Good morning and welcome to the Plexus Corporation Conference Call regarding its Fiscal Fourth Quarter 2020 Earnings Announcement. My name is Sarah 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 like to turn the call over to Ms. Heather Beresford, Plexus' Senior Director, Communications and Investor Relations. Ms. Heather, you may begin.

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 September 28, 2019, as supplemented by our Form 10-Q filings 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 operating income, adjusted operating margin, adjusted net income and adjusted earnings per share 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' website at www.plexus.com clicking on Investors at the top of that page. In light of the current situation with COVID-19 we are conducting this quarter's call virtually. Joining me today are Todd Kelsey, President and Chief Executive Officer; Steve Frisch, Executive Vice President and Chief Operating Officer; and Pat Jermain, Executive 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 on slide three, with our fiscal fourth quarter results. I'm extremely proud of our global Plexus team, as they continued to navigate through the complexities stemming from COVID-19, while delivering exceptional results. We produced record quarterly revenue of $913 million in the fiscal fourth quarter, an outcome that exceeded our guidance range. The result represented 7% sequential growth and 13% growth from the fiscal fourth quarter of 2019. All of our sectors performed beyond expectations, with our Industrial/Commercial and Healthcare/Life Sciences sectors delivering outstanding results. We delivered record GAAP diluted earnings per share of $1.26, including $0.23 of stock-based compensation expense. Our GAAP operating margin of 5.5% was our best quarterly margin performance in more than a decade and marks the second consecutive quarter in which we have exceeded 5%. Please advance to slide four. Next, I will discuss additional accomplishments within fiscal 2020. I will start with our financial performance in relation to our goals. Despite a challenged fiscal second quarter, during the early stages of the COVID-19 pandemic, we delivered impressive results for the fiscal year. Through our commitment to operational excellence and customer service excellence, our teams delivered record revenue for the fiscal year of $3.4 billion, representing 7% year-over-year growth. This result included 28% year-over-year growth from our Industrial/Commercial sector. We delivered adjusted operating margin of 4.7%. This result included GAAP operating margin of 5.4% in the second half of the fiscal year, as the team successfully drove long-term productivity improvements. The strong growth, coupled with robust operating margin, led to record non-GAAP diluted EPS of $4.08 for the fiscal year, an increase of 19% from the previous fiscal year. Our return on invested capital finished at 14%, representing an economic return of 520 basis points above…

Thank you, Todd. Good morning. I will start on slide 13, with a review of the fiscal fourth quarter. And the full fiscal year performance of our market sectors, for 2020 as well as our expectations for the sectors, for the first fiscal quarter of 2021. Our Healthcare/Life Sciences revenue grew 5% in the fiscal fourth quarter. The result was better than our expectations of a low single-digit increase. For the full year of fiscal 2020 the sector grew 3%. The growth in both, the fiscal fourth quarter and full fiscal year was a result of strong demand for products used to diagnose and treat COVID-19, which overcame weaker demand for equipment used in elective procedures. Looking at the fiscal first quarter, the demand for some, but not all COVID-related products is tempering, while the forecast for equipment used in elective procedures remain subdued. As a result, we expect a high single-digit decline for our Healthcare/Life Sciences sector, in the fiscal first quarter. Revenue in our Industrial/Commercial sector, increased to 7%, for the fiscal fourth quarter, which was meaningfully better than our expectations of a low single-digit increase. Stronger demand from several semiconductor capital equipment customers drove the growth. For the full year of fiscal 2020, the sector had an exceptional growth of 28%. Robust ramps with a few programs in our transportation and energy management sub-sectors, combined with overall strength in the semiconductor capital equipment sub-sector, fuelled the growth, in fiscal 2020. Our Communications sector increased 25%, in the fiscal fourth quarter, a result that exceeded our expectations of a high-teens growth. Similar to the fiscal third quarter, eight of the top 10 customers in the sector had double-digit increases. Strong demand for Internet connectivity products drove the robust growth. As Todd highlighted, starting in fiscal 2021 our Communications…

