Plexus Corp (PLXS) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Plexus Corp. conference call regarding its fiscal second-quarter 2011 earnings announcement. 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. I would like to turn the call over to Mr. Angelo Ninivaggi, Plexus Senior Vice President, General Counsel and Secretary. Angelo?

Thank you, Shannon. Good morning, everyone and thank you for joining us today. Before we begin I should establish that statements made during this conference call that are not historical in nature, such as statements in the future tense and statements including believe, expect, intend, plans, anticipates and similar terms and concepts are 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 major factors that could cause actual results to differ materially from those projected please refer to the Company's periodic SEC filings, particularly the risk factors, in our Form 10-K for the fiscal year ended October 2, 2010, and the Safe Harbor and fair disclosure statement at yesterday's press release.

The Company provides non-GAAP supplemental information. For example, our call today will reference return on invested capital. Non-GAAP financial measures, including return on invested capital, are used for internal management estimates because such measures provide additional insight into ongoing financial performance. For a full reconciliation of non-GAAP supplemental information, please refer to yesterday's press release and our periodic SEC filings. Joining me this morning are Dean Foate, President and Chief Executive Officer; Ginger Jones, Senior Vice President and Chief Financial Officer; Todd Kelsey, Executive Vice President of Global Customer Services; and Mike Buseman, Executive Vice President of Global Manufacturing Operations.

Let me now turn the call to Dean Foate. Dean?

Thank you, Angelo and good morning to everyone. Last night we reported results for fiscal second quarter of 2011. Revenues were $568 million with EPS of $0.59. Strengthening demand from customers, the ramping of new programs won in prior quarters and solid execution enabled us to deliver a strong fiscal second quarter, at the top end of our guidance range.

Turning now to some additional insights into our performance by market sector during our fiscal second quarter and our current expectations for fiscal Q3. Our Wireline/Networking sector was down about 2% sequentially in fiscal Q2, in line with our expectations when we established guidance for the quarter. Driven by forecast improvements later in Q2, we now anticipate that our wire line networking sector will be flat to up in our fiscal third quarter. We also expect Q3 will be the final meaningful production quarter for the Avocent business that is transitioning out of Plexus.

Our Wireless Infrastructure sector was down approximately 36% sequentially in fiscal Q2, a slightly sharper decline than our earlier expectations. The weakness was largely a consequence of the final ramp down of the Cisco Starent program offsetting a decent quarter with a few other customers. We currently anticipate that our fiscal Q3 will be sequentially down in the high single-digit percentage range, as the Cisco Starent program is fully exited and market demand from other customers in this sector exhibit mixed performance.

Our Medical sector revenues were up about 11% sequentially in fiscal Q2, stronger than our expectations when we established guidance last quarter, and seven of our ten -- of our top ten customers outperformed their earlier forecasts. This was a strong result considering that our largest customer in this sector had a sharp seasonal decline. Unfortunately, the strength we experienced in fiscal Q2 does not carry over into Q3, as customer forecasts currently indicate a high single-digit percentage decline revenues for our medical sector as a few customers worked on inventory positions.

Revenue in our Industrial/Commercial sector was up sequentially about 4% in Q2, in line with our expectations. We currently expect to see growth in the mid to high single-digit percentage range as we experience growth with a number of customers, including the continuing ramp of the Coca-Cola Company programs. Our Defense/Security/Aerospace sector was up sequentially about 22% in Q2, stronger than earlier expectations, as the aerospace component of the sector performed well. We currently expect the sequential growth to continue in Q3, with revenues up in the high single-digit percentage range.

Turning now to new business wins. During the fiscal second quarter we won 21 new programs in our Manufacturing Solutions group that we anticipate will generate approximately $134 million in annualized revenue when the programs are fully ramped in production. The majority of the new programs were in our Medical sector, representing $60 million of the total. Our funnel of manufacturing opportunities remains healthy at $1.7 billion. Our Engineering Solutions group enjoyed another very strong quarter of program wins totaling $18 million.

