Plexus Corp (PLXS) 2022 Q2 法說會逐字稿

Good morning, and welcome to the Plexus Corp. Conference Call regarding its Fiscal Second Quarter 2022 Earnings Announcement. My name is Abigail, and I will be your 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. Shawn?

Thank you, Abigail. Good morning, and thank you, everyone, for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements, including without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation, future business outlook and the impact of COVID-19 on the company's business and the results of operations.

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 2, 2021, as supplemented by our Form 10-Q filings, and the safe harbor and fair disclosure statement in yesterday's press release. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page.

Joining me today are Todd Kelsey, Chief Executive Officer; Steve Frisch, President and Chief Strategy 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. Good morning, everyone. Please advance to Slide 3. We achieved fiscal second quarter revenue of $889 million, a result that exceeded our guidance range of $820 million to $860 million. Our industrial and Healthcare/Life Sciences sectors exceeded our expectations entering the quarter as our supply chain team was successful in resolving more constrained materials than anticipated. Our Aerospace and Defense sector met expectations of strong growth as we benefited from the early recovery of commercial aerospace demand.

We delivered GAAP operating margin of 4%, finishing at the high end of our guidance range. This result was achieved despite higher-than-anticipated labor inefficiency due to the impact of COVID-19 Omicron variant in Malaysia, increased variable incentive compensation costs due to the strong revenue result, and the impact from procuring certain components at above market prices. The combination of strong revenue and operating margin led to GAAP diluted earnings per share of $0.95, exceeding our guidance range of $0.76 to $0.92. The EPS result included $0.21 of stock-based compensation expense.

Our strong execution in markets that feature highly complex products and demanding regulatory environments directly led to another exceptional quarter of new business wins. Our manufacturing and aftermarket services wins totaled $313 million, which was nearly an all-time record and our best quarterly result in a decade. The wins result included a significant new program representing market share gain with an existing semi-cap customer and expansion of an aftermarket services engagement with a major healthcare company. This exceptional performance propelled our trailing 4-quarter wins to another record high of more than $1.1 billion.

In addition to the strong wins, our funnel of qualified manufacturing opportunities expanded to a record level of $3.4 billion. Lastly, new engineering engagements were robust for the second consecutive quarter, which combined with the momentum in manufacturing wins and qualified opportunities supports our 9% to 12% revenue CAGR goal. Our customers continue to value our differentiated offering in engineering and aftermarket services, supporting the circular economy and their sustainability needs. The end result is exceptional wins and an expanding funnel.

Please advance to Slide 4. As we look to the third quarter of fiscal 2022, customer demand remains strong across all market sectors. While the supply chain appears to have stabilized, it remains constrained and is limiting our ability to meet broad customer demand upside. Yet we are benefiting from the impact of a small number of significant and rapid new program ramps with pipeline supply. As a result, we are expecting further sequential revenue growth at the midpoint and are establishing a revenue guidance range of $885 million to $925 million. This guidance includes our estimate of supply chain impacts due to COVID-19 lockdowns in Shanghai, China.

With the increased revenue, we anticipate further positive leverage of our operating infrastructure that can currently support over $1 billion in quarterly demand and are anticipating GAAP operating margin in the range of 4.4% to 4.9%, including approximately 65 basis points of stock-based compensation expense. At these revenue and operating margin levels, we expect to deliver GAAP diluted earnings per share of $1.02 to $1.18, including $0.21 of stock-based compensation expense. Our guidance assumes supply chain constraints and COVID-19 to not materially impact end markets or our operations beyond current expectations.

In support of the strong growth potential represented by our funnel of opportunities, our latest site in Bangkok, Thailand, continues to progress according to plan. The first assembly line was recently installed. We complete qualification builds in the fiscal third quarter and production will commence in the fiscal fourth quarter. We have multiple existing programs planned to transition into the site from our Penang campus, as well as a substantial new piece of business that we'll launch directly into the site. We expect the site to be the first of multiple in Thailand as we further our campus strategy and create a platform to support future growth in our APAC region.

