Good morning, and welcome to the Plexus Corp. Conference Call regarding its Fiscal Second Quarter 2019 Earnings announcement. My name is Sylvia 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. Please note that this conference is being recorded. I would now turn the call over to Ms. Heather Beresford, Plexus Senior Director Communications and Investor Relations. Heather?

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 are not limited to historical facts. The words believe, expect, intend, plan, anticipate and similar terms are often identified 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 from the fiscal year ended September 29, 2018, 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 earnings per share, to provide a better understanding of core performance for purposes of period-to-period comparisons. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday's press release and our periodic SEC filings. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investor Relations at the top of that page. Joining me today are Todd Kelsey, President and Chief Executive Officer; Steve Frisch, Executive Vice President and Chief Operating Officer; and Pat Jermain, Executive Senior Vice President and Chief Financial Officer. Consistent with prior earnings calls, Todd will provide summary comments before turning the call over to Steve and Pat for further details. Let me now turn the call over to Todd Kelsey. Todd?

Thank you, Heather, and good morning, everyone. Please begin with our fiscal second quarter results on Slide 3. Yesterday evening after the close of market, we reported results for our second quarter of 2019. We delivered record quarterly revenue of $789 million. This result represented a 13% increase from the fiscal second quarter of 2018 and 3% growth from the previous quarter. Our Industrial, Commercial and Aerospace and Defense sectors were exceptionally strong in the quarter both achieving double-digit percentage growth from the previous quarter. Industrial Commercial revenue was considerably above our expectations entering the quarter. Conversely our Communications sector substantially underperformed in the fiscal second quarter. The end result was an unusually large mix shift within the quarter that created cost inefficiencies stressing our operating performance. As a consequence, we delivered GAAP earnings per share of $0.79 an outcome that was slightly below our guidance range. The result included $0.16 of stock based compensation expense. Please advance a slide four. Next I will highlight additional accomplishments within the fiscal second quarter. Our teams maintain their strong wind performance achieving manufacturing wind of $247 million annualized when fully ramped into production, resulting in trailing fourth quarter wind of $912 million. The wins consisted of a healthy mix of programs with new and existing customers and were representative of our differentiated portfolio focused on mid to low volume higher complexity markets. The sustained wins performance enhances our confidence of future growth. We continue to ramp production within our new Healthcare Life Sciences Center of Excellence in Penang, Malaysia. The facility contains a Class 10,000 clean room and we'll be producing single use medical devices in addition to finished healthcare capital equipment. Our teams are driving an aggressive ramp of the facility. We expect to have over a half a dozen customers…

Thank you, Todd. Good morning. Please advance the Slide 7 for review of our market sector performance during the second quarter of fiscal 2019, as well as our expectations for the sectors in the fiscal third quarter of 2019. Our Healthcare Life Sciences sector revenue exceeded our expectations in the fiscal second quarter. The flat revenue result was above our expectations of a low single digit decline. Strengthened new program ramps within the quarter offset seasonal softness with a large customer. As we look at the fiscal third quarter, we expect demand from existing programs and a new program ramp to provide growth. As a result, we anticipate a low single digit increase in our Healthcare Life Sciences sector in the fiscal third quarter. Our Industrial Commercial sector was up 14% in the fiscal second quarter which was significantly above our expectations of a mid single digit increase. Significant upside from a customer and the connectivity subsector, combined with growth associate with new program ramps enabled the strong result. Although the secretary expects quarter over quarter growth in the base business, part of the fiscal second quarter upside was a spike in demand on a single program that was fulfilled within the quarter. As a result, we anticipate a mid single digit decline in the fiscal third quarter as demand with that program returns to more typical level. Our Aerospace and Defense sector grew 15% in the fiscal second quarter. The result exceeded our expectations of a low double digit increase. Robust demand from existing programs and new program ramps with several customers fueled by strong growth. As we look towards the fiscal third quarter, the broad based demand continues to be robust. As a result, we're expecting a high single digit increase for our Aerospace and Defense sector in…

