Good morning, and welcome to the Plexus Corp. Conference Call regarding its First Quarter 2021 Earnings Announcement. My name is Sarah, and I’ll be the operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Mr. Shawn Harrison, Plexus’ Vice President of Communications and Investor Relations. Please go ahead.

Thank you, Sarah. Good morning and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements as they will not be limited to historical facts. The words believe, expect, intend, plan, anticipate and similar terms often identify forward-looking statements. Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of factors that could cause actual results to differ materially from those discussed, please refer to the company’s periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended October 3, 2020, 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 comparisons. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday’s press release and our periodic SEC filings. We encourage all 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 order to maintain appropriate social distancing, we are again 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, Shawn and good morning everyone. Please begin on Slide 3. I will start with an introduction of recent changes impacting our Investor Relations team. First you may have noticed a familiar name and voice introducing our call. I’m pleased to welcome Shawn Harrison to the Plexus team as our Vice President of Communications and Investor Relations. Shawn brings tremendous experience to Plexus as a well-respected sell-side analyst previously with Loop Capital and Longbow Research. He has a 20 year history covering Plexus and knows us well. I’m very excited for Shawn to leverage his expertise and furthering Plexus’ Investor Relations program. Next, many of you have gotten to know and respect Heather Beresford over the last 2.5 years for her leadership within our Investor Relations team. Heather has done a great job in taking our Investor Relations, Corporate Communications and branding to a new level. I am pleased to inform you that as a result of her exceptional work and capabilities, Heather has been promoted to Vice President of Aftermarket Services. I look forward to Heather leveraging her leadership to further our operational performance in this growing and differentiated service offering. Please advance to Slide 4 for a discussion of our fiscal first quarter results. Our operations achieved strong results in the fiscal first quarter of 2021. We expanded our industry leading GAAP operating margin to 5.6% through our focus on productivity improvements and expense management along with solid performance from our Engineering Solutions team. This result includes 64 basis points of stock-based compensation expense and represents the third consecutive quarter of GAAP operating margin in excess of 5%. We achieved quarterly revenue of $830 million, which was in line with our expectations and at the midpoint of our guidance range. Our Industrial sector exceeded our expectations entering…

Thank you, Todd. Good morning. I will start on Slide 7 with a review of the performance of our market sectors for the fiscal first quarter of 2021 as well as our expectations for the fiscal second quarter of 2021. Revenue within our Industrial sector decreased 12% for the fiscal first quarter. The result was better than our expectations of a low teens decline. Stronger demand from almost all of our semiconductor capital equipment customers drove the improvement. As we look at the fiscal second quarter, we are seeing double-digit forecast increases from several semiconductor capital equipment customers. In addition, there are pockets of growing demand within our energy management and industrial equipment subsectors, but the recent strength in our communication subsector is subsiding. The net result is that we anticipate a mid-single-digit increase for Industrial sector in the fiscal second quarter. Our Healthcare/Life Sciences revenue declined 7% in the fiscal first quarter. The result was slightly better than our expectations of a high-single-digit decrease. Looking at the fiscal second quarter, two recently ramped testers that can detect viruses, including COVID-19 are reaching full production rates. In addition, there has been a resurgence and demand for a critical care device used in the treatment for COVID-19 patients and modest forecast increases with some elective procedure products. As a result, we expect a high-single-digit increase for our Healthcare/Life Science sector in the fiscal second quarter. Revenue in our Aerospace and Defense sector was down 6% in the fiscal first quarter. The result was meaningfully short of our expectations of a mid-single-digit increase. Production challenges with a ramping space program, as well as further degradation in some commercial aerospace programs were the cause for the lower revenue. Looking at the fiscal second quarter. Forecasting from customers within the sector varies significantly as…

