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Plexus Announces Fiscal First Quarter Financial Results

  • Record quarterly revenue of $852 million during the fiscal first quarter of 2020

  • GAAP diluted EPS of $1.03

  • Non-GAAP adjusted diluted EPS of $1.00, excluding a net benefit of $0.03 per share related to special tax items

  • Initiates fiscal second quarter 2020 revenue guidance of $790 to $830 million with GAAP diluted EPS of $0.80 to $0.90, excluding any non-recurring charges

NEENAH, Wis., Jan. 22, 2020 (GLOBE NEWSWIRE) -- Plexus (PLXS) today announced financial results for its fiscal first quarter ended January 4, 2020, and guidance for its fiscal second quarter ending April 4, 2020.

    Three Months Ended
    Jan 4, 2020   Jan 4, 2020   Apr 4, 2020
    Q1F20 Results   Q1F20 Guidance   Q2F20 Guidance
Summary GAAP Items          
Revenue (in millions) $ 852       $780 to $820   $790 to $830
Operating margin     4.7 %     4.5% to 4.9%   4.0% to 4.5%
Diluted EPS (1) $ 1.03       $0.87 to $0.97   $0.80 to $0.90
             
Summary Non-GAAP Items (2)          
Adjusted diluted EPS (1) $ 1.00            
Return on invested capital (ROIC)   14.7 %          
Economic return   5.9 %          
             
(1Includes stock-based compensation expense of $0.17 for Q1F20 results, $0.18 for Q1F20 guidance and $0.21 for Q2F20 guidance.  Q2F20 guidance excludes any non-recurring charges. 
(2Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

Fiscal First Quarter 2020 Information

  • Won 30 manufacturing programs during the quarter, representing $167 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total $843 million in annualized revenue when fully ramped into production
  • Purchased $6.3 million of our shares at an average price of $69.82 per share under our existing share repurchase program

Todd Kelsey, President and CEO, commented, “I am pleased with our strong performance in the fiscal first quarter, during which we delivered record quarterly revenue of $852 million and adjusted diluted EPS of $1.00, each result exceeding the high end of our expectations entering the quarter.  This revenue represents 11% growth over the comparable period in fiscal 2019 and 5% growth sequentially.  Our Healthcare/Life Sciences sector exceeded our expectations coming into the quarter as our team responded to increased demand from several of our customers.  The Industrial/Commercial sector was exceptionally strong as we capitalized on further strengthening in the semiconductor capital equipment sub-sector.  Our global teams continue to prioritize operational excellence, and through that focus delivered fiscal first quarter operating margin of 4.7%."

Patrick Jermain, Executive Vice President and CFO, commented, “During the fiscal first quarter, we generated $61 million in free cash flow, a result that was above our projections.  Compared to the prior year fiscal first quarter during which we had cash outflows of $58 million, this quarter’s strong result positions us well to generate over $100 million in free cash flow for fiscal 2020.  Fiscal first quarter cash cycle of 71 days was favorable to our expectations and sequentially lower by 9 days, as we benefited from continued progress on our working capital initiatives.  Over the past two quarters we have reduced our cash cycle by 18 days, largely due to our success with these initiatives.”

Mr. Kelsey continued, “As we look ahead to the fiscal second quarter, we expect revenue to moderate from the exceptionally strong fiscal first quarter.  As such, we are guiding revenue in the range of $790 to $830 million.  We anticipate revenue at this level will lead to GAAP diluted EPS in the range of $0.80 to $0.90, excluding any non-recurring charges, a projection that is impacted by seasonal payroll costs and the pause of two larger programs in our engineering organization. We are proactively responding to these program pauses by strategically repositioning our Boulder Design Center to co-locate with our existing manufacturing facility in Boise, ID, creating an Aerospace and Defense Center of Excellence.  This combination of engineering and manufacturing services will provide the synergies and cost advantages of a campus environment while delivering a compelling service offering for our customers in the Aerospace and Defense sector.”