Thank you, Steve, and good morning, everyone. Our fiscal fourth quarter results are summarized on slide 20. Fourth quarter revenue of $913 million was above the top end of our guidance and sequentially higher by $56 million. Gross margin of 9.8% was also above our guidance range and sequentially improved 10 basis points. For the fiscal fourth quarter, we continued to experience fixed cost leverage as revenue increased 7%, while fixed manufacturing expenses increased at a lower percentage compared to the fiscal third quarter. Selling and administrative expense of $38.8 million was slightly above our expectations primarily due to higher variable incentive compensation expense, linked to the exceptional performance. As a percentage of revenue SG&A was 4.3%, which was consistent with expectations and the fiscal third quarter. Our GAAP operating margin of 5.5% was 20 basis points higher than the fiscal third quarter and the second consecutive quarter above 5%. Included in this quarter's operating margin was approximately 75 basis points of stock-based compensation expense. Non-operating expenses of $5 million were consistent with expectations. Record diluted EPS of $1.26 was above the top end of our guidance range, primarily due to the strong revenue results and operational performance. Turning now to our cash flow and balance sheet on slide 21. For the fiscal fourth quarter, we were extremely pleased with our free cash flow results. We delivered $118 million in cash from operations and spent $9 million on capital expenditures, resulting in free cash flow of $109 million. For the fiscal year, we delivered $210 million in cash from operations and spent $50 million on capital expenditures generating record free cash flow of $160 million, a result significantly above our fiscal 2020 net income. During the fiscal fourth quarter, we resumed our share repurchase activity by purchasing approximately 295,000 shares…

Thank you. [Operator Instructions] The first question comes from the line of Mr. Mike Cikos from Needham & Company. Your line is open.

First thing I wanted to touch on was the revenues. So, if I'm thinking about -- it sounds like every sector or main vertical delivered upside for you guys during Q4, especially that Health and Life Sciences and the Industrial Communications. Curious what went right for you this quarter? And then I know we're talking about some moderation in fiscal Q1, but can you discuss some of the puts and takes there as well please?

Yeah. So, Mike, this is Todd. I'll start on this and then Steve can provide a little bit more details. But if we look at Q4 really everything came together during the course of the quarter and we finished strong in three of the four sectors from a growth standpoint Healthcare, Industrial, as well as Communications. In Aerospace and Defense, while it was flat on the quarter, actually improved over the course of the quarter as we saw stronger demand particularly around the space area. But as we look ahead to Q1, some of the differences that we're seeing right now is -- within Healthcare, we're seeing critical care product demand start to reduce. So while elective demand had been soft critical care is also going soft too. Now COVID test is still quite strong. So that's the one area of Healthcare that's strong. And then Industrial, we had, I would call it maybe a little bit of unusual circumstances. We had -- one of our customers had a major order that pulled in to this current quarter, which -- and it essentially came out of Q1. So that makes the comparable a little bit tough on Industrial. And then I would call it just a modest downtick with some of our semiconductor customers, but semi cap still looks pretty strong. So maybe Steve you want to provide a little bit more detail.

Yeah. Maybe I'll just give you two examples that maybe help illustrate what Todd talked about. So like on critical care products, for example, might be an infusion pump, there's a steady-state production that we expect to see throughout the course, whether it's COVID related or not. However, COVID caused a significant spike in those types of products, and what we're seeing is those things coming back down to kind of a more normal level. However, as Todd highlighted, COVID testers are continuing to ramp. So, that's kind of a little bit of color in that sector. Very similar in Communications. As the MSOs needed to increase capacity, I think they looked at their architectures and just invested in whatever was the shortest path to increasing capacity. And now that they've done that, we're starting to see them get a little bit more strategic with their buying back to looking at what is the long-term strategy for themselves. So, hopefully that helps give you a little bit visibility.

That's great. Yeah. And then just a follow-up on that. So when we're talking about that, I guess, more unique circumstance with that Industrial customer pulling forward some orders from Q1 to Q4, can you guys give us a size for what that pull in actually was? And then the follow-up that I had was regarding the Q1 -- or I guess, the commentary that we'll expect sequential growth to come back in the second half of fiscal 2021. So, the expectation then that fiscal Q2 is going to be relatively flat to down from fiscal Q1 levels? Is that what we should be thinking more?