Thank you, Steve and good morning, everyone. Our fiscal first quarter results are summarized on Slide 14. First quarter revenue of $830 million was at the midpoint of our guidance while gross margin of 9.5% hit the top end of our guidance, better than expected gross margin, primarily related to an improvement in business mix and our focus on expense management. We delivered better performance from our higher value-added services, which include engineering and aftermarket services. Gross margin also improved due to lower than anticipated spending related to healthcare costs and travel expenses. Selling and administrative expenses of $32.4 million were favorable to our guidance and $6.4 million lower than the fiscal fourth quarter. The majority of the sequential decline related to a reduction in incentive compensation expense. In addition, we recovered $2.3 million of a previously reserved customer receivable. This recovery had been contemplated in our first quarter guidance. Our GAAP operating margin of 5.6% was above our guidance due to a combination of improved gross margin and lower SG&A spending. This is the third consecutive quarter with operating margin above 5%. Non-operating expenses of $5.2 million were slightly above expectations as a result of foreign exchange losses. GAAP diluted EPS of a $1.23 was above the top end of our guidance range, primarily due to the strong operational performance. Turning now to our cash flow and balance sheet on slide 15. as anticipated, for the fiscal first quarter, we made investments in working capital. We delivered $7 million in cash from operations and spend $16 million on capital expenditures resulting in negative free cash flow of $9 million, which was in line with expectations. During the fiscal first quarter, we purchased approximately 307,000 shares of our stock for $22.8 million at an average price of $74.16 per share.…

Thank you. [Operator Instructions] Our first question comes from the line of Jim Ricchiuti with Needham & company. Your line is now open.

Hi, thank you. Good morning. A couple of questions, I was wondering if you might be able to expand on the six new logos you added, if there’s any color you can provide, either on verticals or type of customer or program.

Yes. So Jim, this is Todd. I’ll get us started and I’ll have Steve provide some of the details around the sectors in the opportunities. But the one thing I wanted to highlight about the new program wins that I think is significant. And I hope that people take away from this is, if you look at our business development approach, it’s really to grow with existing customers to find the right customers and then grow with those customers and I talked about six new logos and Steve talked about 14 new relationships. So that includes the six logos plus eight new divisions of existing logo. So, when you look at this, we get a new logo in, we transition it, we potentially add additional divisions and we grow with each of those, the original division or logo, as well as the expanded relationship that we have with the other division. So, I wanted to point that out and then I want to turn it over to Steve to get into a bit more detail.

Sure, Jim. in terms of color, they were equally split across the sector. So, there was two in industrials, two in Healthcare/Life Sciences and two in aerospace. And some of the wins and the details that I went into highlighted some of them; the anaesthesia program that I talked about in healthcare was one of them. the device that’s used for advanced manufacturing process control was one of them as well as the air purification system. and so that gives you a little bit more insight into – it was a pretty good mix across all three of the sectors.

Thanks. Thanks for that color. And by the way, yes, I think you gave some good color on how we should be thinking about the second half of the year. but yes, I wanted to go to that target that you’re talking about for revenue of 9% to 12% growth. And clearly, last year was impacted unquestionably by COVID and this year you’ve got some moving parts as well. but I’m trying to get a sense, what’s giving you that confidence about that 9% to 12% revenue growth. It sounds like, it’s the – the wins that are coming in, it’s a question of when do you potentially see that conversion? It’s obviously not going to, I think, happen this year?

Yes. So, I think, Jim, you’re right on with your assessment about this year is that the 9% to 12% would be difficult in this year and kind of the way I’ve characterized it in the release and in the script here is that. if you do the math, it wouldn’t add up to the 9% to 12%, but there’s a number of things that give us confidence that 9% to 12% is a realistic and very achievable goal. And first of all, if we look backward looking over the period of 18% to 20%, we were at 10%. So, our sectors in our markets have shown that they can support that level of growth. Then, if we look – and that includes last year with the pandemic in that number as well, I know as we go through our planning process and we do a bit of a bottoms-up planning our teams again, their results support our revenue growth goals, but there’s really four factors that I think serve as catalyst for us as we go into – go through fiscal 2021 and into fiscal 2022. First of all, we have the margin expansion and the sustainable margin expansion, which I think we’re doing a nice job of showing that that’s very achievable. Second, we’ve got the recovery of elective - of medical equipment used for elective procedures, and we’re starting to see that a hint of a sign of that right now. but I wouldn’t say it’s a recovery by any means. So, there’s great opportunity with that as we move forward. And there’s also the increase in demand that we expect to see from commercial aerospace as we see travel upticks post the COVID vaccine rollout. So that may be an early 2022 type event is what we’re expecting. And then we have the new program ramps and you saw the win success that we’ve had over $1 billion trailing four quarter funnel that we have. We’ve talked about some of the exciting new programs that have been long-term ramps within our Healthcare/Life Sciences sector. These all come to fruition in the F22-ish type timeframe here. So, we’ve got a number of catalysts that are looking really good for us as we get beyond or get – go through fiscal 2021 and get into fiscal 2022.

