Plexus Corp. (NASDAQ: PLXS) Fourth Quarter 2022 Results Conference Call October 27, 2022 8:30 AMm. ET
Participating companies
Shawn Harrison – Vice President – Communications and Investor Relations
Todd Kelsey – President and Chief Executive Officer
Steven Frisch – President and Chief Strategy Officer
Patrick Jermain, Executive Vice President and Chief Financial Officer
Oliver Mihm, Executive Vice President and Chief Operating Officer
Conference Call Participants
James Ricchiuti-Needham
David Williams – The reference company
Steven Fox – Fox Advisors LLC
Melissa Fairbanks-Raymond James
Matthew Sheerin – Stifel
Anja Soderstrom – Sidoti
Paul Chung – JPMorgan
Operator
Good morning and welcome to the Plexus Corp. convention call. on the announcement of earnings for the fourth quarter of fiscal 2022. My call is Justin and I will be your operator for today’s call. [Operator Instructions].
I would now like to speak with Mr. Shawn Harrison, Vice President of Communications and Investor Relations at Plexus. Shawn?
Shawn Harrison
Thank you Justin. Good morning everyone and thank you for joining us today. Some of the statements made and data provided in our call today will be forward-looking statements, including, but not limited to, those relating to revenue, gross margin, promotion and management. expenses, operating margin, other sources of income and expenses, taxes, money cycle, capital, allocation and long-term business prospects. materially as expressed or implied by the forward-looking statements.
For a list of items that may cause actual effects to differ materially from those discussed, please refer to the Company’s periodic filings with the SEC, in particular, the threat points on our Form 10-K for the year ended October 2, 2021. supplemented through our Form 10-Q filings and the Fair Disclosure and Safe Harbor Statement in yesterday’s press release. Participants in this morning’s call to live webcast and accompanying fabrics on the Plexus online page on www. plexus. com are encouraged by clicking on Investors in the sensible part of this page. With me today are Todd Kelsey, President and CEO; Steve Frisch, president and chief strategy officer; Pat Jermain, executive vice president and chief financial officer; and Oliver Mihm, Executive Vice President and Chief Operating Officer. In accordance with previous requests for proposals, Todd will provide abstract feedback before forwarding the call to Steve and Pat for additional details.
Let me turn now to Todd Kelsey. Todd?
Todd Kelsey
Thanks Shawn. Hello everyone. Go to slide 3. I would like to congratulate our more than 25,000 team members around the world. Driven through our unwavering commitment to national excellence consistent with the purpose of providing our consumers with exceptional service, our effects have advanced sequentially into fiscal 2022, fueling an acceleration of momentum that we expect to continue. in fiscal year 2023. We finished our fiscal year 2022 on a top note by generating record quarterly earnings and consistent revenue. Go to slide four for a review of the effects of the fourth fiscal quarter. Our fourth quarter profit of $1. 12 billion, up 33% from a year ago, and GAAP earnings per share of $1. 78 notably exceeded our guidance. Our EPS-consistent earnings included $0. 18 of share-based reimbursement expense. While we have not seen a significant easing of supply chain conditions, our supply chain team, in combination with our partners and our investments in people, processes and tools, continues to locate tactics to eliminate the additional source.
With progress in reducing limited supply, our 3 market sectors experienced strong quarter-over-quarter expansion and particularly exceeded our expectations at the beginning of the quarter. Higher revenue drove ongoing costs, resulting in a record GAAP operating income source and GAAP operating margin equivalent to our target of 5. 5%, a result that comes with forty-five core stock-based reimbursement expense issues. Our funnel of qualified production opportunities remained at an all-time high of $3. 4 billion. We also continue to gain significant new systems, even as chain of origin situations have delayed the decision-making process for some consumers we anticipate and have a tendency to partner with Plexus. We earned $214 million in new production systems for our fiscal fourth quarter, bringing our total for fiscal 2022 to $1 billion. The fourth quarter earnings come with an exciting opportunity with a new visitor in the electrification of vehicles, trucks and buses, building on our existing presence in this secular expansion market.
Continue to slide five for a review of fiscal year 2022 effects. Fiscal 2022 profit was $3810 million, representing a 13% increase over fiscal 2021, exceeding our earnings expansion target of 9% to 12%. Market demand, increased new programs, addition of percentage market gains, expansion of good fortune by mitigating the source of distressed components, and our exposure to secular expansion markets. Our GAAP operating margin ended the year at 4. 7%, adding 61 core issues of stock-based redemption expense, and return on invested capital ended at 13%. While either effect was below our long-term goals, we generated a significant increase in shareholder price and metrics, particularly during the year, positioning us for a strong fiscal 2023. year.
Continue to slide 6. With our strong functionality in fiscal 2022, our 5-year compound annual earnings expansion rate is now 9%, the most productive in the industry, in line with our target of 9% to 12%. The return on investment over the same period is 14. 3%, just below our long-term target of 15%. Looking ahead, we continue to target earnings expansion of at least 9% to 12%, GAAP operating margin of 5. 5% and return to invested capital of 15%. These goals are achievable and constitute maximum functionality.