Yeah. So, Mike I'm going to start with the discussion around fiscal 2021 and I'm going to pass it off to Steve to what the Q1 impact looks like. So if we look at 2021 -- and maybe I'll talk about our quarterly expectations and then get to what the full year might look like, but if we were to project out today based off of what we see, Q2 looks similar to Q1. We could see some modest growth. It could be flat in general. So that's why we hedged a little bit around whether we would see growth in Q2. Now as we get into Q3 and Q4, we expect more substantial growth driven primarily at this point by new program ramps. Now I do think there is some opportunity should markets rebound particularly around Healthcare with elective procedures in particular and then also around Aerospace and Defense. If we see stronger aerospace demand, there's some opportunity to move up from that point. But then if we looked at 2021 as a whole, we're expecting it to be a growth year, although, a bit more modest of a growth year and below our 9% to 12% range that we talk about. And then one other thing I'd like to highlight though on top of that is, we do expect continued strong operating performance. We've talked in the past about this 4.7% to 5% target range. We're seeing a path to be able to continue to have quarters where we expand beyond that the way we did in Q3 and Q4 and the way we're projecting in the first quarter of fiscal 2021 ballpark to be at or above the top end of the target range. So you combine the two together revenue growth, strong operating performance, it should result in some good cash generation as Pat highlighted as well as some strong EPS expansion within the fiscal year.

And then just a little bit of color on the opportunity that Todd talked about. It was a strong quarter for the customer even without this, but they pulled in between $9 million and $10 million upside for us in the quarter.

Okay. Thank you, guys. Thanks for the insight. I’ll cede the floor.

The next question comes from the line of Shawn Harrison from Loop Capital. Your line is open.

Good morning everybody. My Congrats on the really strong finish to the year. Wanted to dig into the capacity expansion. It's been a little while since one has been in place. I know you've telegraphed this expansion. But if you could just talk about the total capital outlay for this, and then also just kind of maybe the initial dilution and how this facility would ramp, because if I remember correctly the last big expansion was kind of adjacent to where you already had existing sites and maybe it smoothed the transition of customers into that site and some of the dilution as you ramped it?

Yeah. Shawn, this is Pat. I'll start with the investment piece and then hand it off to Steve. From a cost perspective, we're thinking it will be about $35 million to $40 million to build the building, and then we'll seed it with equipment after that. And so for my guide for capital spending for 2021, I've included $30 million, which is pretty much back-end loaded, and some will fall into 2022 to complete it and then we'll start seeding it with equipment after that. And then Steve?

Yes sure. A little visibility on our philosophy of our footprints in Asia, in general. So we're really in two geographies today. One is in China and one is in Malaysia. Given the situation in China, we believe that we need to have another footprint or another dot on the map, so to speak in Southeast Asia to continue to support our growth and to manage our concentration in Malaysia. In Malaysia, we have five facilities roughly 1.5 million square feet. Utilization in the facilities is roughly 61%. But it's very misleading. In that if you look at those facilities, one is completely full. One is about 90% full and one is about 80% full. The remaining two, one is at 40% and the last one is at 30%. But the last one, I talk about is that new facility you mentioned which we call Riverside East, which is our Healthcare/Life Sciences facility. And as you see in the funnel, we expect that to continue to fill quite nicely. And so we believe it's prudent and time is right to add another facility in the Southeast Asia. Thailand we happen to own a land there. We have roughly 13 acres. We're going to start with a facility that's roughly 4,000 square feet. But we have the ability to expand that facility on that property. So we really see a strategy here of building a campus in that location. As you look at kind of the demand for customers, there is a demand from customers asking us about Thailand or geographies outside of Malaysia. And so our strategy here is while we're building the building, we're actually going to be ramping products and with a team of people producing them in Malaysia and our strategy is to transfer that with -- working with the customer to transfer that to Thailand with some people once the facility is open to really give it a quick start. So again, really I think it's overall from a strategy standpoint, it's the right time to go ahead and do it.

That's really helpful. Then the other part I wanted to look at and maybe this is the one thing that stood out to me a little bit was just the size of Industrial and kind of the broader funnel seems like it's shrunk a little bit over time. And I don't know if that's a function of just timing issues or maybe having to expand the lens within the funnel for Industrial because really big numbers in Aerospace Defense, really big numbers in Healthcare, but Industrial while it's a big segment of revenues right now the portion of the funnel seems down a little bit. And if you could speak to kind of just that dynamic?

Yes, I would -- I agree with your assessment. That's the one funnel that we probably look at the most right now in terms of the growth of it. I'd say internally, the team has been realigned. And really kind of in my script, I wanted to highlight the fact that the alignment is done. And so that team is off and running. So I'm quite optimistic in terms of what they're going to be able to do in fiscal 2021. We've also added a couple of resources to the team from a business development standpoint. So again it's not a significant concern for us, but it is -- in terms of the funnel that is the one that does need a little bit more focus for growth for us.