Next, a few thoughts regarding our longer-term outlook. I'm encouraged by the accelerating momentum demonstrated by our fiscal second quarter results. We now see the potential to deliver quarterly sequential revenue growth through fiscal 2022 and into fiscal 2023, while expanding GAAP operating margin and EPS.

Looking at our end markets, we continue to see strong demand over the next several quarters. Within Healthcare/Life Sciences, we have several major program ramps underway. With pipeline component supply, these programs should continue to favorably impact the remainder of fiscal 2022 and into 2023.

Our Industrial sector demand is very strong, led by semi-cap and communications. While supply is challenged, we continue to make progress as reflected in our fiscal second quarter results through a multi-quarter effort focused on attacking component availability issues, enhanced by leveraging customer partnerships to secure supply.

Finally, within Aerospace and Defense, we see a strengthening of demand in commercial aerospace, led by single aisle jets, business jets and aftermarket needs. These positive market factors when combined with robust new program wins in manufacturing, aftermarket services and engineering as well as a record funnel of qualified opportunities, supports our optimism and our ability to make progress toward our $5 billion revenue target. In addition, we remain committed to delivering upon our goals of 9% to 12% revenue CAGR with 5.5% GAAP operating margin and 15% return on invested capital over the long term.

I will now turn the call over to Steve for additional analysis of the performance of our market sectors and operations. Steve?

Thank you, Todd. Good morning. I will start on Slide 5 with a review of our performance by market sector for the fiscal second quarter as well as our expectations for the market sectors for the third quarter of fiscal 2022. Starting with our Industrial sector, fiscal second quarter revenue grew 14%. The exceptional result was significantly above our expectations of a mid-single-digit increase as our supply chain team cleared material shortages within the quarter. Looking at the remainder of fiscal 2022, demand remains robust across our Industrial sector. Although material constraints are still limiting our ability to capture our customers' full demand, w expect to secure supply at or above levels of the fiscal second quarter. As a result, we expect a flat to low single-digit increase in our Industrial sector for the fiscal third quarter.

Our Healthcare/Life Sciences sector had solid results for the fiscal second quarter. In addition to higher levels of manufacturing output from the clearing of material shortages, our engineering solutions team exceeded revenue projections in the quarter. Instead of a low single-digit decrease, the Healthcare/Life Sciences sector grew revenue 3%. Looking at the remainder of fiscal 2022 for our Healthcare/Life Sciences sector, we expect that new program ramps will continue to support sequential growth. For the fiscal third quarter, we anticipate these new programs will result in a mid-single-digit increase.

Our Aerospace and Defense sector delivered to their strong projections of a low double-digit increase by achieving growth of 11% in the fiscal second quarter. Leveraging the efforts of our team and that of our customer supply chain teams, we were able to acquire the materials needed to achieve our productions. Looking at the second half of fiscal 2022, we continue to see strong forecast for commercial, military and private aerospace products. However, material availability continues to be the gate for our production teams and is limiting our ability to capture the demand above our current levels. The result is that we expect a flat to low single-digit revenue increase in our Aerospace and Defense sector for the fiscal third quarter.

Please advance to Slide 6 for an overview of our wins performance for the fiscal second quarter. We won 38 new manufacturing programs that we expect to generate $313 million in annualized revenue when fully ramped into production. The exceptional wins result was a few million dollars short of an all-time record. However, our trailing 4-quarter wins of more than $1.1 billion was a new record. As a result, our wins [Windom], which is defined as a trailing 4-quarter of wins divided by the trailing 4 quarters of revenue climbed to 33%, which is well above our 25% goal and supports our target of a 9% to 12% revenue CAGR. Finally, one of the best measures of customer satisfaction as repeat business with 36 of 38 of the wins coming from existing customers, our teams are being rewarded with expanded market share across our customer base.

