, SG&A as a percentage of revenue was approximately 4.5%, which was slightly above the fiscal first quarter. Gross margin and SG&A expense were impacted by annual merit increases and the reset of payroll taxes for U.S employees. Before restructuring, we delivered operating margin of 4.1% which exceeded the top end of our guidance by 10 basis points. Approximately 60 basis points of stock-based compensation expense is included in operating margin. Diluted earnings per share of $0.50 includes a $0.05 per share detriment, as a result of after-tax restructuring charges of $1.9 million, related primarily to the previously announced closure of our Fremont, California facility. Excluding restructuring charges, non-GAAP EPS of $0.55 was at the top end of our guidance. Fiscal second quarter results include an after-tax loss of $0.03 per share related to foreign exchange volatility primarily within our Malaysia operations. This quarter we began hedging a portion of our balance sheet exposures in Malaysia and plan to expand the program in future quarters to cover a greater portion of our exposure. Turning now to the balance sheet on Slide 15. Return on invested capital was 11.6% for the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Matthew Sheerin from Stifel. Please go ahead.

Yes, thanks, and good morning and congratulations on the promotion Todd and to you as well Dean. Just a couple of questions from me. First, just regarding the networking communications segment which has been down obviously for reasons that you’ve stated, deselecting revenue. At this point, are you happy with that portfolio in terms of its margin contribution to the Company or is there some -- still some pruning left there?

So Matt, this is Todd. First of all, thank you very much and I'll take the question obviously. So with respect to the portfolio in the networking communications sector we have been able to direct it heavily towards communications and away from the traditional networking space. We are right now at about 80% communications, about 20% networking. So we feel quite good about the portfolio itself and where it’s headed in the future. And we think this is at a good spot where it's defendable within our portfolio and contributes nicely to our expectations as a Company.

Okay. And just related to that, I mean, that segment has gone from mid 30s percentage of revenue to mid 20s and looks like with the growth in the other segment it’s going to go down to perhaps 20% or below, and you’re still sticking to that, still 4.5% to 5% EBIT margin target that you’ve had in place for the last couple of years. But given that change of mix, is it possible to see that range going higher somewhat or is the business so tough that 5% is a reasonable target at this point?

Rider we are committed to the 4.7% to 5% target. We think that's a reasonable range. We think it's a good mark within the industry and it’s also something that we think is defendable with our customer base as well.

Okay, great. Thanks a lot.

Thank you.

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

Hi, guys. Congratulations to both of you on your changes in jobs.

Thank you, Sherri.

Thanks, Sherri.

Thinking about the guidance with the 40% increase in EPS, that seems pretty high considering your track record and I know you walk through some of the cost savings. But how confident are you in the ability to reach that EPS number, given it does seem to be a bit of a jump?

Yes, I guess, we want to put it out there, if weren’t confident in it. I mean, you’re right. It’s a pretty dramatic change, but I think what’s -- both Todd and I kind of walk through some of the key levers that are getting there -- getting it there and of course some of it is this -- is the productivity and cost reduction efforts that we’re working through the cycle, those sort of things that we start to realize as well as the shift -- mix shift in revenue, and then the -- in terms of the sectors as well as the organic growth that we’re going to see in the coming quarters. So we’re quite confident that we’re putting on good numbers there.

Okay. And it does look like your gross margin guidance is higher for 3Q. I assume that’s related to mix to some extent, and then some of that EPS improvement maybe one or two penny, it seems to be the lower tax rate. Is that the right way to think about it?

Yes. That’s right, Sherri. Tax rate is benefiting us. The other component that’s benefiting us is, I mentioned in the speech that we had $0.03 of foreign exchange losses which as we continue to manage that exposure. I would expect that to come down and we’re expecting to see some of that reduction in Q3.

Okay, great. Thank you.

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

Thanks. Good morning. Congrats to Dean and Todd. So, I guess, first of all, can you just sort of walk through the comment about the fourth quarter maybe not having much sequential growth. I think if I look back on prior fiscal fourth quarters, there’s been a decent amount of growth when business has been relatively tame -- markets been relatively tame. And I was just curious what's going into that thinking? And then I had a follow-up.