As proud as I am of our efforts to achieve operational excellence in fiscal year 2022, I am equally proud of our environmental, social and governance aspects. Last year, around this time, we implemented a voluntary paid leave program for our team members around the world, which has been widely used and is a wonderful success. We also gained momentum with our Diversity and Inclusion Employee Resource Groups, adding new chapters of those team-led teams in our 3 operating regions. In addition, we have made wonderful strides in our global energy relief initiatives, reducing the relative intake of electrical energy at our production sites by more than 10%.
In addition, we have spent a lot of time innovating our set of responses to deliver facilities that drive our customers’ progress toward their ESG goals. Innovation is a central pillar of our environmental, social and governance schedule and is key to reducing and expanding the sustainability of our customers’ products. We deliver innovation through our full diversity of engineering, supply chain design and management, new product introduction, production, and what used to be called our aftermarket facilities.
Continue to slide 8. At Plexus, we are committed to building a bigger world through the way we innovate and operate. Our famous Plexus facility exemplifies this vision. Our consumers need more than a spouse to maintain a defective product. Our consumers need assistance to increase revenue, become more profitable, increase the lifecycle of their products and reduce waste. Most importantly, Plexus maintenance facilities generate value for our consumers by increasing the lifespan of capital equipment that can be used by 5, 10 or even 20 years.
Through our support facilities, Plexus helps our consumers and their consumers by making sure the product is in usable condition at the critical time and point of need. We ensure that products returning to market are well decontaminated and perform at or above the criteria of newly manufactured products to ensure the most productive visitor experience. We help the recovery of assets to reintegrate raw fabrics into the chain of origin or renewed products. Our support facilities are a key component of the circular economy, a developing component of our business. and global service delivery that supports all our market sectors.
Looking ahead to our first fiscal quarter of 2023, we expect earnings of $1. 08 billion to $1. 13 billion. GAAP operating margin of 5. 0% to 5. 5% adding 50 basic stock-based reimbursement expense issues and GAAP EPS from $1. 48 to $1. 40 to $1. 58 adding $0. 20 of stock-based reimbursement expense. While taking into account the demanding situations of the existing supply chain and macroeconomic and geopolitical uncertainty, our earnings guidance reflects the advantages of obtaining continuous ramps of new programs, a giant unmet accumulation, physically powerful visitor demand and our participation in many secular expansion markets, adding warehouse and plant automation. Electrification of vehicles, advertising area and robot-assisted surgery. We also expect an impact on GAAP EPS in the first quarter of the year due to the absence of foreign exchange earnings and higher interest expense and taxes compared to the prior quarter.
Finally, regarding our fiscal year 2023. Each year, I provided an annual update with other Plexus leaders to our team members around the world, calling at each site. This year marks the first time since pre-COVID that we have had the opportunity to dwell on the vast majority of our team members in the user and look at the successes achieved and the opportunities for long-term expansion. A key component of my message for this fiscal year is to take a look at what goes beyond our current target of $5 billion in revenue at 5. 5% GAAP operating margin and how we want to evolve to be successful in that next year. great purpose. The momentum created in the momentum component of our fiscal 2022, combined with the tailwind call discussed in the past, creates the opportunity for physically powerful year-over-year earnings expansion, even allowing for the dubious macro environment. Coupled with our focus on operational excellence to drive production efficiency and the significant investments being made in our operations, we expect to deliver healthy operating leverage and strong EPS expansion in fiscal 2023.
I will now turn to Steve for further research into the functionality of our market segments and operations. Steve?
Steven Frisch
Thank you, Todd. Bonjour. Je will start with slide 10 with a review of the fiscal fourth quarter and the full-year functionality of our market segments for 2022, as well as our expectations for the sectors for the first fiscal quarter of 2023. Throughout fiscal 2022, visitor demand in all 3 segments of our market was exceptionally strong. As we observed throughout the year, chain of origin restrictions limited our ability to capture the full demand of our visitors. During the fourth fiscal quarter, our chain of origin team particularly exceeded our expectations and secured the source of limited components. Because we had made the investments in our operations to execute at a quarterly rate of over $1 billion, our team was able to meet additional demand from our customers. The result was shipments of $124 million or 12% above the midpoint of our fiscal fourth quarter guidance.
All industry effects benefited from this exceptional performance. Starting with the business effects, the sector increased its profits by 14% in the fiscal fourth quarter. The very smart result was particularly higher than our expectations for a small single-digit increase. The operations team leveraged the enhanced offerings to deliver beyond our commitments for 20 of our 25 most sensible clients. The strong end to the fiscal fourth quarter contributed to the 13% expansion of top business earnings for fiscal 2022. For the first fiscal quarter, our order book in our business subsectors, adding semi-caps, remains strong. While our semi-cap clients report that the limited short-term effect of the U. S. Department of Commerce’s new export control order is not limited in the short term. In the U. S. , we are taking a cautious approach in forecasting a single-digit decline in the commercial sector during the fiscal first quarter. Our Healthcare/Life Sciences segment achieved exceptional expansion of 17% in the fourth fiscal quarter R.