Mr. Kelsey concluded, “Our outlook for fiscal 2020 remains generally unchanged from previous expectations as we anticipate sequentially increasing revenue during the second half of the fiscal year.  Coupling this with our largely stable end-markets, a talented work force focused on delighting our customers, and our comprehensive service offerings, we anticipate solid operating performance with a return to operating margin within our target range of 4.7% to 5.0%.  This would lead to robust EPS expansion for the fiscal year.”

   
Quarterly Comparison Three Months Ended
  Jan 4, 2020   Sept 28, 2019   Dec 29, 2018
(in thousands, except EPS) Q1F20   Q4F19   Q1F19
Revenue $ 852,409     $ 810,195     $ 765,544  
Gross profit 79,190     77,789     72,383  
Operating income 39,934     37,527     36,951  
Net income 31,006     36,831     22,226  
Diluted EPS 1.03     1.23     0.69  
Adjusted net income (1) 30,192     27,788     29,261  
Adjusted diluted EPS (1) 1.00     0.93     0.91  
           
Gross margin 9.3 %   9.6 %   9.5 %
Operating margin 4.7 %   4.6 %   4.8 %
Adjusted operating margin (1) 4.7 %   4.8 %   4.8 %
           
ROIC (1) 14.7 %   13.1 %   14.6 %
Economic return (1) 5.9 %   4.1 %   5.6 %
           
(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed and/or disclosed in this release, such as adjusted operating margin, adjusted net income, adjusted diluted EPS, ROIC and economic return, and a reconciliation of these measures to GAAP.
 

Business Segment and Market Sector Revenue
The Company measures operational performance and allocates resources on a geographic segment basis.  Plexus also reports revenue based on the market sector breakout set forth in the table below, which reflects the Company’s market sector focused strategy.  Top 10 customers comprised 54% of revenue during the fiscal first quarter, up three percentage points from the fiscal fourth quarter of 2019.

   
Business Segments ($ in millions) Three Months Ended
  Jan 4, 2020   Sept 28, 2019   Dec 29, 2018
  Q1F20   Q4F19   Q1F19
Americas $ 353     $ 344     $ 354  
Asia-Pacific 451     416     378  
Europe, Middle East, and Africa 85     81     73  
Elimination of inter-segment sales (37 )   (31 )   (39 )
Total Revenue $ 852     $ 810     $ 766  


   
Market Sectors ($ in millions) Three Months Ended
  Jan 4, 2020   Sept 28, 2019   Dec 29, 2018
  Q1F20   Q4F19   Q1F19
Healthcare/Life Sciences $ 312   37 %   $ 311   38 %   $ 301   39 %
Industrial/Commercial 310   36 %   264   33 %   219   29 %
Aerospace/Defense 172   20 %   174   21 %   123   16 %
Communications 58   7 %   61   8 %   123   16 %
Total Revenue $ 852       $ 810       $ 766    
                 

Non-GAAP Supplemental Information
Plexus provides non-GAAP supplemental information, such as ROIC, economic return, and free cash flow, because such measures are used for internal management goals and decision making, and because they provide management and investors with additional insight into financial performance.  In addition, management uses these and other non-GAAP measures, such as adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS, to provide a better understanding of core performance for purposes of period-to-period comparisons.  Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of non-recurring items that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for the fiscal first quarter was 14.7%.  The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a two-quarter period for the fiscal first quarter.  Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2020 is 8.8%.  ROIC for the fiscal first quarter less the Company’s weighted average cost of capital resulted in an economic return of 5.9%.

Free Cash Flow
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended January 4, 2020, cash flows provided by operations was $74.7 million, less capital expenditures of $13.7 million, resulting in free cash flow of $61.0 million.

   
Cash Cycle Days Three Months Ended
  Jan 4, 2020
Q1F20
  Sept 28, 2019
Q4F19
  Dec 29, 2018
Q1F19
Days in Accounts Receivable 49     55     51  
Days in Contract Assets 12     10     10  
Days in Inventory 87     87     105  
Days in Accounts Payable (61 )   (55 )   (68 )
Days in Cash Deposits (16 )   (17 )   (15 )
Annualized Cash Cycle * 71     80     83  
                 
* We calculate cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits.