Turning now to our guidance. We are establishing fiscal third-quarter 2011 revenue guidance of $550 million to $580 million with EPS of $0.52 to $0.57, excluding any restructuring charges and including approximately $0.07 per share of stock-based compensation expense. You might recall that in our fiscal first quarter press release and subsequent conference call we provided commentary that our fiscal Q3 would likely be sequentially down from our fiscal Q2 as a consequence of broad based softening of customer forecast affecting the second half of our fiscal year. Our guidance range for fiscal Q3 now suggests that revenue will be sequentially flat when compared to Q2, an improvement over our earlier expectations.

As our first quarter -- excuse me -- as our fiscal second quarter unfolded, we experienced strengthening in some customer forecasts for the second half of the fiscal year. The improvement was not as broad based as the earlier quarter declines, with the greater dollar value of growth from customer forecast improvements occurring in our Wireline/Networking and Industrial/Commercial sectors. Our Medical sector further softened in the second half. Considering all the forecast puts and takes we anticipate sequential revenue growth resuming in our fiscal fourth quarter, with our full-year growth rate range now improving to 12% to 15%. If we are successful delivering this growth range I believe it would be an excellent result in a year we when ramping down the production of two significant programs, Starent and Avocent, as the acquirer of these companies relocate the programs to their preferred EMS partners, as we have previously disclosed.

While a strong top-line growth performance we are not satisfied with our operating performance, the ramping down of these two significant and mature production programs, while ramping up new programs to offset the lost revenue and further drive top-line growth is creating a near-term drag on our performance, as newer programs are inherently less profitable in early production quarters. Additionally, our overall high-capacity utilization and growth trajectory compels us to further invest in capacity to start long-term growth. These capacity investments also drag operating performance as we bring them online.

We are working to mitigate the impact of these near-term obstacles by focusing on improving variable cost productivity, controlling operating expenses and carefully managing the startup costs of our new facilities. While it will be challenging for us to fully recover our margin targets by year end, we remain committed to our financial model, in particular our two enduring financial goals; first 15% revenue growth rate and two, return on invested capital exceeding our weighted average cost of capital by at least 500 basis points. We believe that consistently achieving these goals drives ever-increasing economic profit and therefore strong shareholder returns.

I will turn the call now over to Ginger. Ginger?

Thank you, Dean. As Dean mentioned earlier, second-quarter revenue and earnings were at the top end of our guidance range. Gross profit was 9.8% for the fiscal second quarter. This was above our expectation and slightly above the fiscal first quarter. This reflected the mix of revenue during the quarter and good leverage from several of our manufacturing sites. Selling and administrative costs were $29.1 million, above our expectations and higher than our spending in the fiscal first quarter. The increase was the result of higher incentive compensation and higher headcount-related expenses. These increases were partially offset by stock compensation expense, which was lower than expected at $0.07 of EPS compared to the $0.08 of EPS expected when we set our guidance for the quarter. As a result, SG&A costs as a percentage of revenue increased this quarter to 5.1%.

Operating profit was in line with our expectations at 4.6% and our estimated tax rate for fiscal 2011 remains unchanged at 3%. Return on invested capital was 16.8% for the quarter, below our internal target, but well above our weighted average cost of capital of 13.5%. As Dean mentioned, our target is to deliver ROIC of 500-basis points above our weighted average cost of capital, or 18.5%. Working capital was reduced during the fiscal second quarter, with decreases in both dollar amounts and in the days of cash cycle. Cash cycle days decreased by 7 days from the prior fiscal quarter to 71 days. We had discussed a range of 76 to 78 days for the fiscal second quarter. This reduction is a result of hard work from many members of our team to reduce working capital.

I will now get into the details by balance sheet item. Days in receivables decreased by 7 days to 45 days. This reduction was primarily the result of negotiated accelerated payments from certain customers, as well as good overall collections during the quarter. Days in inventory were 89 days, down 4 days from our results in the prior fiscal quarter. The dollar value of inventory decreased by approximately $22 million, or about 4%. Although we are continuing to ramp new programs to offset lost revenue, our work with our suppliers and customers to better manage inventory has produced results. The reductions were largely in raw material, as we continue to maintain appropriate levels of work-in-process and finished goods to support our customer's needs for flexibility and agility.