Great. Thanks, Steve.

Your next question comes from the line of Adam Tindle from Raymond James. You may ask your question.

Okay. Thanks and Congrats on a strong finish to fiscal '20. Todd, I just wanted to start on the discussion on the shape of fiscal 2021. I've got just a question on the near-term for the first half and then I'll do a follow-up on the back half. So for the first half, you talked about returning to sequential revenue growth by back half of fiscal 2021 and the implication is that you would be revenue would be down sequentially in Q2. Trying to understand the magnitude of that, I think earlier you said Q2 would be similar to Q1. Do you mean that it's going to be down high single-digits sequentially like Q1? And what that means for operating margin as you absorb that decline?

No, I mean sequentially flat to Q1 is what we're projecting. We're just -- it's just too tight to call it a growth quarter. It may end up being a sequential growth from Q1.

Okay. Got it. That's helpful clarification. And so...

Yes. So if we were going to guide it seems today, it would look pretty similar to Q1 guide.

Okay. From a revenue end margin?

Simplest way to put it. Not necessarily margin. Q2 is a little more challenging.

Okay.

Because of the cost.

Got it. Okay. And then I guess maybe importantly on the back half that return to sequential revenue growth by the back half. Steve, are you thinking on that recovery from revenue and operating margin standpoint and just the key drivers? I know it's hard to go that far out in this business. So what gives you the confidence to talk about that?

Well yes I can't -- I'm not going to go into too many specifics because a lot can change. I mean we're seeing resurgence of COVID. We have an election here, I had heard next week, but at least rumour has it. But it's enough to say -- to feel that we should be in a growth mode. So I mean, so that's probably where I would end it. So if you do the math, our expectations are we're going to see growth in fiscal 2021 over fiscal '20.

Okay. Understood. Maybe just one last follow-up...

Yes. From a margin standpoint, as we said, we're going to try and stay within that range of 4.7% to 5% with the opportunity of maybe even getting above that. But that would be the goal for 2021.

Understood. Pat, I wanted to ask you maybe one last follow-up on SG&A. I think if we were to look at the Q1 guidance it implies kind of the -- I think lowest percent of revenue in many years. Maybe just the drivers on what's going on how you're operating so efficiently? Are there aspects of maybe temporary benefits from T&E or something like that? And how to think about that line as the year progresses? Thanks.

Sure. Well the big driver is sequentially from Q4 to Q1, it's the incentive compensation. We ended the year very strong and so the incentive compensation was much higher in Q4 compared to the fiscal first quarter. And you may recall one of the big drivers behind our incentive comp plan is around revenue growth. So ending the year -- last year at 7% growth with it being a little more moderated in 2021 that's impacting that expense. But to your other point, yes, we are seeing a benefit in the near-term around travel expenses are pretty non-existent. We do expect some of that returning in the back half of fiscal 2021. And then healthcare costs, we've talked about in the past. We are seeing some return of our claims and costs related to healthcare. I think those will increase as we go through the year again as people get more comfortable with elective procedures. So to answer your original question, we are at a very low point for SG&A as a percentage of revenue in this fiscal first quarter. I think going out in future quarters, we could see that getting closer to 4.3% 4.4% maybe even 4.5% as a percentage of revenue. So returning more to a consistent percentage level as we've seen in the past, but still pretty low.

Make sense. Thank you.

Your next question comes from the line of Anja Soderstrom from Sidoti. You may ask your question.

Hi, everyone, and congratulations on the great quarter again. And thank you for taking my question. So can you just give us a little bit color on what you see in the Aerospace and when you anticipate that to come back, or if you see anything at all?

Sure. Aerospace, I think it's a pretty complex market right now. As we look at whether it's the MRO or the new aircraft, we don't foresee new aircraft coming back anytime soon. And if you listen to all the other announcements out there really kind of don't anticipate -- see a big rebound there. One thing we are seeing is that on the freight side with freight flights increasing significantly, the MRO on that side has picked up a bit. So the other dynamic that we're looking at is how many aircraft are going to get retired here as a result of what's happening and when new aircraft orders turn back on what will we see there. So the short-term answer is, we expect it to be relatively muted here for quite some time with a few pockets of pickup again like things associated with freight MRO. But long-term, we're positioned well. I think it's a solid sector for us and it is going to return. It's just a matter of when.

