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Plexus Announces Fiscal Second Quarter Financial Results

  • Revenue of $767 million for the fiscal second quarter of 2020

  • GAAP diluted EPS of $0.43

  • Non-GAAP adjusted diluted EPS of $0.61, excluding $0.18 per share related to restructuring activities, net of tax, as a result of the previously announced closure of our Boulder Design Center

  • Initiates fiscal third quarter 2020 revenue guidance of $790 to $830 million with GAAP diluted EPS of $0.72 to $0.82, excluding unforeseen material impacts relating to COVID-19

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

Three Months Ended

Apr 4, 2020

Jul 4, 2020

Q2F20 Results (3)

Q3F20 Guidance

Summary GAAP Items

Revenue (in millions)

$767

$790 to $830

Operating margin

2.2%

3.8% to 4.2%

Diluted EPS (1)

$0.43

$0.72 to $0.82

Summary Non-GAAP Items (2)

Adjusted operating margin

3.0%

Adjusted diluted EPS (1)

$0.61

Return on invested capital (ROIC)

11.4%

Economic return

2.6%

(1) Includes stock-based compensation expense of $0.19 for Q2F20 results and $0.21 for Q3F20 guidance.

(2) Excludes $0.18 per share related to restructuring activities, net of tax, as a result of the previously announced closure of our Boulder Design Center. Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

(3) On March 2 and March 23, 2020, Plexus announced updates to its fiscal second quarter revenue outlook. The Company stated that it expected its fiscal second quarter revenue to fall below its previously issued guidance range as a result of COVID-19 impacts.

Fiscal Second Quarter 2020 Information

  • Won 36 manufacturing programs during the quarter representing $248 million in annualized revenue when fully ramped into production

  • Trailing four quarter wins total $844 million in annualized revenue when fully ramped into production

  • Purchased $13.2 million of our shares at an average price of $58.57 per share under our existing share repurchase program, which program we suspended indefinitely in March due to the COVID-19 pandemic

Todd Kelsey, President and CEO, commented, “We achieved fiscal second quarter revenue of $767 million and adjusted diluted EPS of $0.61, excluding $0.18 due to the previously announced closure of our Boulder Design Center. While our results were impacted by the COVID-19 outbreak, our teams demonstrated their ability and resolve to mitigate the challenges and complexities of COVID-19. We remain committed to delivering for our customers and helping to create the products that build a better world. These include critical medical products being used by healthcare workers on the frontline of the battle against COVID‑19 and consist of: infusion pumps, portable ultrasounds, hospital bed electronics, portable patient monitors, ventilators, mobile x-ray electronics and diagnostic test systems. In addition to supporting the fight against COVID-19, Plexus continues to produce products that support the essential infrastructure needs of our communities."

Patrick Jermain, Executive Vice President and CFO, commented, “Despite the precipitous onset of COVID‑19, we delivered a return on invested capital of 11.4% in the quarter. This generated an economic return of 260 basis points above our weighted average cost of capital, creating solid shareholder value. Further, we believe that Plexus is well-positioned with a strong balance sheet as we face the future challenges presented by COVID-19. As of April 4, 2020, cash totaled $227 million while debt totaled $294 million. In addition, we have significant funding availability through our revolving credit facility should future needs arise.”

Mr. Kelsey concluded, “We are dedicated to the health and safety of our team members. As such, we continue to invest in our policies and protocols to operate in the safest manner possible. As we look forward to our fiscal third quarter, we expect to deliver revenue in the range of $790 to $830 million and GAAP diluted EPS of $0.72 to $0.82. In providing this guidance, we have taken into consideration known constraints on the global supply chain, workforce challenges, as well as the potential operational inefficiencies that could occur due to COVID-19; however, our guidance assumes no large scale closures of our facilities, or those of our suppliers or customers, due to COVID-19, nor does it assume that the COVID-19 outbreak will materially impact end markets beyond what has already occurred. We commit to providing timely and transparent updates should negative material changes to our revenue and EPS expectations occur within the quarter.”

Quarterly Comparison

Three Months Ended

Apr 4, 2020

Jan 4, 2020

Mar 30, 2019

(in thousands, except EPS)

Q2F20

Q1F20

Q2F19

Revenue

$

767,364

$

852,409

$

789,051

Gross profit

61,445

79,190

70,636

Operating income

17,209

39,934

33,174

Net income

12,926

31,006

24,758

Diluted EPS

0.43

1.03

0.79

Adjusted net income (1)

18,299

30,192

24,758

Adjusted diluted EPS (1)

0.61

1.00

0.79

Gross margin

8.0

%

9.3

%

9.0

%

Operating margin

2.2

%

4.7

%

4.2

%

Adjusted operating margin (1)

3.0

%

4.7

%

4.2

%

ROIC (1)

11.4

%

14.7

%

13.3

%

Economic return (1)

2.6

%

5.9

%

4.3

%

(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. The Company 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 56% of revenue during the fiscal second quarter, up two percentage points from the fiscal first quarter of 2020.