Accounts payable days decreased by 4 days to 58 days, largely the result of the timing of inventory receipts during the quarter, which were concentrated in the early portion of the fiscal second quarter. Days of cash deposits were flat at 5 days, or $28.1 million. These are deposits received interest from customers to offset the risk inventory that we hold on their behalf. Free cash flow for the quarter was positive in the amount of $58 million, with year-to-date positive cash flow of $24 million. We generated $73 million of cash in operations during the quarter, split about evenly between earnings from operations and reductions in working capital. During the quarter we spent $15 million in capital expenditures for footprint expansion in our Asia Pacific region and equipment to support new programs.

As we disclosed during the quarter, on February 16, 2011, our Board of Directors approved new long-term debt of up to $200 million and a share repurchase plan of $200 million. During the fiscal second quarter we repurchased 2.7 million shares under this plan, totaling $83.4 million at average price and $30.57. Through April 20, purchases under the plan have been 3.1 million shares, totaling $97 million at an average price of $31.10. We plan to complete up to $175 million of the share repurchase by the end of the calendar year, subject to the market price of our stock. We utilized existing cash to fund these initial purchases, with a new borrowing of $175 million anticipated to close today. This is seven-year private placement debt that will be funded in two tranche with an effective interest rate of 4.97%. The first tranche of $100 million will be funded on April 21, 2011, today, with the final tranche of $75 million funded in mid-June 2011. We believe this level of debt appropriately leverages our balance sheet to improve weighted average cost of capital and create shareholder value.

I'll turn to some comments on the third quarter of fiscal 2011. Growth margin is expected to be lower than the results in the fiscal second quarter, in the range of 9.2% to 9.4%. This is lower than our targeted model of 10% and reflects the changes in revenue mix we've discussed. As we've discussed, several significant programs that are mature and therefore inherently more profitable are beginning to be replaced by new programs that are inherently less profitable as they ramp up. We are continuing to focus -- we are continuing our focus to offset this projected near-term gross margin pressure with aggressive management of costs, including SG&A, in an effort to protect operating profits. SG&A for the fiscal third quarter of 2011 is expected to be in the range of $28 million to $28.5 million. This is lower than spending in the second fiscal quarter.

Depreciation expense is expected to be approximately $11.5 million to $11.8 million in Q3, up from $11.4 million in the fiscal second quarter. We are estimating the effective tax rate for fiscal 2011 will be 3%. This is an increase from fiscal 2010, based on slightly-improved outlook for the US footprint. As demonstrated in recent quarters, the tax rate can vary during the year based on the mix of forecasted earnings between taxing jurisdictions. Our expectations for the balance sheet are for inventory and accounts payable to be relatively flat, a good result as we support the higher level of revenue expected in the second half of the year.

Accounts receivable are expected to increase in dollar terms, based on the expected timing of payments from customers. Based on the forecasted level of revenue we expect these increases will result in slightly higher cash cycle days. We currently expect cash cycle days, net of cash deposits, of 72 days to 74 days for the fiscal third quarter. Our capital spending forecast for fiscal 2011 remains at approximately $100 million. Our global (inaudible) capacity increased to 87%, which is not sustainable to support new programs and retain white space to show to potential new customers.

As a result, we continue to expand our footprint in close proximity to our existing locations. This includes the fourth manufacturing site in Penang, Malaysia that was announced in July 2010. It is well underway and expected to be operational late in fiscal 2011. Approximately $4 million of capital was spent on this facility in the fiscal second quarter, with the balance of the capital for the building and initial equipment to be spent in the second half of fiscal 2011.

In December we announced the construction of a second facility in Xiamen, China, this new facility will operate under the existing management team and will add approximately 180,000 square feet of manufacturing capacity. We began construction this month and will commence production in the second half of calendar 2012. Finally, we are closer to a decision on our new facility in Oradea, Romania. We expect to announce in the fiscal fourth quarter the construction of a larger facility to replace the lease buildings that served as our start-up solution in lower cost Europe. Our plan is for a manufacturing facility of between 160,000 to 215,000 square feet. Construction of the facility could begin late in fiscal 2011 or early fiscal 2012.