The result far exceeds our expectations through an average single-digit accumulation. Robust execution with new ramps of the program and advanced supply of curtains contributed to this exceptional result. The segment experienced sequential expansion in fiscal 2022 and ended the year with exceptional earnings expansion of 18%. As we enter the first fiscal quarter, momentum with some of the program’s vital ramps is accelerating. We look forward to this contribution from those systems and a continued strong call from our healthcare and life sciences consumers to generate an average single-digit building. up for the first fiscal quarter. Our aerospace and defense sector grew 8% in the fourth fiscal quarter.
The result was particularly higher than expected from a small single-digit decrease. Improved stock source and sales in 2 end-of-life systems contributed to higher-than-expected revenue. As we approach the first fiscal quarter, supply chain constraints continue to restrict our ability to capture our customers’ full demand. As such, we expect a small single-digit decline in aerospace and defense for the first fiscal quarter. While supply chain restrictions restricted expansion in the healthcare, aerospace and defense sectors in fiscal 2022, we expect significant expansion in fiscal 2023.
Continue to slide 11 for a review of our earnings performance. We obtained 32 new production systems in the fourth fiscal quarter that are expected to generate $21 million in annualized revenue when fully in production. With $1 billion in earnings and earnings expansion of 13% in fiscal 2022, our earnings momentum, which is explained as the last four quarters’ earnings split between the last four quarters of earnings, ended at 26%. With earnings momentum remaining above our 25% target, we expect a new ramp program to continue our 9% to 12% earnings expansion target.
Below, we can review some sectoral and regional highlights of production earnings for the fiscal fourth quarter on slide 12. The Industrial Procurement Sciences and Healthcare sectors posted strong quarter production earnings of $90 million and $101 million, respectively. Among the gains are 2 new logos for the commercial sector and 1 new logo for the Healthcare/Life Sciences sector. We expect those 3 new consumers to generate significant revenue in fiscal 2023. These opportunities are targeted to our Americas and EMEA regions, resulting in strong regional earnings of $121 million and $73 million, respectively.
Continue to slide thirteen to see highlights of the fiscal fourth quarter wins. I will start with 2 new significant victories from our commercial sector. The first product is a high-power, high-reliability inverter that is used to charge electric vehicles. New logo program that will be widely implemented at our Oradea, Romania plant until the end of this fiscal year. The highlight of victory in the commercial sector is the addition of a circle of complex motion controllers used in business automation. The products of this new logo will be manufactured through our team in Guadalajara, Mexico.
Our team at Health Life Sciences won a nucleic acid detection product with a new logo that can be used in a wide variety of laboratory applications. The program will be reduced at our Chicago, Illinois facility. The Health/Life Sciences team also won a thrombectomy formula used for collecting blood segments. This FDA Class III medical device will be produced at our Center of Excellence in Healthcare in Guadalajara, Mexico. Finally, our aerospace and defense contracts come with a cellular communications controller that integrates multiple critical resources into a single channel. This program will be added to the product platform we are building for this visitor in Oradea, Romania.
We can skip to slide 14 to learn the highlights of our funnel of professional production opportunities. At the end of the fiscal fourth quarter, the funnel maintained a record $3. 4 billion. Some of the new additions to the funnel are the result of a developing number of consumers reevaluating their internal production strategies. Our groups partner with our consumers on production rather than procurement analysis, and this trfinish has the prospect of generating significant profits in fiscal 2023. Next, I would like to move on to the operational functionality on slide 15.
During the fourth fiscal quarter, our supply chain team sourced raw materials, primarily through the secondary market. With the infrastructure investments already made, our operations team was able to turn parts into finished products. In addition to record revenue, the team delivered remarkable GAAP operating margin functionality of 5. 5%. As we look ahead to the first fiscal quarter, our supply chain efforts in fiscal 2022 allow us to meet strong visitor demand, but we still have orders of more than $100 million that we don’t expect. to be able to satisfy in the first fiscal quarter. Supply chain constraints and lagging semiconductors continue to be the main constraint, and we expect this to continue well into fiscal 2023. As in the fourth quarter of the fiscal year, our supply chain team will continue to seek artistic answers to ask for beyond our commitments.
I’m going to call Pat now for an in-depth review of our monetary performance. Tap?
Patrick Jerome
Thank you, Steve, and good morning everyone. Our fiscal fourth quarter effects are summarized on slide 16. Gross margin of 9. 5% was above the upper end of our third class and was consistent with the fiscal third quarter. For the fourth fiscal quarter, we experienced significant leverage on constant costs, with revenue expanding % sequentially, while constant production expenses increased only compared to the third quarter. This leverage offset inflationary pressures and higher-than-expected incentive repayment expenses. Selling, general and administrative expenses of $45 million were higher than expected, primarily due to increasing revenue and operating performance.