Thank you, Steve and good morning everyone. Our fiscal second quarter results are summarized on Slide 13. Second quarter revenue of $789 million was above the midpoint of our guidance while gross margin 9% was at the lower end of guidance. Customer mix and the under absorption of fixed costs across all of our regions led to the lower gross margin. Selling and administrative expense of approximately $37.5 million was slightly above guidance. However as a percentage of revenue SG&A was consistent with our expectations at 4.7%. Impacted by lower gross margin, operating margin of 4.2% was slightly below our quarterly guidance. Included in this quarter's operating margin is approximately 65 basis points of stock based compensation expense. Non operating expenses a $4.5 million and our effective tax rate of 13.7% were both in line with our fiscal second quarter guidance. GAAP diluted EPS of $0.79 was a penny below our guidance range, while the number of diluted shares outstanding was slightly favorable to guidance due to elevated share repurchase activity. Turning now to the balance sheet and cash flow on Slide 14. During the quarter we continued our cash repatriation strategy by bringing back approximately $28 million of offshore cash. Since the enactment of U.S. tax reform last year, we have brought back close to $480 million. During the quarter we purchased close to a 1 million shares of our stock for $56 million at an average price of $56.72 per share. At the end of the fiscal second quarter we had approximately $73 million remaining under the authorization. For the fiscal second quarter we used $1 million in cash for operations and spent $30 million on capital expenditures, resulting in negative free cash flow of $31 million lower than our expectation due to the timing of working capital…

Thank you. [Operator Instructions] And our first question comes from Shawn Harrison from Longbow Research.

Good morning, everybody. I guess coming is no surprise I want to dig into the comm weakness. I think the implication is that business will be down 30% from where it was in the December quarter. And so I'm wondering was there any feedback on this is customer specific issue or customer specifics issues, is it market share losses with your customers, as it continue to decline into the end of the year. Because it looks like this business is now on track to be around 10% of sales which would be an all time low in terms of know past five or 10 years?

Morning, Shawn. This is Todd. So if we looked at - I mean, you highlighted it, we're down about 30% if you - if you take Q1 actuals versus Q3 guide. And the interesting thing is it doesn't have to do at all with share losses, in fact we're gaining share and we don't believe it has anything to do with specific customers and then what we saw was a broad decline in Q2 and further broad weakness in Q3 and that was across wireless broadband, as well as cable. So it was like I say broad based, more than we had anticipated. And something that that we didn't anticipate coming into the quarter in any way shape or form. So…

Does it continue to weaken? I mean throughout the year knowing that you probably think - it's difficult to trust the forecast you're getting at this point in time, but is the June quarter the bottom or is there further risk into the back half of the calendar year?

Yes, we think we're near the bottom in this June quarter and we could potentially be bouncing around the bottom for a quarter. Our expectations are beyond that. And if you looked at the new program wins for the comm sector they've been strong. We're adding about roughly five new customers that were ramping right now. So those new ramps should begin to overtake the weakness in the sector as we enter into at ’20.

Got you. And then just on the semi cap business, I know last quarter or I guess coming into the March quarter you're cut off guard – or bit by some forecast reductions, if you now seen stability in that business. And so we're at a bottom and know it'll recover at some point in time from here?

Yes, we're seeing it right at the bottom now and it's been consistent for probably three quarters now. Right now our outlook looks like about early calendar 2020 for the recovery, although some customers are more bullish than others, I would say, some see it as being a little bit earlier than that, some a little bit later.

Okay. Perfect. Helpful.

And one of the things to point out to Shawn, I mean, you hit on and certainly the two areas of weakness within our business right now, the communications and the semi cap. So the comm sector, the semi cap subsector and the reality is that some 25% of our business and the remaining 75 which is the balance of Industrial, Commercial, the Healthcare Life Sciences business and the Aerospace and Defense business is quite robust right now. I mean, as I highlighted in the script we're showing about high teens, maybe even approaching 20% growth within that balance of the business within the fiscal year. So even though we're seeing this weakness in comms and Industrial Commercial we think we can I should say it comes in semi –cap – excuse me, we think we can more than overcome it in the rest of the business and deliver good growth.

And Todd to that point maybe just quickly, if you separate semi cap in the rest of industrial what is the non semi cap industrial business going to grow this year potentially?

Potentially 30% right in that range.

Okay.

So the dream has done a great job of diversifying that portfolio. So that's where - I mean, I'm excited from the standpoint that if we - if these markets recover should they recover there's some real tailwinds.

[Operator Instructions] We have no further questions at this time.

All right. Thank you. Thanks, Sylvia. One of the things I'd like to do before exiting the call is I'd like to remind the analyst who joined us today that we're hosting an Analyst Day neuro [ph] Wisconsin headquarters on June 5th 2019 and during the event we'll be highlighting our differentiated strategies and capabilities. Invitations were recently mailed, but if you didn't receive your invitation please contact Heather. And we see there's another caller in the queue, so we will take further questions at this point before I wrap up formally.