Sure. So, Steve this is, Todd. What I would say is that our quarters and our forecast has been relatively consistent over the course of the last three quarters. So obviously we saw the big drop or reset in our forecast back around the June through September timeframe, multiple resets and it stayed reasonably consistent. So the projection is that we’re expecting sequential growth just not at the 6% quarter-over-quarter rate that we’re going to see Q3 to Q2 or that we’re expecting to see Q3 to Q2.

Is there one market within there which is contributing to a little bit more conservatism than others for the fiscal fourth quarter?

Well in general the markets are lackluster, I would say, with maybe the exception of aerospace. So markets as a whole are pretty much going sideways. Probably the networking communications as a whole is the most volatile although we are seeing strength with certain customers within that market.

Great. And then just as a follow-up, on the cost reduction side, I was wondering how much progress in Guadalajara might have had to pulling forward your targets by one quarter? And if that wasn’t the case, can you just sort of give us a further update on how Guadalajara is progressing at this point?

Sure. So, Guadalajara -- and first of all in general with respect to the productivity and cost reduction initiatives, we really didn’t include Guadalajara in there in any meaningful way. Now with that said, the team at the site had or did an excellent job. I mean they grew revenue to better than this $50 million quarterly run rate that we had talked about. They also drove margins to a higher level than we had anticipated coming into the quarter. So they had a really meaningful impact to our operating margin within the quarter. And we’d say that right now they’re at essentially corporate expectations although there is certainly room to do more at the site as we grow the site. But we won't be talking about it in terms of it being a drag anymore on our corporate operating margins. And if we look at the site as a whole, the site is performing spectacularly. We run a customer net promoter survey process and the Guadalajara site had a perfect score. Every customer recommended them. They also have a funnel that is really on par or it’s an exceptional funnel that’s on par with any of our sites within the company. So, we expect to continue to grow the site at a relatively aggressive basis.

Great. Thank you very much, and good luck to everyone going forward.

Thank you.

Thank you.

Our next question comes from Shawn Harrison from Longbow Research. Please go ahead.

Good morning everybody, and my congratulations to everybody too. Two questions, I guess the $2.5 billion funnel, if you could maybe just break that down. Are there larger programs in there? What's driving it, because its -- was it a two year high last quarter now at a record high. And how do programs come out of that? Are you expecting to harvest a much greater number now over the next 12 months in terms of above this kind of lets say $175 million run rate?

This is, Steve. From a funnel breakout standpoint it’s definitely seeing significant strength in the healthcare life sciences sector. That team is doing a really good job driving opportunities in there from a size standpoint. I’m going to say there is a significant change in the magnitude of the opportunities that are in there. There’s a mix of decent size ones, the medium size ones and smaller size ones. As we go forward the trailing four quarters numbers if you look back in time here, we had a soft quarter four quarters ago, and that one will be coming out next quarter. I do expect this quarter to be on par to maybe even a little bit stronger. So, I would expect our trailing four quarters percentage to pop up a little bit. And so, from that standpoint we continue to see a good wins momentum going into the back half of the year here, and I would expect the wins to come out of there at a -- on par with the rates that we’ve had in the past maybe slightly little better here in the near-term.

There’s a $2.5 billion funnel, I guess, I mean that there is just, your overtime will win more or is it -- does it essentially, I guess, the question I have is that at some point in time does it step up so you’re capturing a larger portion of that funnel?

Well the trailing four quarters metrics the intention here is, as revenue grows we do need to capture more out of it to keep the wins momentum going. So to answer your question, yes we do need to continue to pull more out of there to support the growth, and that is the plan.

Okay. Pat, I guess, as you -- if you think about supporting more of wins coming out of the funnel, some strong program ramps in the second half. I know there was a slide of investments being made and partially being offset by the restructuring actions. But as you get into 2017, are you going to see an acceleration in OpEx that you have to put toward growing the business or something that could pressure margins?