Next, we can review a few sector and regional highlights of the manufacturing wins for the fiscal second quarter on Slide 7. The Industrial sector had an exceptional quarter of manufacturing wins of $221 million. Almost 70% of industrial wins are targeted for the APAC region, including for our new facility in Bangkok, Thailand. In addition to the strong industrial wins, the $222 million of wins for the APAC region also benefited from robust wins from the Healthcare/Life Sciences and Aerospace and Defense sectors. Going forward, we are seeing the return of customer visits to Southeast Asia. With our enhanced footprint and the APAC regional team's ability to continue to deliver for our customers in spite of the many challenges these past 2 years, we are optimistic about the ability to accelerate growth in the region.

Please advance to Slide 8 for highlights of the fiscal second quarter wins. The Industrial wins includes a high-performance platform used in the production of semiconductor wafers. We expect this program to ramp into our new facility in Thailand in early fiscal 2023. The industrial team also added a cable access product that serves networks that use a distributed architecture. The product will be manufactured at our facility in Guadalajara, Mexico.

Our Healthcare/Life Sciences team won the manufacturing of a family of devices used in contrast dose management for advanced imaging applications. The products from this new logo will be manufacturing in our Penang, Malaysia campus. The team also completed a large aftermarket services agreement with an existing customer. The program will start in the Americas region, where we expect to establish service and repair capabilities in all 3 regions. Finally, the Healthcare/Life Sciences team won a significant ultrasound system from an existing customer. The award of this program represents a meaningful market share gain for the team.

Included in the aerospace defense wins is the expansion of a relationship with an aerospace customer. We won the production of an advanced cockpit life support system that we plan to manufacture in Penang, Malaysia.

We can proceed to Slide 9 for highlights of our funnel of qualified manufacturing opportunities. Market sector teams grew the funnel to a record $3.4 billion in the fiscal second quarter. The expansion was led by our Healthcare/Life Sciences team whose funnel alone is approaching $2 billion. One example of the team's success is the addition of a meaningful life sciences opportunity for the full manufacturing of an automated biochemistry analyzer for use in medical laboratories.

I'd like to finish with an overview of one of our ESG initiatives on Slide 10. This initiative is part of our executive incentive compensation program for the environmental power of ESG. It is focused on the reduction of our electricity consumption across the globe. At the start of fiscal 2022, we set a goal for each manufacturing location to reduce their electricity usage by at least 5% in fiscal 2022 as compared to fiscal 2020. One of the challenges of electricity reduction efforts can be establishing the true baseline of consumption.

In the first half of fiscal 2022, we completed a project to install sub-metering technology in all of our large manufacturing facilities. With this technology, each facility can monitor electricity consumption for specific functions like heating and cooling or for a subset of manufacturing equipment. Each site is implementing specific plans to achieve this goal within the fiscal year, and all locations are on track to meet or exceed the objective of at least a 5% reduction. The exciting part is that our efforts in fiscal 2022 are only the beginning. With this technology and the sharing of best practices across the enterprise, our efforts to reduce our electricity consumption and our impact on the environment will continue for many years to come.

I'll now turn the call to Pat for an in-depth review of our financial performance. Pat?

Thank you, Steve, and Good morning, everyone. Our fiscal second quarter results are summarized on Slide 11. Gross margin of 8.6% was at the high end of our guidance due to improved fixed cost leverage from the stronger revenue performance. Gross margin was consistent with the fiscal first quarter despite headwinds from seasonal compensation cost increases and the reset of payroll taxes for U.S. employees. Selling and administrative expense of $40.7 million was above guidance, primarily due to additional variable incentive compensation expense linked to the higher revenue for the quarter.

As a percentage of revenue, SG&A was 4.6%, which was consistent with expectations in the fiscal first quarter. The result was a GAAP operating margin of 4%, which was at the top end of our guidance, inclusive of approximately 70 basis points of stock-based compensation expense. Nonoperating expenses were slightly above expectations, primarily due to higher factoring expenses. GAAP diluted EPS of $0.95 was above our guidance due to the stronger revenue performance.

Turning to our cash flow and balance sheet on Slide 12. For the fiscal second quarter, we were extremely pleased with our free cash flow performance. We delivered $84 million in cash from operations and spent $31 million on capital expenditures, generating free cash flow of $53 million. This result was double our net income and exceeded expectations.