Our financial model and targeted ROIC is designed to generate enough cash to support 15% to 18% revenue growth. With our expected improvements in working capital in fiscal 2011, we expect that we can continue to fund these capital expenditures and generate free cash flow in fiscal 2011. As a reminder, we generated $113 million of free cash in fiscal 2009 and utilized $73 million in fiscal 2010. We believe these ebbs and flows of cash are a normal part of the MS business. We expect to fund our investments in fiscal 2011 with our existing cash, with proceeds from the new debt, and our committed $100 million line of credit with our existing bank group we have ample cash to support our growth.

With that I'll open the call for questions. We ask that you please limit yourselves to one question and one follow up. Operator, please leave the line open for follow-up questions.

(Operator Instructions). Our first question is from Brian Alexander with Raymond James. You may begin.

Brian?

Please check your mute button.

I'm here.

There we go.

Can you hear me?

Yes, Brian, go ahead.

Okay. All right, sorry about that. Just an update on the Coke rollout. Specifically it sounds like you're looking for some pretty good growth in the Industrial category sequentially and I'm just wondering relative to last quarter has that rollout progressed. Is it the same? And then also as you look into next fiscal year what are your thoughts on that versus a quarter ago?

Yes, Brian, just some quick commentary on that. The Coca-Cola rollout has -- the plan has improved, but it is evolving. So, we did up the numbers a little bit in Q3 and expect to see the numbers come up for that program in Q4. But I'm going to avoid giving you specific revenue numbers for the program at this point, because they're really right in the -- going through the process with the customer of validating the plan. So, whatever I would give you right now would be likely wrong, although I think it's safe to say that it's coming up from the earlier guidance that we provided.

Okay, great. Then a quick follow up. You mentioned earlier on the call the two enduring goals being intact, that's being ROIC and growth. You didn't comment specifically on the timeline for getting back to the margin objectives, 10% gross and 5% operating. So, just wondering has that been pushed out in any way or deemphasized in any way, and if not when do you expect to get there?

Hi, Brian, this is Ginger. I'd say we have not changed our focus on also delivering the gross margin of 10% and the operating margin of 5%. We'll be trending back towards that position in the fiscal fourth quarter, is our current view, and we are all working hard internally to deliver that as soon as we can. And we believe that those are really incorporated in the ROIC targets, because we can't deliver that target at ROIC without delivering the operating margin of 5%. So we'd say we're still committed to that, trending that direction toward the fourth quarter and working on returning to there in full.

Okay, great. Thank you.

Thank you. Our next question is from Jim Suva with Citi. You may begin.

Good morning. This is actually [Sam Elnean] on behalf of Jim Suva.

Good morning, Sam.

Morning. Looking at the strong wins in the Medical segment, how should we think about the programs from a margin of profitability perspective?

Well, I think it's -- as we consistently say there seems to be a general thought process that the medical programs overall are -- have stronger returns than programs in [other sectors]. And our position on that is that that's not necessarily true. In fact, we see more variability within programs within a sector than we do across the sector. So, you should think about them as on our margin targets overall, we structure our business around go-to-market teams that have to drive growth in each one of these sectors. And the expectations for those teams is to manage the overall portfolio of the business in the sectors to deliver the growth, but also to deliver the margin targets and then return our invested capital targets overall for the Company. So, I don't think you would want to model a change in our financial models solely based on growth in a particular sector.

All right. And just digging a little deeper into the Medical project, is there a difference in the pricing profile of these projects that they're manufacturing in your Asian facilities versus domestically? I know that there's a trend of outsourcing of traditionally domestically manufactured medical projects.

There isn't necessarily a difference in the corporate performance that we would see at Plexus. Now there's certainly a difference in pricing models with Asia. That's typical with any Asia-based business. That's in essence what we'd see in difference between Asia and North America manufacturing.

Yes, that was Todd's comment. I'd add further comment that what we're seeing is -- also is that our Medical manufacturing capability in the Asia/Pacific region more and more of that content from those customers is actually contact or product that's going to be consumed regionally in that market. And so it's a core strategy for a number of our larger OEM customers in the Medical sector. That they are developing -- taking IP that these allege worldwide, but taking that IP and incorporating it into product solutions that are more specifically designed for those markets.

All right, thank you, that's very helpful.

You're welcome.

Thank you. Our next question comes from Sherry Scribner with Deutsche Banc. You may begin.