We have Matt Sheerin from Stifel

Yes. Thanks for fitting me in. I just wanted to just follow up on Shawn's questions, and regarding the communication sector. How concentrated is your customer mix there and I know one of your customers is going through a big merger, any disruptions from that and in an efforts to diversify within that sector?

Matt. This is Steve. We talked in the past and they actually demonstrated I think with some of the recent wins there. The team has been working on focused on diversifying across that sector. And so from - you know, from a mix standpoint and a concentration standpoint we think we're headed in the right direction. Specifically as it relates to the customers that are in that thing, I think Todd kind of hit it from a - from a weakness standpoint, it's pretty broad based across the spectrum of the customers that we have there. So I went to tribute you know, the downside is due to a concentration mix at all. It's really a broad based problem that we experienced.

Yes. The one thing I'd add on that Matt too, you and asked about the recent merger within that space that impacted one of our customers and from our standpoint now it looks like business as usual. I mean, there's been some press releases on what's been going on with some of the senior management there and that manager has been integrated, we’re viewed as a strategic supplier to that company. We continued to build executive level relationships or have executive level relationships with the one company and are working towards it with the others as well too. So we don't any more significant risk than would be normal in that – in that merger that's going on.

Okay. Thank you. And on the cost containment actions you're taking to improve margins here. Could you elaborate maybe Pat a little bit on that. Is there a number behind that and are there any charges behind that as well?

So this is Steven, maybe I'll hit it first, if Pat wants to add on he can. You know as I look at the upside business that we had and the inefficiencies with that I would have expected at a normal run rate 10 or 15 basis points better margin with that business. As I look at the downside business in the facilities in the factories that we're executing that you know they should have been able to do better by 20 to 25 basis points in a normal mode of operation. So our activity and my expectation as I look to Q3 here is you know 25 to 35 basis point improvement from those, as well as looking at additional things in that same range as we go into Q4 and Pad if you want to anything.

Yes. So we mentioned getting back to our target range in Q4 for [indiscernible] in Q3 we could have some initial costs that are offsetting the benefits just as we execute some of these initiatives and actions. So we'll see more of the benefits flowing through in Q4 where we expect to return to that target margin range.

I would add though Matt you asked about charges and we don't anticipate any charges at this point that would be just normal would be built right into our guidance here that we have today.

Okay, great. And my last question regarding the working capital reduction plans inventory, I think you mentioned in the lead times are improving, meaning easier to get partsm but could you elaborate on that or is it pretty much you know at this point more of a buyer's market than a seller's market, given that we're seeing some inventory correction going on or there's still some problems?

Yes, I'd say it's pretty. This is Steve. I'll say it's pretty sporadic. You know for example if you look at large package MLCCs those continue to be a challenge. And if anything there's a little bit of pressure on the price of those. As you look at the more commodities MLCCs those are definitely from a lead time standpoint reduced and we're seeing a little relief on the price. And so as you look at it by a kind of commodity by commodity there is definitely more freeing up than there is that's basically a challenge for us. So going forward we expect that to continue to improve with maybe pockets of things that we need to continue to drive and manage. But overall we're feeling much more comfortable with where the pricing of the components are going and the availability of them.

Okay. Thanks. Thank you very much.

And we have Shawn Harrison from Longbow Research, only with a question.

Two follow ups. I think Steve you mentioned that 50% of the business was shipped out in the final month of this quarter. What's typically normal, I know that most quarters are back end loaded, but how much of that - how different was that than what you would typically see?

There were $30 million to $40 million more shipped in the last month of the quarter than what's typical for us.

Okay. And then Pat, I can remember the last quarter or not if you had a target cash cycle exiting of fiscal year. But do you have a new target cash cycle for us for fiscal ‘19 days at the year?

Yes, I think we can get into the kind of mid to high 70s by the fourth quarter fiscal fourth quarter, by the calendar fourth quarter I'd like to see us back in the lower 70s.

And how much of that is - is it solely inventories or is it little bit of work that you have to do and the AR and AP [ph] site?

Some of its AR just because of what we were just talking about the timing of shipments and even more so not just in the third month of the quarter, but like the last 10 days of the quarter where we saw significant shipments. So I think there's going to be more level loading we'll see as we go through the year. So there is an element of receivables that we see improvement, but the majority is going to be around inventory and Todd mentioned the dedicated team and our executive that is driving that initiative. So that's driving the improvement.

Great. Thank you.

Sure.

No further questions at this time.

All right. Well, I'd like to thank everybody who joined us on our call today and we certainly appreciate your support and your interest in Plexus. Have a nice day.

Thank you ladies and gentlemen. That concludes today's conference. Thank you for participating. You may now disconnect.