During the quarter, we were aggressive with our share repurchase program. We repurchased approximately 306,000 shares of our stock, or 1% of our shares outstanding for $25 million. At the end of the fiscal second quarter, we had approximately $12 million remaining under our current authorization. Later this fiscal year, we will review with our Board of Directors the opportunity for a new authorization.

Our quarter end balance sheet included cash of $309 million, sequentially higher by $90 million, due in part to the strong cash flow generation. Total balance sheet debt was $408 million, while net debt was approximately $100 million. We had $138 million available to borrow under our $350 million revolving credit facility. Cash cycle at the end of the fiscal second quarter was 98 days, favorable to our expectations and sequentially lower by 5 days. We benefited from increased revenue and the continued progress on working capital initiatives.

Please turn to Slide 13 for details on our cash cycle. Sequentially, inventory days increased by [9]. The steady increase in days over the past several quarters reflects the well-understood supply chain challenges, along with the need to support new program ramps, which are anticipated to drive higher revenue in the second half of the fiscal year. Substantially offsetting the increase in inventory days was an increase in customer deposit days. Customer deposits increased almost $100 million, while days improved by [8] as we partnered with customers to share in inventory investments. We have over 25% of our inventory covered with deposits. This compares to less than 15% 3 years ago. Days in receivables sequentially improved by 7 days, primarily due to the timing of payments and increased activity under our receivables factoring program.

As Todd has already provided the revenue and EPS guidance for the fiscal third quarter, I'll review some additional details, which are summarized on Slide 14. Fiscal third quarter gross margin is expected to be in the range of 8.9% to 9.3%. At the midpoint, gross margin would be approximately 50 basis points higher than the fiscal second quarter. Improved productivity across all of our regions and better leverage of fixed costs are contributing to the anticipated improvement. We expect some continued near-term pressure on gross margin as we maintain the infrastructure necessary to support anticipated demand not yet matched by available supply.

We expect selling and administrative expenses in the range of $40 million to $41 million, fairly consistent with the fiscal second quarter. Our expectation for the balance sheet is that working capital investments will increase compared to the fiscal second quarter. Based on our revenue forecast, we expect this level of working capital will result in cash cycle days of 100 days to 104 days. Sequentially, an increase of 4 days primarily due to additional inventory investments.

While we anticipate a use of cash to support working capital investments during the fiscal third quarter, we expect to generate offsetting positive free cash flow during the fiscal fourth quarter. Finally, capital spending for fiscal 2022 is expected to be in the range of $110 million to $130 million, which includes approximately $45 million for our new Thailand facility.

With that, Abigail, let's now open the call for questions.

(Operator Instructions) And our first question comes from the line of Jim Ricchiuti with Needham.

I wanted to focus a little bit on the industrial market. First, what are you seeing in the semi-cap market in terms of the visibility extending beyond what you were seeing, say 6 months or so ago in. I'm wondering if the supply chain challenges in that market perhaps are contributing to the moderating growth for the industrial vertical in the quarter? Or is this just a timing issue in the broader industrial category?

Yes, this is Steve. For us, customer demand remains strong. And I would say that, if anything, the duration of the strength continues to stretch out. So I think lots of people are talking about what does it look like in the back half of '22. For us and our customers, we see the strength continuing through '22 and into '23. I think it's being muted a bit, the ability to deliver by supply chain constraints. But those customers by far, probably the ones being most aggressive and continuing to drive inventory as the projections and the belief is that the strength is going to continue for quite some time here.

Got it. And I think you alluded to some new product ramps that potentially are ramping faster. And I'm wondering if you could provide some color on that. Is this a catch-up? Or are you seeing any kind of changes in customer behavior or actually just none of the above and just some one-off isolated cases.

Yes, these are -- Jim, and this is Todd. These are planned, yes, the new product ramps. And there's a small number of very substantial ones that are all kind of lining up together, and they've been planned for some time. So we're in a situation where the materials have been pipelined for a year plus on these programs. So we're in really good shape from a material standpoint. They're getting to the -- or they've gotten to the end of the design phase and are in the production ramp phase and their majors, so they're ramping and having a meaningful impact on revenue. And we kind of think of them as having about a combined impact of about anywhere from $25 million to $50 million per quarter of incremental revenue. So they're substantial when they -- as they line up.