Got it. Just on commercial air, could you just remind us, what that’s representing right now of the A&D or maybe, just historically, what it was – and then I’ll jump back in the queue. Thank you.

Yes, it’s above – let me get the number. I think it’s in the mid-30s right now, but I’m going to verify that. it’s kind of low-30s, is about where it’s at right now. And it had been, probably, a little bit over 40% to even 45% at one point.

Yes. And that’s a Plexus of the sector, it’s about roughly a third.

Got it. Thanks very much and congrats on the quarter.

Thank you. Our next question comes from the line of Adam Tindle with Raymond James. Your line is now open.

Okay. Thanks, good morning and congrats to Shawn and Heather. Todd, I just wanted to start with some questions around the second half comments, where revenue is relatively consistent with the fiscal 2Q guide. just maybe, the biggest drivers of why we would see effectively flat sequential trends in Q3 and Q4, because we normally expect to build up each quarter or see it up sequentially on a seasonal basis. It sounds like towards the end of the quarter, medical and industrial saw a recent strength, you’ve got new customers coming on. So, what would be the offsets that I’m missing to make Q3 and Q4 effectively below normal seasonality?

Yes. I think that the issue Adam is that the visibility is just fairly limited right now. So it – I would say, it’s more of a situation is we’re just not sure. We just don’t know. And if you think back to a quarter ago, when we had our call, we expected Q2 to be flat to Q1. I mean, obviously, it’s not – it’s up substantially on the order of about $50 million. So, we saw a lot of upside demand come in, particularly around the healthcare and in the industrial sector. So, as we – as our customers brought up forecasts, they just brought them up in the near-term and not necessarily further out. So, I’d say there’s a lot of uncertainty to us as whether we’re going to see something similar as we move through the rest of the year or whether we won’t. but based off of the visibility we have right now, it looks more like flat at this time. But I think in some sense, we’re a little bit of a victim of our success from an execution standpoint, because there are customers feel comfortable that they can drop in demand and we’ll execute on it.

Right, that’s understandable. And just to clarify, does that also mean that operating margin would kind of stick in that 5% to 5.5% range that was guided to Q2?

Yes. it’s a little, it’s a bit uncertain, I mean, I think obviously, we’re targeting to be above the 5% range, but it’s a bit uncertain based on the revenue and the leverage that we get. So, it’s a little too early to call that one.

Okay. And just maybe a longer-term question, you talked about the record over $3 billion funnel, you talked about committed to the 9% to 12% long-term revenue growth. Just trying to understand, does that imply potentially a supersized growth year in fiscal 2022, such that the average of 2021 and 2022 can be in the 9% to 12% range. So maybe just help with the expectations on timing and magnitude of what seems like a pretty big growth uptick upcoming.

Sure. This is Steve. I’ll try to handle that one. Obviously, trying to give guidance for 2022 would be a bit challenging. But looking at the market dynamics of where we’re at, which gives us some optimism is, we look at commercial aerospace and we’re strong in there, we’ve gain market share. We’ve talked about the fact that we’ve been bounce around the bottom and we see this down. And so we see that as a catalyst for growth in terms of what could happen in the 2022 as things are start to recover. We’ve talked about the elective procedures in Healthcare/Life Sciences. We believe we’re continuing to take market share, we’re winning new logos. And we think catalyst there to help accelerate some growth as we – as things start to recover post-COVID. And then, we’ve talked for the last couple of calls talking about industrial team in semi-cap – with semiconductor capital equipment, the signals are out there. The demand for semiconductor equipment and devices is only going to increase over time. And looking at our forecast and Todd’s kind of comments is, we see this flattish kind of forecast and then we see the short-term drop-ins. And I think at some point there’s a potential for that to turn into real forecast demand. And so, the optimism of the 9% to 12% is driven by those types of factors combined with the fact that we continue to win decent amounts of new business. And so I think – why we’re optimistic about the growth, could it outperform, I think, if the economy takes off and all these things start to recover post-COVID, I think there’s a real chance that demand from our customers continues to increase at a pretty good clip with it.

That’s helpful. Thank you very much.

Thank you. Our next question comes from the line of David Williams with Loop Capital. Your line is now open.