Hi, this is actually Kevin LaBuz calling on behalf of Sherry. I was just hoping for a bit more granularity on the customer forecast changes. Last customer you noted -- or last quarter you said the customers brought them down, this quarter they brought them up. So, is there any granularity that you could give on just different segments or geographies where you're seeing strengths and where you're seeing weakness?

I'll try to help you. I just want to emphasize that when we saw the forecast reductions earlier, the reset for the full year, we saw that across all the market sectors and with a very broad swatch from our customers, so it was clearly a -- from my viewpoint there's some over enthusiasm that came with the forecast earlier. As we came out of the economic malaise, customers then realized that they're perhaps overshooting what they were going to be able to accomplish in calendar 2011, largely reset those numbers to some extent. Now, I would say overall the forecasts have been reasonably stable. What we did see is some kind of notching up of forecasts in a handful of our sectors. Wireline, in particular, we saw some nice strength.

The Industrial/Commercial sector came up with a number of customers and, of course, we had the Coca-Cola program also improved that sector some so that contributed some. DSA for us came up a little bit. Now, it wasn't large in terms of dollar terms because that's a smaller sector but on a percentage basis came up a fair amount. But as I commented, the Medical sector actually, while strong in the current -- in the quarter just completed, our Q2 quarter actually softened a little bit more for the remainder of the fiscal year. And we had, if I'm not mistaken, three or four customers there that were talking about backing off a little bit on forecast, because they had a little bit too much finished product in their inventory channels and they wanted to make a little bit of a course correction for that.

So, I think I think there's some broader trends in some of these sectors, clearly in the Communications sector, in particular, that are some driving growth on both sides and we've also had some nice program wins in some of those sectors that are helping us out, as well.

Excellent. Thank you, that's very helpful. And the second question would just be on your defense and aerospace side. I know it's a smaller segment and it seems like you talked some upside there. You said that Aerospace is strong. Just looking at the defense and military side of that, have you seen any concerns about uncertainty surrounding the budget, or what are you hearing from customers there?

Well, Todd, do you want to talk about this a little bit?

Sure, this is Todd. So, basically what we're seeing from a defense spending standpoint, there was clearly a lot of uncertainty around that sector as we came into this whole budget resolution situation that just was resolved in the last week or so. So, there was a severe concern that defense spending would be cut if there was no budget resolution. Now that that's come through that's in essence left defense spending about flat, so we're really not seeing a significant impact right now. And I'd say right now the projections going out are that we'd likely see small single-digit growth. That's across the defense industry so we're obviously looking to take a more significant share than that. But we don't expect to see a significant change as we roll forward as of right now, although this is all subject to the ongoing budget discussions at the federal level.

Excellent. Thank you very much.

You're welcome.

Thank you. Our next question comes from Ryan Jones with RBC Capital Markets. You may begin.

Good morning, thanks for taking my question. I just want to dig in just a little bit more on the defense and aerospace side. Have you quantified the split in DSA between military and the commercial previously?

No, we really haven't broken it down much. I think there'd be too much volatility quarter to quarter to provide any meaningful split, although I would say that the majority of the revenue for us in that sector is aerospace. And the majority of the aerospace piece of that is commercial aerospace with some component of military aerospace imbedded in that.

Okay. And then it looks like in terms of the fiscal 2012 budget that where the cuts are coming from are overseas contingency operation, so Iraq and Afghanistan and so forth. How much of your defense business do you think is exposed to procurement for those operations and how much would be exposed to-- trending more with the stable, ongoing projects that the military is always running, for instance?

This is Todd again. I would say that our impact to the overseas operations is pretty minimal. We have a couple of programs that are impacted but they're pretty small dollar.

And how far is your visibility at this point? Are you getting orders 30, 90 days in defense right now and has there been any change in your order lead times in the last quarter?

Yes, the defense orders tend to be much longer term than we would see in any other sector, so quite often they're annual purchase orders is what we would see.

Okay, and then I'll ask the obligatory Japan question. I know you haven't called out anything specific and really aren't exposed directly there. There has any of your customers experienced any kind of disruption at all due to the ongoing issues in Japan?

Well, I think we will let Mike take that, basically because I think we'd want to take this opportunity to just talk about the Japanese supply chain just for a moment, even though you point out we don't have any direct exposure, and I'll come back to the customer question.