Yes. I don’t think Shawn, necessarily from an OpEx standpoint. I think we can maintain this percentage around 4.4% to 4.5%. We’re getting really good leverage with productivity improvements, continuous improvement efforts that we’re making both at the sites and within the corporate office. I think where we could see some growth is in CapEx, maybe towards the backend of ’17, if Guadalajara continues to be as successful as they have been, we may need to look for an additional site in Mexico in Guadalajara. So you could see CapEx going up to support new program ramps and potentially new site either later ’17 or into ’18.

Perfect, and congrats on the results guys.

Thank you.

Thank you.

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

Thank you, and congratulations to your results. And Dean, you’ll definitely be missed, but don’t go away too fast. That being said, on the aerospace side you mentioned strength there. Can you mention, is that commercial? Is that industrial? How should we think about that? And then on the tax rate, I believe you had mentioned its going to be lower for the next quarter. Do you think that’s a permit thing, of course it depends upon your mix and things like that. But why would it not be kind of more sustainable reoccurring beyond one quarter as you have adjusted your footprint and things like that?

Let’s take the tax rate first, Todd and Pat.

Okay, yes. Jim, it could be, it’s kind of a unique situation. I mean, it really depends on where we’re earning our profits around the globe and obviously there is different tax rates and some lower than others. What's unique is that, we’re seeing more profitability in the U.S. as we go forward which one would think that would be maybe a negative thing because of the higher tax rate. But actually for the next few years that’s a positive for us because we’ve got previous losses that we’re offsetting future profitability with. So we’re not incurring any tax expense in the near-term in the U.S. Now if we go out five, ten years from now, that could change and we could be at the quarter rate in the U.S. So to answer your question, I think it is probably sustainable at a lower rate for the next few years, but then eventually at some point we’ll see that ticking up as that profitability continues in the U.S.

And this is, Steve. In regards to the aerospace element, it’s no secret here. We had a couple of challenges this past summer in our center of excellence and those are past us, in fact I think Todd mentioned in his script the fact that a lot of the performance that we’ve achieved here in the last quarter is based on that team really delivering for our customers. So we expect basically to return to growth from those customers who kind of pause for a little bit. So the whole momentum there is really driven just by our ability to execute and deliver for those customers.

Right. And is the demand more commercial aerospace or military or do you have the visibility there?

It is more commercial. Defenses for us, its something that -- there’s a lot of conversations about it rebounding a bit more, but our aerospace growth is definitely more on the commercial side.

Thank you, and congratulations to you and your teams.

Thank you.

Thank you.

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

Hi guys. Thanks for taking my question. So from an end-market perspective it looks like the industrial is going to grow mid-teens the next quarter. So I’m just wondering, what kind of change this quarter you guys saw a material uptick considering that was a little bit lighter than you guys expected for the March quarter?

This is Todd, Mitch. So from a industrial/commercial standpoint the big change in Q3 is new program ramps. So we had some significant new program ramps with multiple customers that are driving the revenue growth in Q3. From a market standpoint or an end-market standpoint, I would say the industrial/commercial markets, while it’s very broad they’re kind of going sideways or a lackluster. We talked about the potential that semi cap might be improving last quarter, that is not the case. I mean, it’s really kind of back to lackluster or sideways from our perspective. Oil and gas continues to be weak, and really our growth has been driven by new program ramps.

Got it. So, I mean, what segment are you seeing the program ramps? And then secondly on the comp side, could you give us some more granularity on essentially what product lines you’re seeing that are doing better? I know you guys are thinking about a customer specific information.

Yes. Go ahead, Steve.

Growth is really in the -- what we’d classify as kind of the, in the industrial side of the equation more in instrumentation side. And it’s related to, Todd talked about a customer that, we talked about it probably a year-ago, is what a customer that we won and have experienced good growth with them, and they’re bringing out new products and we’re winning those. I think one of the reasons also for the, little bit of a jump Todd talked about the fact that industrial/commercial was soft this quarter. That customer asked us to shift some components from one product line to another which impacted our revenue but allowed them to get the product that they needed out the door. So we’ll also experience that revenue in the quarter as well. So its decent growth with basic customer is ramping some new products.