Great. Thanks for letting me ask the question. And first, congrats to Shawn for the transition. First, I wanted to ask maybe about the 2Q demand and do you think that we’re seeing any pull in maybe from some of the second half demand? Or is this mainly just the drop in the early demand command or the short term demand?

Go ahead, Steve.

Yes. I mean, specifically with the Q2 upside, it is upside. That’s not robbing from future quarters, so our forward-looking quarters have stayed consistent and actually have come up a bit. And so it is upside demand. It’s not stealing from future quarters. And as Todd kind of highlighted, one of the things we’re looking at is, we’re going to see this as a trend as we go through Q2, Q3 and Q4. It’s just something we’re watching.

Okay, great. And then just kind of thinking about the COVID related tailwinds, the shorter term are non-sticky. How much of your business, I guess, in the Healthcare, I think the shorter-term COVID tailwinds that could potential phase into next year or the year after?

Yes. So right now, there’s not a lot beyond testing in point of care testing that I would call a true COVID tailwind, where the demand is up as a result of COVID. Now we see that demand is progressing or continuing at least through calendar 2021. And even our customers are talking about it going beyond that and enter 2022. And one thing to point out too and we call them COVID testers a lot, but what they are is, they’re testers that can be used for COVID. So they can test many other things as well too. But that’s the only thing I would say, as a true COVID increase that’s in our forecast right now other than the small amount of upside that Steve talked about on the one critical care product.

Great. Thanks for the color. And one last if I can real quick, just kind of any thoughts you might have on the transition – from political landscape, anything that you’re watching it, or thinking about in terms of deposit for [Audio Dip]

Yes. So I mean the one thing we’re looking at is on the demand side. I would say, there’s a few different opportunities that could come up as a result of the proposed stimulus that’s out there. We have some heavy equipment business. I think some of the COVID products could increase even further from a demand standpoint. Certainly, I think it bodes well for semi-cap as well too. The other thing we’re looking at on the other side of the equation is, what happens with the tax landscape and does that have any impact.

Great, thanks so much. Thanks a lot.

Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Your line is now open.

Yes, thanks. Good morning, everyone. Just a question regarding the product or the component on the supply chain environment right now, I mean, you talked about inventory days up, Pat. We’re hearing across the board of supply constraints in certain semiconductors, in some passive components. Are you seeing that yet? And are your customers asking you to build inventory?

Yes. So Matt, this is Steve. I’ll take that one. First of all, there’s a lot of news out there about the automotive market, having shuts down – shutdowns due to semiconductor shortages, and just want to remind everybody we don’t do automotive. So in terms of our end market impact, there’s nothing there. Now specifically, what’s causing those challenges in automotive is a tightening in semiconductor components. And we are seeing some of that. We don’t foresee any issues here in the fiscal second quarter. We’re from an inventory standpoint and that we feel pretty comfortable where we’re at. We do start to see lead times start to extend a little pricing pressure here and there. So it’s definitely real from our perspective. I feel like you’re pretty comfortable where we’re at. Our teams definitely have to work harder through these periods, but at these times is when our teams have outperformed. And so I’m pretty optimistic in terms of what our teams will be able to do. The one part that I get a little nervous on is, looking at those forecasts as we go into the back half of the year. If our customers start dropping in big demand our ability to react and bring things in is really kind of the bigger challenge. And so we have been talking to our customers about inventory levels in what we’re comfortable storing. Now keep in mind, our customers are responsible for the inventory levels. Plexus doesn’t speculate. So from our standpoint, it’s really just working through with our customers where they need to be. And we do have some – we do have some customers that have increased raw component inventories to be able to respond to upside demand in the back half of the year. And so again, it’s a mix with each customer, but it is a – we do see it coming a bit more, but I think we’re responding appropriately. And at this point, the teams are handling it really well.

Matt, this is Pat. On the balance sheet, I just want to comment for the second quarter, we do expect a slight build in inventory dollars to the tune of about $20 million. But I had guided the midpoint of our cash cycle being down compared to the fiscal first quarter. And some of that’s driven by inventory days, just because of the increase in revenue we expect in the second quarter.