As a percentage of revenue, selling, general and administrative expenses were 4%, supporting expectations and sequentially decreasing 50 core problems. Taking into account approximately forty-five basic stock-based reimbursement expense issues, we met our GAAP operating margin target of 5. 5%, which exceeded the upper limit of our third class. Non-operating expenses were favorable to expectations due to currency gains in several countries due to the strength of the U. S. dollar. GAAP diluted earnings per share of $1. 78 above our third class due to our strong operating performance, combined with a decrease in non-operating expenses and a favorable tax rate.
Let’s move on to our cash flow and balance sheet on slide 17. As planned for the fourth fiscal quarter, we made current capital investments to align with strong consumer demand. Thanks to the visitor for these investments, we have controlled to have a minimum of outflow operations. Capital expenditures totaled $17 million in the quarter and just over $100 million for the year. As a percentage of revenue, capital expenditures for the full year were less than 3%. We restarted our buyback percentage activity in mid-August after our Board of Directors approved a new $50 million percentage repurchase authorization.
During the fourth fiscal quarter, we purchased approximately 38,000 inventories of our inventory for $3. 5 million at an average value of $90. 63 consistent with participation. We now have $46. 5 million available under existing authorization and plan to make rebates consistently during fiscal 2023 taking into account market conditions. Our purpose remains to return all surplus money to our shareholders. We ended the year with a solid balance sheet. Cash totaled $275 million, while total debt was $462 million. We also had $237 million to borrow under our amended line of credit. I was pleased with our ability to improve consistent functionality and manage current capital, resulting in a sequential improvement in our return on invested capital in fiscal 2022. As a result, we ended the year with a return on invested capital of 13%. o 370 foundation issues above our weighted average capital charge. Our hundred-day fiscal fourth quarter money cycle was in line with expectations and improved sequentially over the course of 2 days.
For more main points about our money cycle, see slide 18. Sequentially, stock days advanced 16%, as they proceeded to boost stock purchases to new program ramps, additional good fortune in limited parts compensation allowed for a physically powerful shipment expansion in the fiscal fourth quarter. While revenue increased by up to 15% sequentially, our share price increased by only 3%. In addition, we now have 30% of our shares covered through visitor deposits. The relief in the number of days of stock was basically offset through a relief of 15 days on days payable similar to the acquisition and payment of past shares.
Since Todd already provided earnings and EPS direction for the fiscal first quarter, I’ll pass on a few more details, which are summarized on slide 19. Gross margin for the fiscal first quarter is expected to be between 9. 1% and 9. 5%. At the midpoint, gross margin would be about 20 basis points lower than in the fiscal fourth quarter. We expect a near-term impact on margins due to constant cargo investments, adding our new plant in Thailand to help our strong expansion prospects. We expect administrative and promotional expenses in diversity of $45 million to $46 million, slightly more than in the fiscal fourth quarter, also similar to new investments to help our projected expansion. It is expected to be in the range of $9 million to $9. 5 million, sequentially higher basically due to the expected absence of foreign exchange gains recorded in the fourth quarter of the year. AR, as well as higher interest rates have an effect on our floating rate debt.
Our tax rate for the first quarter and full year is between 14% and 16%. For the balance sheet, we expect working capital expenditures to increase slightly compared to the fiscal fourth quarter. Based on our earnings forecast, we expect this point of working capital to sell on 98-102 day money cycle days, sequentially flat at the midpoint. With modest investments in working capital along with capital expenditures to help earnings expansion in fiscal 2023, we expect the use of money for the first quarter of the fiscal year. Some comments on the total year. We expect capex to be between $110 million and $130 million, which doesn’t come with any site additions. Given our equity position as we move into fiscal 2022, we expect a decline in working capital investments for fiscal 2023 compared to the prior year, despite a physically powerful expansion for this year. Finally, with lower operating capital investments, we expect free cash flow for fiscal 2023, ending the year with more than $50 million.
With that, Justin, let’s now open the question section.
Q&A session
Operator
[Operator Instructions]. And the first comes from Jim Ricchiuti de Needham.
James Ricchiuti
A few questions, if I may. As a result, there has been a lot in the semiconductor capital goods sector. So, I wonder if you can remind us what that means in terms of income, percentage of the source of income for you. Just compared to some of the industry insights suggesting the WFE market may be down 20% or more in 23?
Todd Kelsey
So, Jim, here’s Todd. I’ll get started, and then I think Steve probably needs comment, too. And our semiconductor business accounts for about 20% of the company’s revenue. And when we look at the call, the semiconductor band that exists and has an effect on our customers, there are a few things I need to highlight. And the first is that we don’t see it having any effect, and we’ve done a very thorough investigation of that. There will be no impact on customers of non-semiconductor capital equipment. So there is nothing. And our semi-capitalized clients anticipate minimal impact in the short term, and evaluate, I would say, in the long term.