So I'd like to add just a bit on this Anja. I mean one of the things -- so we talk we tend to shorten it to Aerospace a lot but our sector is Aerospace and Defense and it includes space as well too. So while Aerospace is down considerably, the gains we're making in Defense and space should more than overcome it. And we're expecting F'21 to be a growth year for the sector for the Aerospace and Defense sector.

Okay. Thank you. And then, you mentioned you added 12 new logos to your manufacturing wins?

Not necessarily all new logos. They could be new divisions of existing customers. But yes, that was the number I gave you.

Okay. I just wanted to -- so they are already existing customers. Sort of -- what do you -- for the new logos you added, what's the sort of potential there and can you give a little bit of color on those?

Yes, I don't have great specifics for you on each of the 12 logos. What I would tell you is that the logos are brand name logos and they are PTAM as we call it, which is potential available market for us is meaningful to continue to grow. And specifically, one example that I gave you is -- we were talking about one of the testers that we had won last quarter. We won another tester from them in this quarter a different -- usually kind of served for a different market. And so it's difficult to give you an exact number in terms of what the long-term potential is, but we do see growth with all these customers. They're not start-ups.

Okay. Thank you. That was all for me.

Your next question comes from the line of Matt Sheerin from Stifel. You may ask your question.

Yes. Thanks, and good morning. Steve, I was hoping that you could elaborate on your comments about the semiconductor capital equipment market. Sounding like it's beginning to weaken a bit here, and I know you've had several strong quarters of growth and so have your peers. So is that a sign that things are peaking cyclically or anything else going on there that you could share? Thanks.

Yes. This is a little bit more of my belief necessary than absolute data. As you look at the semi cap market for us, I would say it has flattened a little bit kind of quarter-over-quarter. We obviously see a little bit of a downtick here. But for us the customers' expectations as we go through fiscal 2021, we are still talking to customers about growth in some markets and some areas. And so we have brought in inventory to support potential drop-ins and upside for them. So I think the message is I think the semiconductor market for us we expect to see growth in the coming quarters. The question is that one, two, three quarters or is it going to be a little further out given the COVID situation. I wouldn't say it's a significant decline that we're expecting. Again, it's more of a -- a little bit of a fluctuation here is where we're at.

Yes. This is Todd. I think I might have made that comment too and I didn't intend to suggest that semi cap was going into any significant decline. I mean, what we're seeing is we saw a little bit of a peak in Q3, Q4 and we talked a bit about that. And we're coming off that peak just a hair. But 2021 looks like a solid year for semi cap.

Okay. Great. That's helpful. And then just a question on the inventory. I know your inventory days were down. I think it's the lowest level in a few quarters. How much of that is related to the guiding and just the expectation for lower revenue in the December quarter versus maybe the supply chain being more efficient lead times coming in availability that sort of thing?

We definitely benefited in the quarter from the higher revenue, so we burned through a bit more inventory in the quarter. I would say our teams though are getting much better at managing through the expectations of the customers on inventory levels. Where we have customers that are driving excess inventory, specifically like in our semiconductor capital customer areas where they want us to procure additional inventory beyond forecast. We are working with them on deposits. So you'll also see deposits coming up. So from that standpoint, it's more related to us managing it than it is necessarily any kind of end market conditions. The only thing that we're really kind of seeing in the supply chain that's a little constraint is tantalum capacitors are still -- got a little bit of an issue associated with some of the COVID shutdowns. But the rest of them -- the rest of the commodities are doing fine for us.

Okay. Thanks a lot.

Thanks, Matt.

Your next question comes from the line of Paul Coster from JPMorgan. Your line is open.

Yeah. Thanks for taking my question. Good morning. Just a little bit of color please regarding your strategy on the Comms business. It looks to me like you're sort of intentionally culling some business and being very selective moving forward. What are the criteria for that sort of selectivity?

Yes. So I would say we're actually not culling business Paul. We're very committed to our customers within that space and are looking to grow those customers. We think we have a good customer base that fits our model well. We're just reacting to the reality that Comms is a pretty volatile market and when you get to some of the -- certain customers the pricing model that people are willing to do the business for is not what we believe is an effective pricing model. So we're taking it a bit more opportunistically when we look at new logos, but we're absolutely committed to our customers in that space in growing that business. And this is a path we've really been down for about 18 to 24 months now of really merging that into a single sector team and merging our business here. So as Steve mentioned, this is -- our external reporting is really the end not the beginning. So there's not like a restructuring here or anything like that. We've done all the actions and all the activities there. But we're very committed to the business there. We'll continue to look at it as it comes in. But our customers we're very committed to them.