Got it. Okay. Thanks for that. And then I did want to follow-up on previous questions just regarding your guidance for next quarter and then for the year? As you said, a little bit different than you saw a quarter ago, but when I add the numbers the revenue I don’t think consensus for fiscal 2021 is going to change much. And you’re going to be looking at obviously, tougher comps at the back half when you had a really, really strong last September quarter. But it sounds like the setup for 2022, as Adam indicated is good. I guess my question is should we start thinking about a return to that 9% to 11% in revenue growth target, and in terms of margins, I know that in the past, when you’ve had some really big ramp ups quarter-to-quarter, there’s been some costs and some margin headwinds. So how should we think about growth versus the margin in the mix of the business?

Yes, I think maybe I’ll start with 2022 and then there’s a couple other topics I want to hit as well, but I mean, certainly, too early to talk about 2022 and give any sort of guide or color, but I think it’s setting up to be a really good year. When you look at the factors in the catalyst that I talked about earlier, I think that’s quite good. And I mean kind of backing up to 2021, I mean, I would say, well it’s not 9% to 12%, it doesn’t – it still sets up to be a pretty good year or a growth year from a revenue standpoint. But the EPS leverage, I mean, you start to do the math on that looks pretty good. So I think that’s a compelling story for fiscal 2021.

And Matt, you mentioned margin headwinds with transitions, we always have those transitions going on. So I wouldn’t say that’s necessarily impacting margins. We do have the Thailand facility that’s going to be ramping up and it typically takes a few quarters before a new site reaches corporate averages. And then the other item we’re watching is travel expenses. They’ve been obviously very depressed and we expect some return at some point, but I don’t think we’ll get back to the levels we were at pre-COVID. So monitoring that could be a slight headwind for us.

Okay, great. And just last quick question, just regarding cost. Pat, you didn’t call out a COVID related cost. Is that just sort of embedded in your model now, or do you see any changes there?

So for the first quarter, it was around $2 million. So it’s starting to taper down. We do expect expenses in the latter quarters, probably to the tune of $1 million to $1.5 million. When you look year-over-year, last year, fiscal 2020, we had about $10 million. This year, we would think that’s about $6 million, so about $4 million lower there. On another area of costs, our healthcare costs internal were depressed with last year with elective procedures being down. We expect those to be up and that pretty much offsets the benefit we’re seeing from a COVID expense reduction. We expect Healthcare costs to be up about $4 million this year. So net-net, those are pretty flat.

Okay. That’s helpful. Okay. Thanks a lot.

Thank you. Our next question comes from the line of Steven Fox with Fox Advisors. Your line is now open.

Thanks. Good morning. Just two questions from me if I could. First one on the funnel expansion, you mentioned some decisions by some customers to move to outsourcing. Could you expand on what drove that decision? Whether it was something that was already in the works or maybe if there was a change in thinking due to circumstances, and then I had to follow-up?

Yes. This is Steve. In some of these challenging times, I think customers do question their supply chain strategies more. And so I think the conversations we’re having right now are things that customers were considering, but I think the COVID situation is pushing them to move a little bit quicker. So not a big strategic shift on – I mean, a big strategic shift on their part, but I think the timing of COVID is just helping expedite things.

And those shifts would be done with – like their current facilities would be utilized by the customer, you’d be outsourcing into your existing facilities, like their strategy around their own plant and equipment is what?

Yes, they would exit their facilities. And we would do that one of two ways. One is either to this move the facility entirely at the moment that they exited or do what we call manage in places where we’d manage it for 18 months, 24 months, and then transfer it. Under a rare circumstance, if there’s a strategic alignment, would we consider a facility? Yes. But that would be under a very strategic decision.

Thank you. And then just on the new logo wins, can you just talk about the competitive environment around those six wins? How much of it was, do this just sort of where you guys play versus maybe seeing competition from smaller, large EMS providers?

Yes. The competitive environment is about the same. I mean, we run into the big guys all the time and there’s always smaller players’ involved as well. And so I don’t think with these situations or with COVID, there’s been a big fundamental shift in the competitive landscape. Although, we are seeing a little bit more, I’d say pricing diligence in a little bit discipline, and so that’s refreshing to see.

Thank you.

Thank you. Our next question comes from the line of Paul Coster with JPMorgan. Your line is now open.

Yes, a couple of quick ones. It sounds like the sales team; the bus dev team are working pretty well in the virtual world. Do you see that changing as we come out backend of the pandemic is – are you going to get back into the T&E mode or do you think you’ve found a new way of developing the business without that expense? And I have a quick follow-up.