Any color, Todd, on the type of products or programs we might be talking about?

Well, there's -- while they impact all 3 of our sectors, I would say it's dominated within the healthcare sector. So you'll see a meaningful jump in our healthcare revenue as we move through the next several quarters, and that will be directly reflective of these major program ramps.

Our next question comes from the line of Steven Fox with Fox Advisors.

Can you hear me?

Yes, Yes.

Two questions for me, if I could. First, on the inventory balances. I mean these are -- year-over-year these are big numbers even if I subtract out the deposit days, which as you pointed out have doubled. How much cash are you -- would you say you're tying up sort of abnormally for holding all these inventories? I understand its purpose led, but it is a substantial amount. And then how do you envision sort of getting these inventories being a year from now even like are you still going to be holding these types of levels? And then I had a follow-up.

Yes. This is Pat. I can help you out there. From a standpoint of tying up cash, when I look at, Steve, where we were last year with our revolver, which was no utilization of it, now we're around $200 million. A lot of that is related to inventory needs -- and fortunate for us, we've got a lot of available liquidity and cash to support our customers. So that's what we're doing in the near term. And as you referenced, our deposits are offsetting 25% of that gross inventory. From a standpoint of where I see the balance going, I do think we're at a high point. I don't see it coming down significantly over the next couple of quarters. I see it staying pretty similar to where I'm forecasting it to be for the fiscal third quarter. I think with the added revenue that we expect in the back half of the year and going into '23, we'll start to see the balances coming down and especially from an inventory days perspective, we'll see our days improving over the next 3 to 4 quarters.

And the one thing that I'd add on this, Steve, is that there's active initiatives in place to work with our customers around forecasting and planning in light of the current supply environment. So it's not like we're back here guessing or hoping that the inventory goes down. There's activity that's underway that is already well in place. So you see it takes a little bit of time for these to start to roll the inventory over and get to the right levels, and we view this as a bit of a high watermark for days. The current quarter that we're in, and you'll start to see those come down through these efforts.

Great. That's helpful. And then just thinking about the comment that you guys can grow consistently quarter after quarter into next fiscal year, there's a lot of subpar economic news out of, like the U.S. this morning and Germany, etc. Like where -- how much economic sensitivity do you see in some of these new programs, a lot of the earnings calls this week when it comes to sort of capex-intensive programs or business seem to be sort of business as usual despite everything that's going on in the world. I was wondering how you would sort of -- sort of gauge the risk reward on that statement?

Yes, the new programs are relatively insensitive, I believe, to changes in the economic environment right now. There are areas where there's significant pent-up demand for these new products. So the market is very strong at this point, and it's just a matter of effectively ramping at this point with these programs in particular. But certainly, there is a lot of economic news coming out, and we keep a close eye on as well, too, as we consider our thoughts and our comments.

Our next question comes from Matt Sheerin with Stifel.

Just another question on the supply environment. You've certainly had nice upside after 2 quarters of missing due to the supply constraints, and you did build inventory ahead of that. But are there any other reasons are you seeing supply loosen at all? It doesn't sound like that's happening based on what peers are saying. Is it execution? And how much have you still left on the table in terms of revenue -- missed revenue opportunity either in the March quarter or the June quarter?

Yes. So Matt, this is Steve. I'll take a crack at this one. So in terms of the supply itself, I would say we'd see it being more stable, but still very constrained. And so by that, it's been more predictable for us. We know where the shortage are, so we work them. I'd say one thing we've gotten better at is cooperation with our customers and the customer supply chain teams, especially like in aerospace. With regular weekly calls and splitting up kind of the shortage list, kind of dividing and conquering, we're much more efficient at driving the shortages. And so that's been working better.