And if I add a little bit -- well if I can just add a little bit for you. If you look at the industrial sector, some interesting dynamics have been happening which is that sector has been getting a bit of overlap with communication type products. And so when you start looking at energy meters that are connected via Wi-Fi and you start looking at smart business controls and industry 4.0 stuff, we found our industrial sector really and our communications sectors debating and discussing which product does that belong in which sector does it belong in industrial/commercial or it belongs in communications. And so it's kind of been almost a natural evolution for us a little bit on a technology standpoint where it's gone and we think it's going to continue to go that way. So, as the teams continue to work more and more closely together on opportunities, it actually became more of a natural fit for us as well.

Got you. And well that leads to my follow-up question which is as you look at this big funnel it seems pretty robust still. Are there any sort of macro themes you can call out from that activity whether it's in terms of the end customers' use of contract manufacturers and electronic manufacturing service companies or in terms of technology themes?

I don't know that I could call out a specific technology or a trend. I think from an outsourcing standpoint I think there is a continued push for customers looking for ways to convert things from fixed to variable costs for themselves. That's been a trend that's going on for a while. I don't think it's ending. To be honest with you my personal opinion is I really give credits to the operations teams inside of Plexus. What our teams have been able to do on quality levels and delivery performance over the last few years the improvements they have made is really quite frankly, I think attracting and winning more business for us and bringing more opportunities to the funnel. So, I have to give a lot of credit to just our team's ability to execute.

In other words they're sort of winning trust from those customers and the customers therefore increasing their outsourcing?

Yes, I think as you go through economic cycles and you look at things that -- sometimes customers are focused on cost and sometimes they're focused on delivery and quality. And I think going back here in my opinion in the last three to four, five years there's been an industry shift really focused -- whereas before it was all about cost and now there is significant considerations about what the cost of quality and what the cost of poor delivery performance does for you. And again I think our teams are exceptional at living through the commitments. We continue to push. It's why I think you hear Todd and I talk a lot about customer service excellence and operational excellence. We do believe these are differentiators and I think the Plexus teams are doing a really well -- good job with them.

Got you. Thanks very much.

Your last question comes from the line of Mike Cikos from Needham & Company. You may ask your question.

Thanks for getting me back on. I just wanted to ask a follow-up here. Recording these enduring targets that you guys have for the 9% to 12% year-on-year revenue growth of 4.7% to 5.0% operating margin targets. So this -- I guess, if we're looking at fiscal 2021 this is going to be the second year now where we're falling short of that revenue target. But obviously, if we look at the last two quarters you guys are outperforming the margin bogey that you have out there. Should we be thinking -- or is there any reason to think that those targets may be shifting as you guys are obviously improving your profitability? And then what helps you guys in your view continue to think that that 9% to 12% bogey on the revenue is a worthy target to have out there? Thank you.

Yes. We look at the 9% to 12% as being a CAGR. And when we look at the three-year CAGR we're at 10. So, we do fall within the range. And I mean the question was around do we -- are we looking to reduce that target? I would say at this point no because our sector leaders and as we look at our long range plans we believe they're realistic yet. Now, as we look at -- we don't necessarily call the 4.7% to 5% operating margin an enduring goal. We're more focused around our return on invested capital and having that 500 basis point spread above our WACC. And typically it's been the 4.7% to 5% that has driven that spread. But we do think we can continue to expand margins right now. So, we're trying to talk less about the 4.7% to 5% because we think the potential to be 5% plus is there right now and we've done it the last few quarters. So, that's the way we're looking at the goals right now. We think 9% to 12% is realistic. We think we can expand margins from where we're at and continue to drive strong return on invested capital.

Thank you for that. Appreciate the color. Good luck again.

Thank you.

Thanks.

I am showing no further question at this time. I would now like to turn the conference back to CEO, Todd Kelsey for closing remarks.

Yes, thank you, Sarah. And I'd certainly like to thank everybody who joined our call today. I thought there were a lot of great questions today. We certainly appreciate your support and interest in Plexus. And again I'd like to thank our Plexus team globally because it's all their efforts that drive these results and make it all possible. So, thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.