Conference Call and Webcast Information

What: Plexus Fiscal 2020 Q1 Earnings Conference Call and Webcast
When: Thursday, January 23, 2020 at 8:30 a.m. Eastern Time
Where:  Participants are encouraged to join the live webcast at the investor relations section of the Plexus website, https://plexus.gcs-web.com/events-and-presentations/upcoming-events, where a slide presentation reviewing fiscal first quarter 2020 results will also be made available ahead of the conference call.

 
Conference call at +1.800.708.4540 with passcode: 49281293

Replay: The webcast will be archived on the Plexus website and available via telephone replay at
+1.888.843.7419 or +1.630.652.3042 with passcode: 49281293

Investor and Media Contact
Heather Beresford
+1.920.751.3612
heather.beresford@plexus.com

About Plexus
Since 1979, Plexus has been partnering with companies to create the products that build a better world.  We are a team of over 19,000 individuals who are dedicated to providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory environments.  Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the product’s lifecycle.  For more information about Plexus, visit our website at www.plexus.com.

Safe Harbor and Fair Disclosure Statement
The statements contained in this press release that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs, trade disputes, trade agreements and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the risks of concentration of work for certain customers;  the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the effects of start-up costs of new programs and facilities or the costs associated with the closure or consolidation of facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix and demanding quality, regulatory, and other requirements; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; risks related to information technology systems and data security; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; the effects of U.S. Tax Reform and of related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions and tax matters in the United States and in the other countries in which we do business (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism and weather events); the impact of increased competition; an inability to successfully manage human capital; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings, particularly in Risk Factors in our fiscal 2019 Form 10-K.

 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
   
  Three Months Ended
  Jan 4,   Dec 29,
  2020   2018
Net sales $ 852,409     $ 765,544  
Cost of sales 773,219     693,161  
Gross profit 79,190     72,383  
Selling and administrative expenses 39,256     35,432  
Operating income 39,934     36,951  
Other income (expense):      
Interest expense (4,132 )   (2,249 )
Interest income 645     525  
Miscellaneous (2,173 )   (1,112 )
Income before income taxes 34,274     34,115  
Income tax expense 3,268     11,889  
Net income $ 31,006     $ 22,226  
Earnings per share:      
Basic $ 1.06     $ 0.71  
Diluted $ 1.03     $ 0.69  
Weighted average shares outstanding:      
Basic 29,147     31,403  
Diluted 30,065     32,286  


 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Jan 4,   Sept 28,
  2020   2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 252,914     $ 223,761  
Restricted cash 2,208     2,493  
Accounts receivable 461,705     488,284  
Contract assets 107,040     90,841  
Inventories 735,803     700,938  
Prepaid expenses and other 33,719     31,974  
Total current assets 1,593,389     1,538,291  
Property, plant and equipment, net 387,509     384,224  
Operating lease right-of-use asset 74,111      
Deferred income taxes 14,127     13,654  
Other 35,761     64,714  
Total non-current assets 511,508     462,592  
Total assets $ 2,104,897     $ 2,000,883  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and finance lease obligations $ 67,847     $ 100,702  
Accounts payable 515,484     444,944  
Customer deposits 137,014     139,841  
Accrued salaries and wages 52,527     73,555  
Other accrued liabilities 117,063     106,461  
Total current liabilities 889,935     865,503  
Long-term debt and finance lease obligations, net of current portion 186,827     187,278  
Accrued income taxes payable 59,572     59,572  
Long-term operating lease liabilities 36,473      
Deferred income taxes 6,463     5,305  
Other liabilities 17,255     17,649  
Total non-current liabilities 306,590     269,804  
Total liabilities 1,196,525     1,135,307  
Shareholders’ equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
53,226 and 52,917 shares issued, respectively,      
and 29,222 and 29,004 shares outstanding, respectively 532     529  
Additional paid-in-capital 609,168     597,401  
Common stock held in treasury, at cost, 24,004 and 23,913, respectively (899,577 )   (893,247 )
Retained earnings 1,208,606     1,178,677  
Accumulated other comprehensive loss (10,357 )   (17,784 )
Total shareholders’ equity 908,372     865,576  
Total liabilities and shareholders’ equity $ 2,104,897     $ 2,000,883  
       