Now, those who finished their evaluation based on the products we build for them or the markets they are in, the consumers they have or the order book have come back quite positive with necessarily being able to be anywhere, if they have a strong order. ebook that may show a modest expansion for next year. Now, we’ve heard other things about the market from some consumers or corporations that are down about 20%. So when we take all that into account, we think it can have a 10% worst-case effect for our business, our semiconductor business, which would be a small percent of Plexus overall.
But what doesn’t matter is that it doesn’t count the percentage gains we have right now. So we’re winning a number of new programs. And so do we: We don’t build semiconductor devices in China, and we have some consumers talking about taking the product they’re recently building in China and moving it to Plexus. It will prospectively increase next year.
James Ricchiuti
The other query I have is simply. . . And I’m moving backwards in line. In terms of unmet demand, I wonder if that could be distributed in terms of vertical markets. Given some of the verticals, I think it’s heading down sequentially in the first quarter. I don’t know if it’s seasonality or maybe a schedule change in the customer component?
Steven Frisch
So if you look at the market sector, we’re moving into healthcare/life sciences and new program ramps that, from all the wins we’ve had in recent years, are starting to gain momentum. Therefore, we are quite positive about the long term of this sector. With industrialists, we are a bit conservative in our consultant given the semi-ceiling, but I can tell you, looking at FY23, most of our subsectors in this area are forecasting expansion during FY23. So, for us, we also expect an expansion in that sector. Aerospace and defense are probably the ultimate dynamics right now.
They are falling behind and recovering from the chain of origin. Many conversations with our consumers are still about how to increase engagements and decrease demand. So, for us, the demand is there. It’s more about [node laging edge] in semiconductors and putting them in the right pipeline to meet the demand that exists. Therefore, we expect an expansion in all subsectors, all sectors in FY23. Rather, it is a short-term impact. And then, for the aerospace and defense industry, it’s actually similar to chain of origin constraints.
Todd Kelsey
Oui. La one thing I would add to that, Jim too, just to emphasize, is part of the explanation for why, and we’re actually modest in guiding Q1 down, but part of the explanation of why it’s a modest downward orientation because Q4 ended that very strong. So if we necessarily meet the forecast in the fourth quarter, we will see strong growth.
Operator
And the next one comes from David Williams of Benchmark Company.
David Williams
Congratulations on $1 billion in quarterly revenue. It’s a very clever execution and it feels like it’s hitting all the [reels] here. Really correct performance. One of the questions that he wanted to ask here, and he touched on it a little bit in his last answer. But on the commercial side, we heard this week from one of the major semi-suppliers who highlighted slowing trends across the commercial segment. I guess one, do you see anything similar in your order book? And have you paid for your orders with component suppliers? Perhaps to balance your chain of origin? Anything, I guess, around the business segment would be helpful.
Steven Frisch
Of course. From the point of view of customers, they still clearly seek to perceive the impact in China. That said, the order book is so large that we expect an undeniable reallocation of demand if Chinese demand declines. And so Todd talked about the fact that there may be a slight decline in our business over the course of the year at a rate of perhaps a small percentage. But at this stage, a dramatic drop is not expected.
And I think one of the things that we mean is that there are some other people who have come out and talked about the fact that industrialists and maybe some of those semiconductors that are lagging behind, they’re seeing a little bit of sweetness. This is not what we see in terms of a supply chain solution for us, the old demanding situations we faced in FY22 continue with the same relative suppliers. So, there is a bit of optimism that maybe there will be a release that will take place as you pass through 23 here. But for us, the chain of origin constraints on the lagging node, which normally relate to the products we manufacture, are still very difficult to offload and secure.
Todd Kelsey
What I would say is that, overall, in our broader trade space, we’re seeing a deterioration in aggregate demand.
David Williams
It is ok. Fantastic. Great color. And then, maybe just thinking from a cyclical attitude and understanding that your markets are less sensitive to macroeconomic replacements, would you have a tendency to see the replacement of upstream or downstream trends in the cycle compared to perhaps where semi-kids would see that or even on the customer side?
Todd Kelsey
Yes, it would probably be a little later, but the only thing that comes earlier for us is our engineering, because generally, if there’s a reduction in expenses, we’ll look at it first, and there’s no evidence of that right now. .
David Williams
Super. Enjoy it. And good luck to the quarterback.
Operator
And the next one comes from Steve Fox of Fox Advisors, LLC.
Steven Renard
Some questions for me. First, I was wondering if he could bring a little more color to the electrification program he discussed at the beginning of the closing remarks. And how does that have compatibility with the big picture, is it right to play in those types of markets, et cetera?And then, secondly, if we take a step back and think about the industry as a whole, it has clearly generated super beneficial compatibilities. We have noticed this in every space of the corporations with which it competes. What do you think is the largest overall dynamic driving the most productive functionality in the industry, adding its functionality over the past 12 to 18 months?
