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 March 29, 2025, net sales increased $13.3 million, or 1.4%, as compared to the three months ended March 30, 2024. For the six months ended March 29, 2025, net sales increased $6.8 million, or 0.3%, as compared to the six months ended March 30, 2024.

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 March 29, 2025 in the AMER segment decreased $1.0 million, or 0.3%, as compared to the three months ended March 30, 2024. The decrease in net sales was driven by a decrease of $7.5 million due to disengagements with customers and overall net decreased customer end-market demand. The decrease was partially offset by an increase of $10.1 million due to production ramps of new products for existing customers.

During the six months ended March 29, 2025, net sales in the AMER segment decreased $36.8 million, or 6.1%, as compared to the six months ended March 30, 2024. The decrease in net sales was driven by overall net decreased customer end-market demand and a decrease of $12.4 million due to disengagements with customers. The decrease was partially offset by an increase of $44.3 million due to production ramps of new products for existing customers.

APAC. Net sales for the three months ended March 29, 2025 in the APAC segment increased $65.3 million, or 12.5%, as compared to the three months ended March 30, 2024. The increase in net sales was driven by overall net increased customer end-market demand and an increase of $21.7 million due to production ramps of new products for existing customers.

During the six months ended March 29, 2025, net sales in the APAC segment increased $119.7 million, or 11.1%, as compared to the six months ended March 30, 2024. The increase in net sales was driven by overall net increased customer end-market demand and an increase of $35.1 million due to production ramps of new products for existing customers.

EMEA. Net sales for the three months ended March 29, 2025 in the EMEA segment decreased $49.7 million, or 32.6%, as compared to the three months ended March 30, 2024. The decrease in net sales was driven by overall net decreased customer end-market demand.

During the six months ended March 29, 2025, net sales in the EMEA segment decreased $69.7 million, or 25.5%, as compared to the six months ended March 30, 2024. 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 March 29, 2025 in the Aerospace/Defense sector increased $2.2 million, or 1.3%, as compared to the three months ended March 30, 2024. The increase was driven by an increase of $5.5 million due to production ramps of new products for existing customers. The increase was partially offset by overall net decreased customer end-market demand.

During the six months ended March 29, 2025, net sales in the Aerospace/Defense sector decreased $5.2 million, or 1.5%, as compared to the six months ended March 30, 2024. The decrease in net sales was driven by a decrease of $5.9 million due to a disengagement with a customer and overall net decreased customer end-market demand. The decrease was partially offset by an increase of $11.2 million due to production ramps of new products for existing customers.

Healthcare/Life Sciences. Net sales for the three months ended March 29, 2025 in the Healthcare/Life Sciences sector increased $32.3 million, or 8.5%, as compared to the three months ended March 30, 2024. The increase in net sales was driven by an increase of $26.3 million in production ramps of new products for existing customers and overall net increased customer end-market demand.

During the six months ended March 29, 2025, net sales in the Healthcare/Life Sciences sector increased $25.5 million, or 3.4%, as compared to the six months ended March 30, 2024. The increase in net sales was driven by an increase of $51.1 million in production ramps of new products for existing customers. The increase was partially offset by overall net decreased customer end-market demand.

Industrial. Net sales for the three months ended March 29, 2025 in the Industrial sector decreased $21.2 million, or 5.1%, as compared to the three months ended March 30, 2024. The decrease in net sales was driven by overall net decreased customer end-market demand and a decrease of $8.0 million due to disengagements with customers.

During the six months ended March 29, 2025, net sales in the Industrial sector decreased $13.5 million, or 1.6%, as compared to the six months ended March 30, 2024. The decrease in net sales was driven by a decrease of $10.8 million due to disengagements with customers and overall net decreased customer end-market demand. The decrease was partially offset by an increase of $6.8 million in production ramps of new products for existing customers.

Cost of sales. Cost of sales for the three months ended March 29, 2025 increased $3.6 million, or 0.4%, as compared to the three months ended March 30, 2024, while cost of sales for the six months ended March 29, 2025 decreased $15.5 million, or 0.9% as compared to the six months ended March 30, 2024. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For both the three and six months ended March 29, 2025 and March 30, 2024, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 87% of these costs were related to material and component costs.

As compared to the three months ended March 30, 2024, the increase in cost of sales in the three months ended March 29, 2025 was primarily driven by an increase in net sales, partially offset by a positive shift in customer mix and a decrease in fixed costs resulting from progress on operational efficiency initiatives. As compared to the six months ended March 30, 2024, the decrease in cost of sales for the six months ended March 29, 2025 was primarily driven by a positive shift in customer mix and a decrease in fixed costs resulting from progress on operational efficiency initiatives, partially offset by an increase in net sales.

Gross profit. Gross profit for the three months ended March 29, 2025 increased $9.7 million, or 11.0%, as compared to the three months ended March 30, 2024. Gross margin of 10.0% for the three months ended March 29, 2025 increased 90 basis points compared to the three months ended March 30, 2024. The primary drivers of the increase in gross profit and gross margin as compared to the three months ended March 30, 2024 were an increase in net sales, a positive shift in customer mix and a decrease in fixed costs resulting from progress on operational efficiency initiatives.