Maybe I'll take a quick swing through, again, just for clarity and as a reminder. Plexus has no addresses in Japan, so we have no end-product manufacturing, no engineering facilities in Japan. With that said, there's clearly quite a few EMS supply chain partners that are in that region so we continue to monitor and react appropriately. To date we would characterize it that there's certainly some minor disruptions as far as material, but we've been able to resolve those. We don't really see anything we're significantly concerned about for our current quarter, our fiscal quarter three. We have gone out and expanded our horizon with our supply chain partners and we're really going to watch very closely for any longer-term implications probably out in fiscal quarter four. But today I guess to pull that all together, nothing significant that we see right now that we have not been able to resolve. We're in very active conversations with both of our suppliers and our customers because, yes, the situation will obviously continue to evolve.

All right, thanks. Congratulations on a good quarter.

Thank you.

So again with the -- this is Todd. And with respect to the customer situation and customer disruptions we're currently not seeing any disruptions to our customer base as of right now.

(Operator Instructions). Our next question comes from William Stein with Credit Suisse. You may begin.

Good morning, this is [Rahul Chadaha] on behalf of William. Could you provide an update on the ramp down of Starent and Avocent how much revenues were there in the quarter and what do you expect in the next couple of quarters?

Sure, I guess I'll let Todd take that and it'll be consistent with what I said in the script as well, Todd.

Sure. So basically the Starent business is wrapped up and it had no to extremely minimal impact to Q2, so it was in essence wrapped up in our fiscal Q1. The Avocent business still remains, I would say if anything, we're seeing an upside on the Avocent business in the near terms, Q2 and Q3, although we do expect our Q3 to be the last significant quarter of revenue. So that's basically where we sit with those two. And as we enter Q4 both those programs should be completely wrapped up, or very nearly so.

Okay, thanks for that. Are you seeing any opportunities with any other customers where you can lever the mechatronics assets, which are for double-ups with the Coke project? And just generally now that business is tracking below, what's being done to fill that capacity. Any update there?

Yes, I think it's important to understand that the physical capacity or the building that we put in place to support our large mechatronics customer, Coke, is also a capacity that we can utilize for other customers. So, there's nothing unique necessarily about the building itself that would preclude us from utilizing that capacity and we certainly we had plans, even as we acquired that building, to diversify the business in there. And we are working to do that.

Aside from that, the capability in mechatronics, of course, is not unique with Plexus to that program. One of the reasons we won the program is we have other pieces of business that we would consider to be that complex electromechanical assembly that goes on at other Plexus facilities and other places around the world. So we are leveraging all those programs, including the Coca-Cola program, to be very selective in terms of where we might target growth with that capability. And we'd expect to see the industry, I think, continue to move in that direction as there's at least some opportunity to penetrate customers that have like technologies.

Great, and just one housekeeping question. With the new debt, what kind of interest rates should we expect maybe over the next few quarters?

Well, the debt has an effective rate of just below 5% and we will fund all of that $175 million during this quarter; a portion April and a portion in June. So you model that with the 5% tax rate -- I'm sorry, with the 5% interest rate.

Okay, great. Thanks a lot. Good quarter.

Thank you.

Thank you.

Our next question comes from Joe Whitney with Longbow Research. You may begin.

Hi, good morning.

Good morning.

This is Joe calling in for Shawn Harrison. Congrats on the release. My first question -- I'm trying to catch up here in the transcript, on another call, but I was wondering if you addressed the timeline of getting margins back to the 10/5 model particularly because you have some facilities coming online. I think in the past when new facilities have come online you've seen some margin pressure from those. As we stand here now, is it an early fiscal 2012 phenomenon, is it a mid fiscal 2012 phenomenon, just how should we think so we don't get too far ahead of ourselves?

Yes, Joe, this is Ginger. We did talk about that we would not be fully back to the model in our fiscal fourth quarter but trending back that way. And we are right now working through our fiscal '12 plan. We do a rolling six-quarter forecast so we've got full visibility to the full six quarters. And I would say it's too early for us to commit to when we'll be back to the model. Although, I'd say we are very committed internally to that and we do not give up that number lightly and so we were focused on getting back there. I'd say it would be our objective in any year to be back to the 5% operating model and that's our internal goal right now. Now whether we're fully there immediately the in the fiscal quarter, it's too early for me to commit to, but that's certainly our objective for F'12.