In terms of what are we leaving on the table, we do believe in the neighborhood of $100 million of additional demand would sit out there for us if we could procure the materials for it. So, I mean that kind of goes back to kind of the economic discussion. I mean, even if -- even if things soften up a little bit on the demand end, we're still far from being able to deliver everything that's available to us. And so that's what gives us a little bit of optimism as we look through the back half of the year here yet.

Okay, and thanks for that. And then just a question regarding the inflationary pressures that you're seeing. And obviously we've seen component prices across the board go up, logistics costs, your margins are going up. So it sounds like that's a pass-through to your customers. But at some point, that's going to put pressure on their margins, right? And so the question is, is that a concern? Are you working with customers on that? And then how much of that ASP increase is reflected in your revenue growth, in other words, units versus the pass-through of components?

Yes, I can start with that, Matt. There is an impact that we've seen. I wouldn't say it's been that significant for our margins, but there is a certain amount that we're paying above previous component pricing that does not necessarily have margin linked to it. And that could be a few percentage, 2% to 3% of our revenue that does not have that margin at this point. And we are working with our customers. It is a pass-through for us, but we're working with our customers to manage that pricing.

Okay, and in terms of the -- how that's impacted your own sales in inventory because inventory is up on the higher pricing and not just on units, right? So can you help us quantify that?

Yes. I mean, it's probably, again, 3% to 4% of our inventory value would be inflated because of higher prices that we've seen recently.

Our next question comes from the line of Melissa Fairbanks with Raymond James.

Great quarter and guide. Last quarter or maybe it was only met with you in March, you had suggested that with some improved sourcing you could drive between USD 25 million and USD 50 million in incremental revenue each quarter this year. It looks like you've outperformed that pretty significantly in 2Q, but the 3Q outlet is maybe a little short of that. Is that just due to timing of the shipments, maybe a little bit pull forward into the March quarter? Or how should we be thinking of that going forward?

Yes. I think there's a couple of things. And one is it's just a more difficult comparison because the Q2 was so strong. I mean, if we delivered more towards the high end of the guidance even and the number we'd be talking about would be on the high end of this $25 million to $50 million. The other thing that's factored into our guide though, too, I mean, I think we could have and could maybe still hit those levels is around the Shanghai lockdowns that are there. So we have about on the order of $15 million to $20 million factored in of impact. And that's supply chain, because of course, we don't have a site that's impacted at all, but it's supply chain impact flowing through the APAC region due to the lockdowns in Shanghai right now.

Our next question comes from the line of Paul Chung with JPMorgan.

So just to expand on the record wins this quarter, you mentioned existing customers kind of driving most of the wins. Is this more structural move from in-house manufacturing? Or is this kind of incremental business or market share wins from competitors? And then if you could talk about how the firm navigated the surge in positive cases in Malaysia so well, and are potential customers kind of taking notice here. Are you having more discussions with new logos as a result? And I have a follow-up.

Sure. In terms of the wins, I think it's -- we're in pretty well balanced between new program ramps, market share gains and then customers basically looking at outsourcing their internal manufacturing. And so for me, we're benefiting from all 3 areas. I would say looking at the funnel with the secular markets that we're going after in terms of warehouse automation and surgical robots in those areas, the program sizes are increasing, and that's due to really kind of the size of what they're asking us to do. They're asking us to do the whole system. And so for us, we feel pretty good about the strategy that we have and the way the winds are flowing through. And I think you saw it this quarter with a couple of larger opportunities.

As I look to the future, I would -- I'd see that continuing in terms of that mix of opportunities. We still are interested in new logos. We put a pretty significant effort on it last year in '21 to go add some new customers and we were able to achieve that. This year, we're still interested in new logos, but maybe not as aggressively as what we did in previous years. So I think the teams are executing our strategies quite effectively.

And I'd address, Paul, the question about Malaysia and how we've handled the COVID surge in Malaysia. And that has had an impact in wins and in share gain. And I'd like to maybe just give a little more color around that. I mean, during -- at various points in the quarter with the Omicron surge, we had as much as 15% of our workforce out at any given time. And our team in Malaysia was able to manage through that and beat their quarterly commitments. So it was really just, I would say, tremendous performance. And it was -- there was an impact nearly the whole quarter along from absences due to COVID.