Steven Frisch
Of course. I am Steve. Me will communicate on the electrification part. For our part, I think, as everyone knows, we are not in the automotive space. So, for us, electric cars are not something we should pursue. However, when you look at where electrification is headed and where it is headed in the commercial truck apparatus in this area, as well as in the infrastructure for electric cars, this is a very smart point for what Plexus has to offer.
Therefore, we have been very successful in working with those types of corporations in offering them our solution. And in the case of this one we pronounce today, this consumer traditionally did everything internally. And as they’re looking to scale and grow, they’re looking for a global supply chain that can make more of those products at higher or lower volume, medium volume, and higher complexity, that’s fine with us. And so we won this contract for EMEA. I expect to raise a same-consumer opportunity for the U. S. market. U. S. in the coming quarters here. And again, we see it as a wonderfully expanding secular market for us.
Steven Zorro
I’m sorry to interrupt. Before we go any further, Steve, can you give us an idea of what exactly you do and [customer name], but what features do you bring?I still understand how you serve the customer.
Steven Frisch
Yes, it’s more about maximum availability and the best reliability rates. They differ from: it moves commercial appliances to things used in structural trucks and buses, but they also move to a larger part of the market that supports electric cars. Therefore, this customer, for example, does everything in all areas, from electric cars to trucks, buses, heavy structure appliances, and has a familiar circle of products we make for him. So, it is quite in each and every application of electric charge.
Todd Kelsey
Oui. La only thing I would upload to Steve is that the show we refer to in the press release starts as a production program, yet we have other consumers in this area who use our full diversity of services. Therefore, it is more of a consumerand more than one service offering. It’s broad.
Steven Renard
It’s useful. And then just the big picture?
Steven Frisch
So, I mean, I’m not going to communicate about the industry as a whole, but I’m just going to communicate about ourselves and what’s driving our performance better than expected. And what you have is that we have a much higher demand in all our end markets. And some of that even goes back, I would say, to the time of COVID, where we had a pent-up demand that has yet to be fully met. We have a very limited market of origin. And essentially, what’s happening is that we’re looking for tactics to make certain purchases at the right time. They are largely purchases of money. I mean, some of that is going through other mechanisms, but as we localize tactics to solve those root problems, it translates into an increase.
Steven Renard
And Steve, from a margin perspective, which we talked about over a year ago, to have the infrastructure in position for $1 billion in profits for the north. And now we have that, and we’re delivering on our profit commitment.
Steven Frisch
Oui. Je you will only be referring to what Todd discussed in his ready remarks, we continue to make significant investments in this area. So, whether from a skill perspective, the power of the procedure becomes more efficient. We’ve made some pretty brilliant strides in terms of equipment and technology, and we have more waiting for here in the future. And the fact that the market hasn’t gotten worse, if you can call it smart news, that stability there those proactive investments that we’re making to pay off.
Operator
And the next one comes from Melissa Fairbanks of Raymond James.
Melissa Fairbanks
Congratulations on a wonderful quarter and guidance. I’m glad to see that things are getting more wonderful for you, at least on the grocery shopping side. I think about the afterlife, you’ve said to succeed in that $5 billion annual profit goal. , you may want to load new capacity. Now that Thailand is increasing, can you give us a sense of where some of those burdens would be made?
Olivier Mihm
Bien-sûr. Et just to clarify, he used the word liberation. And I guess we’d only see a slightly different selection of words. I don’t think we’re seeing a replacement in the timeline profile, especially as Todd discussed earlier, and in the semiconductor space, there’s more traction, and then [frankly], infrequently things come up in that secondary market and we can capitalize on that. Again, to your inquiry about capacity. Obviously, our Bangkok plant continues to grow as planned. I’ll take a brief moment here to congratulate the team on completing their first production shipment in the fourth quarter.
Very proud of the team for being able to achieve this. And visitor feedback continues to be very positive with this facility. Therefore, this ramp is progressing as planned. And from an overall capacity perspective, we still have bricks and mortar that can take care of significant additional earnings growth. We are thinking clearly about where our next investments will go. The dynamics of the campus, the joint location of the facilities, the manufacturing, the engineering, the possibility of combining all the works on behalf of our visitors. This is something we continue to pursue as the main idea procedure in relation to expanding our footprint.
Steven Frisch
One thing I would also add about the Bangkok facility, Melissa is that we have a number of consumers moving into those facilities at a fairly moderate rate, and that we will do so to achieve the profitability of the facilities in the existing fiscal year.
Melissa Fairbanks
Great. Apologies for the vague wording of the offer. Maybe just a quick follow-up. With the multiplication of a number of new systems, I was wondering if we think about some kind of seasonal patterns in revenue in the future, or will quarterly effects only be dictated through express delivery times for those systems?
Steven Frisch
Yes, it’s Steve. We do not anticipate any significant seasonality related to the programs. Therefore, I hope that it continues a bit on the right track. Demand remains strong across all subsectors, and we expect this to continue. year.