Okay, fair enough. And then secondly, I was wondering if you spoke about if the debt will be used solely for the repo, or if you could pay down the revolver, as well, with some of the proceeds?

So, we have not -- we do not use our revolver on an ongoing basis. We have done a small of borrowing this month to offset the share repurchases we did, but we will fully repay that back when our debt is funded today. So, we will use the $175 million in full for the share repurchase. We'll likely use some of our own existing cash, as well, if we go to the full amount of the $200 million authorization on the share repurchase. We've not committed to do that, yet. What we believe we'll do is $175 million in debt and a matching $175 million of share repurchase, which we'll do by the end of the calendar year, dependent on the share price.

(technical difficulty) to remind us as far as the timeline you issued with this release, is that consistent with your prior timelines, or any of those pulled ahead or pushed out in any way?

Joe, we lost you on the first part of that question. Could you repeat it, please?

Yes, just related to the three international expansions that you have going on; China, Malaysia and Romania. Just a point of clarification, are any of the timelines that you put out, are they all consistent what we would have been saying 90 days ago, or have any of them been pulled forward? Thanks.

I'd say they're absolutely consistent with what we would have said 90 days ago and on track. I think the one open question for us is, how soon we'll start our Romania construction. A quarter ago we were talking about the same kind of idea, that we were -- we knew we needed some additional capacity there to replace our start-up solution and we are still working through what the timing of that is. It could be late this fiscal year, could be -- I don't know, Mike, if you want to add any other commentary about potential timing for that?

No, I think -- Ginger, I think you had it framed pretty well with what you said before. Probably late this fiscal year or early fiscal 2012.

Thanks, again, and congrats on the improved outlook.

Thank you, Joe.

Thank you. We have a follow-up question from Ryan Jones with RBC Capital Markets. You may begin.

Ryan, we're not hearing you, can you repeat that --

Sorry about that. Can you hear me now?

Yes.

Sorry about that. Just a quick housekeeping question. Can you offer guidance on the share count for Q3?

Well, I've shared with you the shares we've repurchased through today. And other than that I'm not really going to commit to how many shares we're going to repurchase, because that's going to be very dependent on how the market responds and what our share price is going to be. So, I think I'd leave it with we'd hope to do the full 175 by the end of the calendar year.

Okay, that's helpful.

Thank you. We have a follow up from Brian Alexander with Raymond James. You may begin.

All right. Yes, just a quick follow up. On the international expansion we're talking a lot about capacity and timing of that, can you talk about how much of your funnel or your new wins are coming from customers outside of North America? How much success are you having? Thanks.

So Brian, this is Todd. I think we saw -- well, we're certainly seeing a lot more success outside of North America, particularly with the European markets space. We invested heavily in a go-to-market team in the German market and, of course, we relocated Steve Frisch as regional President into that region. And one very significant win is for that region, that came out of our Defense/Security/Aerospace sector this past quarter. So, we saw a couple other ones of lesser significance but one very significant one, so we are seeing traction. As far as the APAC market is concerned, we're not doing a significant amount of targeting of APAC-based headquartered companies, but we were leveraging that channel, particularly with multinationals with the facilities in region. So, we're seeing good traction there with some of our multinational customers that have extensive presence in, say, China.

Great, and then on the funnel. Did you guys expect that to come back up to the $1.8 billion to $2 billion, or do you expect it to stay around these levels? I know you've talked about harvesting, so I'm just trying to get a sense for where you see that going forward.

Yes, we do see it coming back up and continuing to trend up. It actually trended up quarter to quarter, Q1 to Q2, so we'd expect to see that continue.

Great, thank you.

Thank you. I show no further questions at this time. I would like to turn the conference back over to Dean Foate.

All right. Well, I want to thank everyone for their questions today. As I understand it we had a little bit of a conflict with another EMS company that chose a similar time slot. So, if anyone has any follow-up questions and you want to get a-hold of us, please give Ginger a call and we'll try to address all your questions. With that, thanks, everyone, and we'll get back to work.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.