Gross profit for the six months ended March 29, 2025 increased $22.2 million, or 12.6%, as compared to the six months ended March 30, 2024. Gross margin of 10.1% for the six months ended March 29, 2025 increased 110 basis points compared to the six months ended March 30, 2024. The primary drivers of the increase in gross profit and gross margin as compared to the six months ended March 30, 2024 were a positive shift in customer mix, a decrease in fixed costs resulting from progress on operational efficiency initiatives and an increase in net sales.

Operating income. Operating income for the three months ended March 29, 2025 increased $19.3 million, or 65.4%, as compared to the three months ended March 30, 2024. Operating margin of 5.0% for the three months ended March 29, 2025 increased 200 basis points compared to the three months ended March 30, 2024. The primary drivers of the increase in operating income and operating margin for the three months ended March 29, 2025 were the result of a decrease of $11.0 million in restructuring and other charges as well as the increase in gross profit and gross margin. The restructuring and other charges for the three months ended March 30, 2024 consisted of severance from the reduction of the Company's workforce as well as closure costs associated with a site in the Company's EMEA region, offset by insurance proceeds received associated with an arbitration decision regarding a contractual matter that occurred in the Company's EMEA region in fiscal 2023.

Operating income for the six months ended March 29, 2025 increased $21.1 million, or 28.3%, as compared to the six months ended March 30, 2024. Operating margin of 4.9% for the six months ended March 29, 2025 increased 110 basis points compared to the six months ended March 30, 2024. The primary drivers of the increase in operating income and operating margin for the six months ended March 29, 2025 were the increase in gross profit and gross margin as well as a decrease of $6.4 million in restructuring and other charges. The restructuring and other charges for the six months ended March 29, 2025 primarily consisted of severance costs associated with a reduction of the Company's workforce in the EMEA and AMER regions. The restructuring and other charges for the six months ended March 30, 2024 consisted of activity in the EMEA region as previously discussed. The increase in operating income was partially offset by an increase of $7.6 million in selling & administrative expenses ("S&A"). The increase in S&A was primarily due to an increase in compensation costs.

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

AMER. Operating income increased $7.7 million for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, primarily as a result of a decrease in fixed costs resulting from progress on operational efficiency initiatives and a positive shift in customer mix.

During the six months ended March 29, 2025, operating income in the AMER segment increased $7.9 million as compared to the six months ended March 30, 2024, primarily as a result of a decrease in fixed costs resulting from progress on operational efficiency initiatives and a positive shift in customer mix, partially offset by a decrease in net sales.

APAC. Operating income increased $9.3 million for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, primarily as a result of an increase in net sales, partially offset by an increase in fixed costs.

During the six months ended March 29, 2025, operating income in the APAC segment increased $20.0 million as compared to the six months ended March 30, 2024, primarily as a result of an increase in net sales and a positive shift in customer mix, partially offset by an increase in S&A and an increase in fixed costs.

EMEA. Operating income decreased $5.9 million for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, primarily as a result of a decrease in net sales, partially offset by a decrease in fixed costs and a positive shift in customer mix.

During the six months ended March 29, 2025, operating income in the EMEA segment decreased $4.6 million as compared to the six months ended March 30, 2024, primarily as a result of a decrease in net sales, partially offset by a positive shift in customer mix and a decrease in fixed costs.

Other expense. Other expense for the three months ended March 29, 2025 decreased $6.7 million as compared to the three months ended March 30, 2024. The decrease in other expense for the three months ended March 29, 2025 was primarily driven by a decrease in interest expense of $5.2 million due to lower borrowings on our credit facility, a decrease of $0.9 million in factoring fees and a decrease in foreign exchange losses of $0.6 million.

Other expense for the six months ended March 29, 2025 decreased $13.7 million as compared to the six months ended March 30, 2024. The decrease in other expense for the six months ended March 29, 2025 was primarily driven by a decrease in interest expense of $9.2 million due to lower borrowings on our credit facility, a decrease of $2.1 million in factoring fees and an increase in foreign exchange gains of $2.0 million.

Income taxes. Income tax expense for the three and six months ended March 29, 2025 was $6.0 million and $12.2 million, respectively, compared to $2.7 million and $8.4 million for the three and six months ended March 30, 2024. 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 13.0% to 15.0% assuming no changes to tax laws.

Net income. Net income for the three months ended March 29, 2025 increased $22.9 million, or 141.4%, for the three months ended March 30, 2024 to $39.1 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.

Net income for the six months ended March 29, 2025 increased $30.8 million, or 67.7%, from the six months ended March 30, 2024 to $76.3 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 $1.41 for the three months ended March 29, 2025 from $0.58 for the three months ended March 30, 2024, primarily as a result of increased net income due to the factors discussed above.

Diluted earnings per share increased to $2.75 for the six months ended March 29, 2025 from $1.62 for the six months ended March 30, 2024 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 three-quarter period for the second 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 six months ended March 29, 2025, ROIC of 13.7% reflects an economic return of 4.8%, based on our WACC of 8.9%, and for the six months ended March 30, 2024, ROIC of 9.9% reflects an economic return of 1.7%, based on our WACC 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):