Todd Kelsey
Melissa, as you know, from a charges perspective, our March quarter is still impacted by increases and reinstatement of U. S. payroll taxes. U. S. So, from that perspective, we’re seeing a slight strain on our margins this quarter.
Operator
And the next one comes from Matt Sheerin with Stifel.
Matthew Sheerin
Steve provided detailed commentary on the sectors’ outlook for FY23, but we didn’t see a precise target range. year in the first trimester. So, thinking about the whole year, is it moderate to assume that it deserves to be able to grow between 15% and 20%?
Todd Kelsey
So, Matt, here’s Todd. I’ll take thisfor tipsters at the wrong time here. But at least I can give you a concept of how we see things right now and then you can make your own brain about where to go from there.
But when we take a look at our sectors, we see strong double-digit expansion across all of our market position sectors and probably an even more exceptional expansion in healthcare with all the program ramps taking a stand there. Now, our first quarter consultant is necessarily stable, however, I would expect us to start seeing quarterly expansion and after that, just as things stand now. So if you take the fourth quarter and set it up, it puts us above our 9% to 12% earnings expansion and a little bit in the domain you just mentioned. It’s certainly an achievable goal, we believe, right now.
Matthew Sheerin
It is ok. And then, just in terms of outsourcing, the profits he talked about, the channeling, the funnel, all of that. And Steve, you talked about the acceleration, I think, of earnings in North America and EMEA. And is it all similar to the fact that your consumers move more business or production out of Asia more safely?Does your geographic exposure give you any merit in terms of some of those transactions?
Steven Frisch
Of course. Maybe we’ll even move on to Melissa’s comment about where we see our expansion. So, we have the footprint to move into the $4 billion range, however, as we move to $5 billion, we expect expansion across all 3 regions from a services perspective, and that’s because of what we expect our consumers to ask us. That said, our old driving force of expansion has been APAC, which has outperformed other regions. I think we’re now seeing more balanced expansion across all 3 regions as we look at $5 billion and more.
And so, corporations that would traditionally be satisfied by default with ACPA or some other region would possibly now be in Mexico or Eastern Europe. And that’s partly for geopolitical reasons, but it’s also a bit more focused on the ESG aspect of the global in terms of the carbon footprint related to the movement of your product. So, we see more talk and more conspection about things beyond perhaps the lowest price of the coin. But our expectations and what we see in our forecasts is an expansion in all 3 regions as we move forward. to $5 billion.
Matthew Sheerin
It is ok. Very useful. And just to finish, if I may, just in terms of actions. I know you seemed to see the source a little better, however, you are still struggling to manage the spot broker market, etc. But Pat, you also talked about expecting a hoard of money over the course of the year. So do you hear consumers say we have enough stock or are you starting to rebalance because I know a lot of OEM consumers also have wants or running capital issues because they clearly have to fund some of their stock?
Patrick Jerome
We don’t necessarily mean that. Matt, I think the focus is on some of the new ramps in the program and the ability to take over the actions needed for them. So, I mean we’re seeing an expansion of current capital with an expansion of profits, but at a slower pace. speed than we had in FY22.
Operator
And the next one comes from Anja Soderstrom from Sidoti.
Anja Söderström
And congratulations on the wonderful quarter. So, I’m just curious about whether there’s been a change in sentiment within the economy. Have you noticed any other [disconnects] given the dubious economic environment?
Olivier Mihm
Yes. Anja, here’s Olivier. I’ll take that. I would say that the disconnect rate has not significantly replaced. Going back to what Steve and Todd discussed earlier, the main product that ends up being what restricts us to create this blank kit is occasionally the semiconductor product. And Steve got hooked, he asked before, that those complex generation pieces late. We are not seeing an accumulation in disconnection. In fact, we don’t see any changes in timelines, underscoring Todd’s immediate observation that we haven’t seen any major changes in the overall dynamics of the origin chain.
Anja Söderström
It is ok. And since now, it’s navigating the demanding supply chain situations pretty well. So once we get out of that and it normalizes, what effect do you think it could have on your business?
Steven Frisch
Well, I think we have a couple of things that are going to have an effect on our business. I think in the short term, when we see supply chain standardization, because essentially we have to clear the unsatisfied backlog. It will lead to an accumulation of gains during this era. But I think the processes we’ve put in place to manage this era will help us forecast and generate profits and manage inventories better as we move forward. SoArray we’re going to get out of it in Annex 23 at some point, at least in the end, and then we’re going to push bigger processes and teams and things like that.
Another explanation I also sought to make about semiconductors. And when we communicate about that, they don’t replace us. These are the delays in the causative parts, which are the ones that are delayed. We’re seeing innovations in lagging semiconductors, as well as some of the other products we track. And I wouldn’t say it’s a wonderful environment, however, it’s an advanced environment. But because the pieces are just as complicated and time-consuming to obtain.
Olivier Mihm
Yes, exactly.
Operator
And the next one comes from JPMorgan’s Paul Chung.
Paul Chung
So, first of all, can you talk about value dynamics rather than volume?Where do you see, what is accumulating in component inflation if you can quantify that?And where do you see more volume ramps too?