I think, I mean, certainly, our business development people, Paul, are looking to get out on the road, and looking to get out in front of customers. Let me to be candid, I’m looking to get out in front of customers more myself. So, I think you’re going to see travel go up, but I do also think that there’s a – I don’t think it’s going to go up quite to the same level than it had been in the past. I think people are feeling or understanding that there are things that can get done virtually, it can be effective virtually. Our branding and communications team just did an excellent job of creating a great virtual business development environment that I think is really unique, that’s helping us. But there’s still nothing like having a customer in your site to see it firsthand. So, I’m certain that there’ll be more movement once it becomes a better environment with the vaccine rollout and such, but maybe...

And then is there any – yes, good. Is there anything in the change in the administration in Washington D.C. that changes anything for you?

Yes. When we’ve talked about there’s – maybe, I’ll talk about markets and then Pat can talk a little bit more about other factors. But markets, there’s a feel, and I think it kind of comes back to what happens around stimulus and where’s the focus of where dollars are spent? So, I think, our heavy equipment business in our Industrial sector could benefit our energy business and our Industrial sector could benefit, I think that the COVID particularly around test could benefit from a market standpoint and semi campus is potentially only going to get stronger. So maybe, I’ll pass off to Pat to, for some comments.

Sure. I mean, from a tax perspective, Paul, we’re watching it closely. Obviously, there’s been discussion around increasing the corporate rate and also, the offshore earnings tax rate, which would impact us, but we’d want to understand if there’s any potential credits that could mitigate some of that increase. Our tax team is closely monitoring it. So, we’ll just have to see where it falls in that priority with the new administration.

Got it. Thank you very much.

Thank you. Our next question comes from the line of Anja Soderstrom with Sidoti & Company. Your line is now open.

Hi, thank you for taking my question. Congrats on a great quarter and congrats, Shawn and Heather. A lot of good questions asked already, but I just wanted to get a sense more of your revenue guidance for the second half. You say it’s sort of going to be in line with that fiscal second quarter expectations that assume that electives still stay sort of suppressed. That could be a surprise upside in the second half comes back more forcefully [ph]?

Yes, it does. I mean, basically, it looks at the environment as being more or less what it is today, perhaps even, maybe, call it a little softer than what we’re seeing for the fiscal second quarter, because we saw a lot of drop in upside demand that impacted the second quarter that doesn’t necessarily impact Q3 and Q4 at this point. So, there’s a lot of potential, I think for opportunities within the second half, it’s just, our visibility says it’s flat to Q2 right now, more or less.

Okay. Thank you. And I think you just, there’s a little bit to elaborate about the gross margin and ramping new projects might be pressing that, because you’re guiding to quite – you had a good performance this quarter and you’re guiding for the second quarter to remain relatively high. So, how should we think about that going forward?

Yes. Go ahead, Pat.

Yes. well, I was going to say, as Todd said, I mean, we’re – from an operating margin standpoint; we’ve been really pleased with the last three quarters. So, hitting 5% or above would be our target. Expenses, we’re kind of monitoring, Anja, would be travel expenses and healthcare costs, those are things that could be potential headwinds for us, but trying to achieve that 5% or above would be our target.

Yes. And we don’t see really a significant drag from new program ramps in the future. I mean, we’re – somewhat always ramping new programs and we think the leverage we can get from the other business can offset the costs or the inefficiencies of new program ramps.

Okay. Thank you. And then lastly, in the army and defense this quarter, you alluded to some issues with ramping new programs causing the shortfall there. Can you just elaborate on that and talk about how that’s going to keep in the coming quarters?

Sure. The space program, I mentioned, had some delays in the ramp, and as you can imagine, programs that are going into outer space, there’s a lot of stringent requirements and from a manufacturing process standpoint, we’re working with a customer on some strengthening of those requirements and it slowed down production. We believe, we’ve worked through those and have alignment with the customer on what the requirements are. And so I want to expect it to impact that going forward.

Okay. Thank you. That was all for me. Thank you.

Thank you. There are no further questions at this time. I would now like to turn the call back to Mr. Todd Kelsey, CEO for closing remarks.

All right. Thank you, Sarah. I’d like to just start by giving a shout out to our Plexus team members globally and thank them for all their hard work. They continue to perform exceptionally well despite challenging circumstances that are around us today. And again, thank you to everybody, who joined our call today. We certainly appreciate your support and your interest in Plexus.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.