PLEXUS CORP

RESULTS OF OPERATIONS

Consolidated Performance Summary. The following table presents selected consolidated financial data (dollars in millions, except per share data):

Net sales. For the three months ended December 28, 2024, net sales decreased $6.5 million, or 0.7%, as compared to the three months ended December 30, 2023.

Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors.

In the first quarter of fiscal 2025, we changed internal management reporting to focus on value-add sales in each region and adjusted the allocation of certain corporate costs among reportable segments. These changes have been implemented and are consistent with what was provided to the Chief Operating Decision Maker ("CODM"). Our composition of operating segments and reportable segments did not change. Net sales and operating income for our three reportable segments for the current period and comparative periods presented have been recast to conform to those changes. These changes had no effect on our consolidated net sales, operating income or net income for the current or comparative periods.

A discussion of net sales by reportable segment is presented below (in millions):

AMER. Net sales for the three months ended December 28, 2024 in the AMER segment decreased $35.9 million, or 11.6%, as compared to the three months ended December 30, 2023. The decrease in net sales was driven by overall net decreased customer end-market demand. The decrease was partially offset by an increase of $37.3 million due to production ramps of new products for existing customers.

APAC. Net sales for the three months ended December 28, 2024 in the APAC segment increased $54.3 million, or 9.8%, as compared to the three months ended December 30, 2023. The increase in net sales was driven by an increase of $25.3 million due to production ramps of new products for existing customers and overall net increased customer end-market demand.

EMEA. Net sales for the three months ended December 28, 2024 in the EMEA segment decreased $20.1 million, or 16.6%, as compared to the three months ended December 30, 2023. The decrease in net sales was driven by overall net decreased customer end-market demand.

Our net sales by market sector for the indicated fiscal period were as follows (in millions):

Aerospace/Defense. Net sales for the three months ended December 28, 2024 in the Aerospace/Defense sector decreased $7.4 million, or 4.4%, as compared to the three months ended December 30, 2023. The decrease was driven by overall net decreased customer end-market demand. The decrease was partially offset by an increase of $9.2 million in production ramps of new products for existing customers.

Healthcare/Life Sciences. Net sales for the three months ended December 28, 2024 in the Healthcare/Life Sciences sector decreased $6.8 million, or 1.8%, as compared to the three months ended December 30, 2023. The decrease in net sales was driven by overall net decreased customer end-market demand. The decrease was partially offset by an increase of $27.6 million in production ramps of new products for existing customers.

Industrial. Net sales for the three months ended December 28, 2024 in the Industrial sector increased $7.7 million, or 1.8%, as compared to the three months ended December 30, 2023. The increase in net sales was driven by an increase of $6.7 million in production ramps of new products for existing customers and overall net increased customer end-market demand.

Cost of sales. Cost of sales for the three months ended December 28, 2024 decreased $19.1 million, or 2.1%, as compared to the three months ended December 30, 2023. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For each of the three months ended December 28, 2024 and December 30, 2023, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 88% of these costs were related to material and component costs.

As compared to the three months ended December 30, 2023, the decrease in cost of sales in the three months ended December 28, 2024 was primarily driven by a positive shift in customer mix, the decrease in net sales and a decrease in fixed costs, including benefits from productivity and restructuring activities.

Gross profit. Gross profit for the three months ended December 28, 2024 increased $12.6 million, or 14.3%, as compared to the three months ended December 30, 2023. Gross margin of 10.3% for the three months ended December 28, 2024 increased 130 basis points compared to the three months ended December 30, 2023. The primary driver of the increase in gross profit and gross margin as compared to the three months ended December 30, 2023 was the positive shift in customer mix and a decrease in fixed costs, including benefits from productivity and restructuring activities.

Operating income. Operating income for the three months ended December 28, 2024 increased $1.7 million, or 3.8%, as compared to the three months ended December 30, 2023. Operating margin of 4.8% for the three months ended December 28, 2024 increased 20 basis points compared to the three months ended December 30, 2023. The primary drivers of the increase in operating income and operating margin for the three months ended December 28, 2024 were the result of the increase in gross profit, partially offset by an increase of $6.2 million in selling and administrative expenses ("S&A") and an increase of $4.7 million in restructuring and other charges. The increase in S&A was primarily due to a net increase in compensation costs and an increase in information technology expenses. The restructuring and other charges for the three months ended December 28, 2024 primarily consisted of severance costs associated with a reduction of the Company's workforce in the EMEA and AMER regions.

A discussion of operating income by reportable segment for the indicated fiscal period is presented below (in millions):

AMER. Operating income increased $0.1 million for the three months ended December 28, 2024 as compared to the three months ended December 30, 2023, primarily as a result of a positive shift in customer mix and a decrease in fixed costs, substantially offset by a decrease in net sales.

APAC. Operating income increased $10.6 million for the three months ended December 28, 2024 as compared to the three months ended December 30, 2023, primarily as a result of an increase in net sales, a positive shift in customer mix and a decrease in fixed costs, partially offset by an increase in S&A.

EMEA. Operating income increased $1.3 million for the three months ended December 28, 2024 as compared to the three months ended December 30, 2023, primarily as a result of a positive shift in customer mix and a decrease in fixed costs, partially offset by a decrease in net sales.

Other expense. Other expense for the three months ended December 28, 2024 decreased $6.9 million as compared to the three months ended December 30, 2023. The decrease in other expense for the three months ended December 28, 2024 was primarily driven by a decrease in interest expense of $4.1 million due to lower borrowings on our credit facility, an increase in foreign exchange gains of $1.4 million and a decrease of $1.1 million in factoring fees.

Income taxes. Income tax expense for the three months ended December 28, 2024 was $6.2 million compared to $5.6 million for the three months ended December 30, 2023. The increase is primarily due to an increase in pre-tax book income.

Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.

The annual effective tax rate for fiscal 2025 is expected to be approximately 14.0% to 16.0% assuming no changes to tax laws.

Net income. Net income for the three months ended December 28, 2024 increased $8.1 million, or 27.7%, for the three months ended December 30, 2023 to $37.3 million. Net income increased primarily as a result of the increase in operating income and the decrease in other expense, partially offset by the increase in tax expense as previously discussed.

Diluted earnings per share. Diluted earnings per share increased to $1.34 for the three months ended December 28, 2024 from $1.04 for the three months ended December 30, 2023, primarily as a result of increased net income due to the factors discussed above.

Return on Invested Capital ("ROIC") and economic return. We use a financial model that is aligned with our business strategy and includes an ROIC goal of 15%, which would exceed our weighted average cost of capital ("WACC") by more than 500 basis points and represent positive economic return. Economic return is the amount our ROIC exceeds our WACC.

Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions. We view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital investments. We also use ROIC as a performance criteria in determining certain elements of compensation as well as economic return performance.

We define ROIC as tax-effected operating income before restructuring and other charges divided by average invested capital over a rolling two-quarter period for the first fiscal quarter. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

We review our internal calculation of WACC annually. Our WACC is 8.9% for fiscal 2025 and 8.2% for fiscal 2024. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. For the three months ended December 28, 2024, ROIC of 13.8% reflects an economic return of 4.9%, based on our weighted average cost of capital of 8.9%, and for the three months ended December 30, 2023, ROIC of 10.3% reflects an economic return of 2.1%, based on our weighted average cost of capital of 8.2%.

For a reconciliation of ROIC, economic return and adjusted operating income (tax-effected) to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.

Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal period (dollars in millions):