Patrick Jerome
Paul, it’s Pat. From an inflation standpoint, it’s in the middle digits we see. And then we’re also seeing on the side, some increases that we’re running with our customers. But that’s necessarily what we’re seeing at this point.
Paul Chung
Gotcha. And then, as far as wins, you’ve had very solid wins over the last 7 quarters, regularly in 4 quarters. You see declines here for the time being in consecutive quarters. Your order eBook remains solid. So assuming you have pretty clever visibility here in 23 and beyond?
Steven Frisch
Oui. Il it’s nothing we read about it right now. I mean we had some falsified victories in the current fiscal quarter of ’22. And one of the reasons we remain focused on the last four quarters is that we don’t review closing a target at the end of each quarter, because that affects irrational pricing. I think the only thing we probably take into account is the distractions in the aerospace and defense industry caused by source disruptions.
Other than that, it’s nothing we’re looking for. As I mentioned in my comment, we’re starting to see some of our other consumers who had been distracted in the afterlife in the industry, as well as in fitness sciences, start doing what they did in the afterlife, a little bit before COVID, which is to start looking at their production strategy in more detail. And I think with all the things that COVID has brought to all the other companies, we’re seeing more strategic discussions start to take place about what it is, given the supply chain disruptions that have occurred given the COVA going on, what do they need?They’re spending a few more cycles thinking about what they need their long-term production strategy to be. And usually, when it starts to take place, it’s smart for us.
Paul Chung
Gotcha. And finally, Pat, about moneyArray. Did you mention CapEx for the 23rd?And how do we imagine the conversion of long-term loose money beyond 23?It turns out that the paint limit is still somewhat higher at 23 while this backlog is running. But can we begin to see a more meaningful conversion perhaps in 24?In your opinion?
Patrick Jerome
Oui. Je I discussed that the consultant for 23 cost $110 million to $130 million without any attention for site additions. At this level, we would be at less than 3% of turnover. And I think in the future, that’s probably a smart purpose for us because with the biological expansion that we’re facing, we’re going to have to continue to invest in capital expenditures and operating capital. But I see a higher conversion rate, clearly, higher than in FY22 when we faced supply chain constraints. Then, again, in biological expansion, we will have to invest. And if you’re in the teen business, it’s going to consume money, but I’m sure we’re going to be able to generate loose money to distribute to our shareholders. And I think in the longer term, it would be on the order of about 80% of the net source of revenue conversion.
Operator
And we have a follow-up of Jim Ricchiuti, Needham
James Ricchiuti
Therefore, everyone defines secular expansion differently. I wonder within your portfolio, I wonder what spaces or opportunities interest you most in FY23 and FY24. And I highlighted some applications of electrification charging, warehouse automation. But I wonder what we see, again, the prospect of further expansion?
Todd Kelsey
Oui. Eh, well, we look at robot-assisted surgery, and that’s the one we’ve talked about a lot. In fitnesscare, I think therapeutics is a very vital expansion market for us, where we have a number of exciting new systems multiplying. So, the ones who jump first and foremost to mine, we have the advertising area we’ve been talking about. In general, the aerospace area is in a position to have a strong recovery due to the downward cycle in which it is lately. So those are some, I would say, that are exciting. Perhaps some others in the physical care box would be single-use devices that would be used in surgical products.
James Ricchiuti
Comprendo. Utile. Et and finally, if I could, one last question. I may have mentioned this, but I wonder what the point of interest is for new consumers compared to existing consumers who are assigning more systems because of your extensive presence there.
Todd Kelsey
Right now, it’s basically: the business you’re venturing into now is increasing, it’s existing customers, but there’s also a lot of interest from new customers. Therefore, we believe that we will have a good and balanced portfolio of new and existing as we move forward.
James Ricchiuti
And would new consumers be a tax contribution of ’24?
Todd Kelsey
It’s a fair assessment that our Thailand would most commonly benefit from existing consumers at 23, then start mixing between existing and new and 24 and beyond, I think that’s correct.
James Ricchiuti
To find. Forgive me.
Steven Frisch
What’s exciting for us with existing consumers is that there is only the movement of existing businesses. There are new systems introduced in the institution. Therefore, we are making a percentage market gain with the installation as they look to integrate new systems into operations. , adding elements of China. So we have a lot of opportunities for expansion there.
End of questions and answers
Operator
And I’m raising any other questions. I would now like to turn the floor over to Todd Kelsey, CEO, for closing remarks.
Todd Kelsey
It is ok. Thank you, Justin. Me would like to thank everyone who joined our call today. In fact, we appreciate your help and interest in Plexus. And one of the things I’d like to reiterate at the end is that we’re very excited about the momentum we’re having. We have built everything around fiscal 2022. This ending positions us for significant earnings expansion and superior EPS. So thank you all and happy day everyone.
Operator
That concludes the convening of today’s convention. Thank you for participating. You can now log out.