Great. Its a great job there. And then -- and Pat, just on operating margins, nice rebound here sequentially and into the kind of next quarter. With the Thailand facility ramping, do you expect some pressures on margins in the next couple of quarters? What's your expectation for when we can kind of rebound back to your long-term targets of [5.5%]. And then on free cash flow, you mentioned positive for second half, some offset in 4Q for 3Q usage. Are we still kind of breakeven for the year?

Yes. Okay, I can start with Thailand. Paul, I don't think the impact is going to be that significant for a few reasons. We're ramping business in there pretty quickly. So I think we'll get to corporate profitability over a few quarter period. We're also using the campus environment we've used in other areas where we're utilizing the Penang team quite a bit to start up that facility. So not really that significant of an impact on operating margins. And I think over the next 2 to 3 quarters as we're ramping there and generating revenue, we'll start to approach corporate averages.

From a cash flow perspective, I do think, I mentioned Q3 will be an investment. We'll offset that in Q4. For the full year, I think anywhere to breakeven to an investment. If you look at where we were for the first 6 months, we were at about a usage of cash of $60 million, $70 million. So I think we will see some investments still for the full year, but it may be a bit lower than the first 6 months number.

Yes, the one thing I'd add to your question there, Paul, you asked about the ramp back to 5.5% operating margin. And that's really revenue-dependent. So we've got this structure in place to service the demand that's north of $1 billion right now. And as we hit those levels, which is over the next couple of quarters, few quarters, that's as -- that's the ramp that we should see back into the 5s.

And we've factored in the Thailand start-up into that margin goal.

Okay, great. And lastly on kind of the capex forecast for next year, is kind of the bulk of the spend done and then we kind of revert back to maybe -- I don't know, 2021 levels? And maybe you get working cap, some harvest there after heavy investments this year and last year. So maybe we see free cash flow kind of normalize a bit here in '23. Is that the right way to think about it?

It is, Paul. Now whether we get back to F '21 levels of capex, that was a pretty low year for us. It's probably in between the '21 and '22 levels, but I do see improvement, quite a bit of improvement in our free cash flow for '23.

Our next question comes from the line of Jim Ricchiuti with Needham.

Yes, I wanted to go back to the comment you made earlier about the roughly $100 million of additional demand that -- that you've left out there as a result of some of the supply chain challenges. I wonder if you could remind me what did that number look like for the December quarter? And how do you see that changing looking out to the June quarter, just with some of the supply chain initiatives you have underway, including the -- obviously, the investment in inventories?

It was pretty similar in the December quarter, Jim, right around the $100 million. Right now, it still appears that over the next few quarters we're going to continue to roll large amounts of demand forward on a quarter-over-quarter basis.

Got it. And last question for me is, the slide that you showed manufacturing wins, you characterize the industrial wins is exceptional and it certainly looks like a large number. And I'm wondering if there's -- if you might be able to provide some color on that either in terms of applications. It sounds like there's a fair amount with existing customers. But do these have the potential to move the revenue needle as they begin to scale over the next year or so?

Yes, I think similar to the dialogue that Todd had about the ramps that are in Healthcare/Life Sciences, if you go back to fiscal '21 and you look at some of the healthcare wins, those ramps are really the benefits of those wins in '21. So as I look at these strong industrial wins in '22, it is our expectation that as we go into '23, these will ramp and add meaningful revenue to the corporation. And so that -- that I believe is a fair assessment and kind of the way that we look at it. In terms of the mix, there's a nice healthy wins across the sector. Obviously, semi-cap has been strong for us. We've talked about in the past. Historically, warehouse management has been good for us as well. So I think we're benefiting quite well from just good efforts across all of the subsectors within that industry -- industrial sector.

Got it. Congrats on the quarter, by the way.

Thanks, Jim.

(Operator Instructions) I'm showing no further questions at this time. I would now like to turn the conference back to Todd Kelsey.

All right. Thank you, Abigail, and I'd like to thank everybody who joined our call today. We certainly appreciate your support and your interest in Plexus. And have a very nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.