The other thing I would add to that too, Mitch from a new customer win standpoint as we’re seeing some pretty significant wins within the semi cap space. So while we’re not necessarily capitalizing on it to the level that we would hope to in the future. It positions us pretty well for when that market rebounds.

Got it. Thank you very much.

Thank you.

And our next question comes from Sean Hannan from Needham & Company. Please go ahead.

Good morning. Thanks for taking my question. Can you hear me?

Yes.

Yes.

Okay, great. All right. So just was curious, what was the component constraint that had affected you on the industrial side? Sorry, if I had missed that. I don’t think you got very specific on that.

This is, Steve. The issue was is that the customer came in and asked us within lead time to build additional product and we’re not able to secure the materials within lead time. So there really wasn’t a component constraint in terms of anything in the industry. It was just the ability to get enough parts in house, and so as a result they asked us to shift some of that inventory to build a different product. So there’s really no component constraints in the industry. It was just the matter of them dropping in extra demand and asking us to shift the mix. So we don’t see any issue with that going forward, because now we’ve got the visibility with -- and basically the lead times are not an issue at this point.

Okay. And then, in terms of program ramps and, what typically you would experience as for any new program activity. There tends to be fair inefficiencies. It seems like there are a number of ramps occurring today which have been helping, it seems like there are a fair amount of ramps in the next few quarters and particularly as we look to the backend of the year and into ’17. Can you talk a little bit around if there was any concerns for inefficiencies and then separately any exposure that you have or concerns in terms of new or nascent relationships where the nature of that ordering pattern could create some volatility for you or even some inefficiencies in those ramps themselves? Thanks.

I think we’re in pretty good shape really from a productivity standpoint in the new business ramps. I mean, there is always some inefficiencies until you get the full leverage on the revenue coming up, but that’s part of the financial model is to overcome that with productivity improvements on existing programs. So we’re low to kind of use that as an excuse not to hit our margin targets, and of course we’re forecasting that we are going to hit our margin targets in the coming quarters. So I think we’re in good shape with the ramps that we’re seeing. In terms of concerns about the ordering patterns of those programs not coming to provision the way we expect the visibility that we have at this point is that, I’m not overly concerned that they’re not going to unfold the way we predict or the way we’re forecasting. I think the demand is clearly there based on what's happening in the particular industrials where the ramps are occurring. So I feel quite confident in terms of how we’re, the full year here is going to unfold and frankly how the momentum is going to start to carry into the new fiscal year.

Okay. That’s great color. Thanks so much.

And our next question comes from Herve Francois [ph] from B. Riley. Please go ahead.

Thank you very much, and let me add my congrats towards Dean and Todd as well. Congrats guys. Just in regards to the wins in the APAC region that you’ve shown here in your slides. Can you talk about what end markets you’re seeing the wins that have been taking place out there?

This is, Steve. The wins in the APAC region actually I think across all three regions are probably evenly split across the sectors. So as you look at the sector splits and you apply those to the regions, the mix is probably pretty equal across them.

Got it. And is that wins from existing customers that are out there or some of them here domestically that some of the programs are just going to be manufactured up there?

So these would be new program wins from either existing customers and new targeted customers, but these would not be considered transfers within Plexus. There would be incremental revenue as they ramp.

Okay, great. Thanks very much.

Yes, and I would also just say that, I mean in any given quarter that the bulk of the revenue, the new business wins is with existing customers by design. We’re trying to increase our share with those customers. The commentary product folds back to somewhat their earlier discussions about our ability to affectively ramp these new programs and gain leverage as well because when you have a higher number -- a higher concentration of wins with the existing customers you tend to get the leverage in manufacturing quicker the transitions tend to go smoother.

Thank you. And we’re showing no further questions. Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.

Thank you.