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
             
    Three Months Ended
    Jan 4,   Sept 28,   Dec 29,
    2020   2019   2018
Operating income, as reported 39,934     $ 37,527     $ 36,951  
Operating margin, as reported 4.7 %   4.6 %   4.8 %
             
Non-GAAP adjustments:          
Restructuring costs (1)     1,678      
Adjusted operating income $ 39,934     $ 39,205     $ 36,951  
Adjusted operating margin 4.7 %   4.8 %   4.8 %
             
Net income, as reported $ 31,006     $ 36,831     $ 22,226  
             
Non-GAAP adjustments:          
Special tax impacts (2) (814 )       7,035  
Restructuring costs, net of tax (1)     1,502      
Accumulated foreign earnings assertion (3)     (10,545 )    
Adjusted net income $ 30,192     $ 27,788     $ 29,261  
             
Diluted earnings per share, as reported $ 1.03     $ 1.23     $ 0.69  
             
Non-GAAP per share adjustments:          
Special tax impacts (2) (0.03 )       0.22  
Restructuring costs, net of tax (1)     0.05      
Accumulated foreign earnings assertion (3)     (0.35 )    
Adjusted diluted earnings per share $ 1.00     $ 0.93     $ 0.91  
             
(1 During the three months ended September 28, 2019, restructuring costs of $1.7 million, $1.5 million net of taxes, were incurred.
 
(2During the three months ended January 4, 2020, there was $1.9M in tax benefits related to US foreign tax credit regulations issued during the quarter, partially offset by $1.1M of tax expense as a result of special tax items.

During the three months ended December 29, 2018, special tax expense of $7.0 million was recorded in accordance with new regulations issued in November 2018 under U.S. Tax Reform. These regulations impacted the treatment of foreign taxes paid.


(3During the three and twelve months ended September 28, 2019, the Company reasserted that certain historical undistributed earnings of two foreign subsidiaries will be permanently reinvested, which resulted in a $10.5 million benefit.


 
PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Three Months Ended   Twelve Months Ended   Three Months Ended
  Jan 4,   Sept 28,   Dec 29,
  2020   2019   2018
Operating income, as reported   $ 39,934         $ 142,055         $ 36,951    
Restructuring costs +       + 1,678       +    
Adjusted operating income   $ 39,934         $ 143,733         $ 36,951    
  x 4             x 4    
                 
                 
Adjusted annualized operating income   $ 159,736         $ 143,733         $ 147,804    
Adjusted effective tax rate x   13 %     x   16 %     x   15 %  
Tax impact   20,766         22,997         22,171    
Adjusted operating income (tax effected)   $ 138,970         $ 120,736         $ 125,633    
                 
Average invested capital ÷ $ 942,793       ÷ $ 923,107       ÷ $ 862,528    
                 
ROIC     14.7 %         13.1 %         14.6 %  
Weighted average cost of capital -   8.8 %     -   9.0 %     -   9.0 %  
Economic return     5.9 %         4.1 %         5.6 %  


  Three Months Ended
Average Invested Capital Jan 4,   Sept 28,   Jun 29,   Mar 30,   Dec 29,   Sept 29,
Calculations 2020     2019     2019     2019     2018     2018  
Equity $ 908,372     $ 865,576     $ 860,791     $ 875,444     $ 905,163     $ 921,143  
Plus:                      
Debt and finance leases - current 67,847     100,702     138,976     93,197     8,633     5,532  
Operating leases - current (1) (2) 9,185                      
Debt and finance leases - long-term 186,827     187,278     187,581     187,120     187,567     183,085  
Operating leases - long-term (2) 36,473                      
Less:                      
Cash and cash equivalents (252,914 )   (223,761 )   (198,395 )   (184,028 )   (188,799 )   (297,269 )
  $ 955,790     $ 929,795     $ 988,953     $ 971,733     $ 912,564     $ 812,491  

                                               

(1 ) Included in Other accrued liabilities on the Condensed Consolidated Balance Sheets.
(2 ) In the fiscal first quarter of 2020, the Company adopted and applied Topic 842 to all leases using the modified retrospective method of adoption. The prior year comparative information has not been restated and continued to be reported under the accounting standards in effect for fiscal 2019 and 2018.