Business Segments ($ in millions)

Three Months Ended

Apr 4, 2020

Jan 4, 2020

Mar 30, 2019

Q2F20

Q1F20

Q2F19

Americas

$

334

$

353

$

364

Asia-Pacific

388

451

378

Europe, Middle East, and Africa

74

85

76

Elimination of inter-segment sales

(29)

(37)

(29)

Total Revenue

$

767

$

852

$

789


Market Sectors ($ in millions)

Three Months Ended

Apr 4, 2020

Jan 4, 2020

Mar 30, 2019

Q2F20

Q1F20

Q2F19

Healthcare/Life Sciences

$

271

35

%

$

312

37

%

$

300

38

%

Industrial/Commercial

287

37

%

310

36

%

250

32

%

Aerospace/Defense

157

21

%

172

20

%

140

18

%

Communications

52

7

%

58

7

%

99

12

%

Total Revenue

$

767

$

852

$

789

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 second quarter was 11.4%. The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a three-quarter period for the fiscal second 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 second quarter less the Company’s weighted average cost of capital resulted in an economic return of 2.6%.

Free Cash Flow
The Company defines free cash flow as cash flows provided by operations less capital expenditures. For the three months ended April 4, 2020, cash flows used by operations was $29.3 million, less capital expenditures of $17.0 million, resulting in negative free cash flow of $46.3 million.

Cash Cycle Days

Three Months Ended

Apr 4, 2020
Q2F20

Jan 4, 2020
Q1F20

Mar 30, 2019
Q2F19

Days in Accounts Receivable

55

49

51

Days in Contract Assets

13

12

10

Days in Inventory

99

87

102

Days in Accounts Payable

(62

)

(61

)

(61

)

Days in Cash Deposits

(18

)

(16

)

(16

)

Annualized Cash Cycle *

87

71

86

* 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 Q2 Earnings Conference Call and Webcast

When:

Thursday, April 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 second quarter 2020 results will also be made available ahead of the conference call.

Conference call at +1.866.922.5180 with passcode: 2296280

Replay:

The webcast will be archived on the Plexus website and available via telephone replay at +1.855.859.2056 or +1.404.537.3406 with passcode: 2296280

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 the evolving effect, which may intensify, of COVID-19 on our employees, customers, suppliers, and logistics providers, including the impact of governmental actions being taken to curtail the spread of the virus. Other 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

Six Months Ended

Apr 4,

Mar 30

Apr 4,

Mar 30

2020

2019

2020

2019

Net sales

$

767,364

$

789,051

$

1,619,773

$

1,554,595

Cost of sales

705,919

718,415

1,479,138

1,411,576

Gross profit

61,445

70,636

140,635

143,019

Operating expenses

Selling and administrative expenses

38,233

37,462

77,489

72,894

Restructuring and impairment charges

6,003

6,003

Operating income

17,209

33,174

57,143

70,125

Other income (expense):

Interest expense

(3,814

)

(3,145

)

(7,946

)

(5,394

)

Interest income

533

440

1,178

965

Miscellaneous

154

(1,773

)

(2,019

)

(2,885

)

Income before income taxes

14,082

28,696

48,356

62,811

Income tax expense

1,156

3,938

4,424

15,827

Net income

$

12,926

$

24,758

$

43,932

$

46,984

Earnings per share:

Basic

$

0.44

$

0.81

$

1.50

$

1.52

Diluted

$

0.43

$

0.79

$

1.46

$

1.48

Weighted average shares outstanding:

Basic

29,291

30,603

29,216

31,003

Diluted

29,925

31,385

29,999

31,836


PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

Apr 4,

Sept 28,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

225,830

$

223,761

Restricted cash

1,458

2,493

Accounts receivable

462,812

488,284

Contract assets

111,277

90,841

Inventories

765,818

700,938

Prepaid expenses and other

27,537

31,974

Total current assets

1,594,732

1,538,291

381,668

384,224

Operating lease right-of-use asset

74,371

Deferred income taxes

14,071

13,654

Other

30,356

64,714

Total non-current assets

500,466

462,592

Total assets

$

2,095,198

$

2,000,883

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt and finance lease obligations

$

107,880

$

100,702

Accounts payable

483,441

444,944

Customer deposits

136,545

139,841

Accrued salaries and wages

53,199

73,555

Other accrued liabilities

119,792

106,461

Total current liabilities

900,857

865,503

Long-term debt and finance lease obligations, net of current portion

186,327

187,278

Accrued income taxes payable

53,899

59,572

Long-term operating lease liabilities

39,617

Deferred income taxes

6,363

5,305

Other liabilities

15,577

17,649

Total non-current liabilities

301,783

269,804

Total liabilities

1,202,640

1,135,307

Shareholders’ equity:

Common stock, $.01 par value, 200,000 shares authorized,

53,414 and 52,917 shares issued, respectively,

and 29,186 and 29,004 shares outstanding, respectively

534

529

Additional paid-in-capital

607,446

597,401

Common stock held in treasury, at cost, 24,228 and 23,913, respectively

(912,731

)

(893,247

)

Retained earnings

1,221,532

1,178,677

Accumulated other comprehensive loss

(24,223

)

(17,784

)

Total shareholders’ equity

892,558

865,576

Total liabilities and shareholders’ equity

$

2,095,198

$

2,000,883


PLEXUS CORP. AND SUBSIDIARIES

NON-GAAP SUPPLEMENTAL INFORMATION Table 1

(in thousands, except per share data)

(unaudited)

Three Months Ended

Six Months Ended

Apr 4,

Jan 4,

Mar 30,

Apr 4,

Mar 30,

2020

2020

2019

2020

2019

Operating income, as reported

17,209

$

39,934

$

33,174

57,143

$

70,125

Operating margin, as reported

2.2%

4.7%

4.2%

3.5%

4.5%

Non-GAAP adjustments:

Restructuring and impairment charges (1)

6,003

6,003

Adjusted operating income

$

23,212

$

39,934

$

33,174

$

63,146

$

70,125

Adjusted operating margin

3.0%

4.7%

4.2%

3.9%

4.5%

Net income, as reported

$

12,926

$

31,006

$

24,758

$

43,932

$

46,984

Non-GAAP adjustments:

Special tax impacts (2)

(814

)

(814

)

7,035

Restructuring and impairment charges, net of tax (1)

5,373

5,373

Adjusted net income

$

18,299

$

30,192

$

24,758

$

48,491

$

54,019

Diluted earnings per share, as reported

$

0.43

$

1.03

$

0.79

$

1.46

$

1.48

Non-GAAP per share adjustments:

Special tax impacts (2)

(0.03

)

(0.02

)

0.22

Restructuring costs, net of tax (1)

0.18

0.18

Adjusted diluted earnings per share

$

0.61

$

1.00

$

0.79

$

1.62

$

1.70

(1) During the three months ended April 4, 2020, restructuring costs of $6.0 million, or $5.4 million net of taxes, were incurred due to the previously announced closure of our Boulder Design Center.

(2) During the three months ended January 4, 2020, there was $1.9 million in tax benefits related to US foreign tax credit regulations issued during the quarter, partially offset by $1.1 million of tax expense as a result of special tax items. During the six months ended March 30, 2019, 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.


PLEXUS CORP. AND SUBSIDIARIES

NON-GAAP SUPPLEMENTAL INFORMATION Table 2

(in thousands)

(unaudited)

ROIC and Economic Return Calculations

Six Months Ended

Three Months Ended

Six Months Ended

Apr 4,

Jan 4,

Mar 30,

2020

2020

2019

Operating income, as reported

57,143

$

39,934

$

70,125

Restructuring costs

+

6,003

+

+

Adjusted operating income

$

63,146

$

39,934

$

70,125

x

2

x

4

x

2

Adjusted annualized operating income

$

126,292

$

159,736

$

140,250

Adjusted effective tax rate

x

13

%

x

13

%

x

15

%

Tax impact

16,418

20,766

21,038

Adjusted operating income (tax effected)

$

109,874

$

138,970

$

119,212

Average invested capital

÷

$

964,894

÷

$

942,793

÷

$

898,929

ROIC

11.4

%

14.7

%

13.3

%

Weighted average cost of capital

-

8.8

%

-

8.8

%

-

9.0

%

Economic return

2.6

%

5.9

%

4.3

%


Three Months Ended

Average Invested Capital

Apr 4,

Jan 4,

Sept 28,

Mar 30,

Dec 29,

Sept 29,

Calculations

2020

2020

2019

2019

2018

2018

Equity

$

892,558

$

908,372

$

865,576

$

875,444

$

905,163

$

921,143

Plus:

Debt and finance leases - current

107,880

67,847

100,702

93,197

8,633

5,532

Operating leases - current (1) (2)

8,546

9,185

Debt and finance leases - long-term

186,327

186,827

187,278

187,120

187,567

183,085

Operating leases - long-term (2)

39,617

36,473

Less:

Cash and cash equivalents

(225,830

)

(252,914

)

(223,761

)

(184,028

)

(188,799

)

(297,269

)

$

1,009,098

$

955,790

$

929,795

$

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.